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Things Looking Up for Intel?

Intel Friday revised its revenue expectations for the first quarter, narrowing the outlook to between $6.6 billion and $6.9 billion from the range of $6.4 billion to $7 billion it had previously expected. Intel said its microprocessor business continues to follow seasonal patterns while communications businesses remain weak.

Yet there are signs that things may be looking up for Intel Corp. and the rest of the semiconductor industry, according to a report by Gartner Inc. unit Dataquest Inc.

The firm suggested that demand for the industry's products is beginning to firm, which should allow the industry to get its overcapacity problem in check and create better visibility that will allow the industry to plot a course toward recovery in 2002.

Dataquest said worldwide semiconductor capital spending plunged 28.9 percent between 2000 and 2001, while equipment spending dropped 36.8 percent.

"The manufacturing challenges in the industry were readily apparent in 2001," said Klaus Rinnen, chief analyst and director of Gartner Dataquest's semiconductor manufacturing group. "As demand weakened and capacity utilization decreased, financial considerations became foremost in everyone's mind. Thus capital expenditures took a back seat to everyday production needs."

But Dataquest predicts an acceleration in capital equipment spending driven by a tightening of leading-edge capacity in the second half of 2002. Still, the firm called 2002 a transition point, not a recovery period in an of itself. Dataquest said the acceleration in capital equipment spending won't be enough to contain the decline in equipment spending. The firm forecasts the market will decline 19 percent in 2002.

Also, Dataquest expects capital spending will be cut by about 24 percent this year, though it sees a glimmer of hope that foundry providers might cut loose some spending before year-end.

"A macroeconomic recovery and returning electronic equipment demand should finally bring the demand-component of the down cycle under control," Rinnen said. "However, overcapacity remains excessive and still demands industry attention. With demand firming, the semiconductor industry will be afforded increasing visibility, finally being able to plot its course to another up cycle."

Meanwhile Intel may benefit from expansion into a new market. Both Unisys Corp. and IBM Corp. are expected to unveil new high-end servers using Intel's Xeon chip, which the chipmaker is expected to unveil at the CeBit trade show in Hanover, Germany next week.

The Xeon will be based on Intel's NetBurst architecture, and will feature 1MB on-chip Level 3 cache. They are expected to clock in at speeds of 1.4GHz, 1.5GHz and 1.6GHz.

The push by Unisys and IBM is expected to be the most serious attempt to date to push Wintel products into the high-end market dominated by mainframes and powerful servers running Unix. Intel has had little luck gaining traction in the space so far. However, the entry of IBM into the market (Unisys has been working in the space for some time), may be a sign that the space will get more attention.