So much for optimism. Despite some upbeat comments in recent weeks from leading PC chipmakers Advanced Micro Devices Inc. and Intel, some industry watchers aren't convinced. Citing concerns over weak demand, price pressures, and high channel inventories, analysts at Merrill Lynch lowered sales estimates for AMD after the close of markets Tuesday while Lehman Bros. cut estimates for both companies Wednesday morning.

In a research bulletin, Merrill Lynch's Joe Osha predicts AMD will sell 1 million fewer chips in the second quarter compared with the first, down to 6.3 million units. As a result, Osha says, AMD will likely post per-share second-quarter earnings of only 22 cents, five cents below the consensus estimate of 27 cents. Last year, AMD reported second-quarter earnings of $1.21 on record revenue of $1.17 billion. Earlier this month, AMD president and chief operating officer Hector Ruiz said he expects the company to post modest revenue growth this year. AMD is expected to report second-quarter earnings on July 12.

Lehman Brothers analyst Dan Niles reduced his estimate for AMD's second-quarter earnings to 24 cents from 28 cents and his full-year 2001 earnings estimate for Intel from 55 cents to 51 cents due to "a brutal processing pricing environment." Niles says that, amidst a PC price war, average selling prices for chips have fallen 3% to 5% since the first quarter. AMD's slump also makes Osha leery about Intel's chances for a second-quarter uptick in unit shipments, he says, despite statements to that effect made by company executives two weeks ago during a midquarter update. "We have difficulty reconciling that with a down AMD quarter," Osha says. Intel is expected to post per-share earnings of 11 cents for the second quarter and 54 cents for the year, according to consensus estimates. Intel is scheduled to report second quarter results on July 17.