PREVIEW-Intel's 1st qtr tough but market may be steadying

* What: Intel's Q1 results

* When: Tuesday, April 14

* Mkt recovery may be distant, investors eye margins, Atom

By Gabriel Madway

SAN FRANCISCO, April 9 (Reuters) - Top global chip maker
Intel (INTC.O) should report hefty slides in quarterly earnings
and sales next week after a brutal drop-off in demand, but signs
of a market stabilization may assuage some of 2009's pain.

Investors in the Santa Clara, California-based giant, which
reports first-quarter earnings on Tuesday, hope the recent
rollout of Xeon server chips and strong sales of the Atom
netbook microprocessor will prop up sales in coming quarters.

Intel, the far larger rival to Advanced Micro Devices
(AMD.N), is looking to generate some momentum following a
difficult December quarter that saw revenue sink 23 percent and
profit plunge 90 percent.

Although the global economic outlook continues to be bleak
and no one is predicting a near-term recovery in the chip
sector, Intel said in February that some predictability was
returning to demand -- a sentiment echoed by many analysts.

Still, Chief Executive Paul Otellini has declined to call a
bottom for the downturn and, given the sheer magnitude of the
slide, year-over-year sales growth is unlikely over the next
few quarters.

Technology research house Gartner expects overall global
semiconductor revenue to drop by 24 percent in 2009.

"People will primarily be focused on the pace of Intel's
recovery," Robert W. Baird analyst Tristan Gerra said, adding
demand has been tracking better over the past few months.

Investors watch Intel -- a technology bellwether and
component of the Dow Jones industrial average -- closely as an
indication of overall industry health. Its stock has surged more
than 30 percent since hitting a 52-week low of $12.05 at the end
of February.

MARGINALLY HEALTHY

Attention as always will turn to its gross margins, which
the company warned will drop into the low 40s as it reduces
inventory and sees lower utilization rates in its factories.
Wall Street expects margins of roughly 43.5 percent.

Intel called the first quarter the "trough" for margins and
said it expects them to rise to a "healthy range" by the second
half of the year.

"Margins will ultimately affect the stock price," said
Needham analyst Edwin Mok. Given Intel's forecast, he said the
first-quarter figure was less important than the commentary
around margins for the current quarter.

Overall, Wall Street is expecting a profit for the March
quarter of 2 cents a share on revenue of $6.98 billion. The
analyst forecast implies a sales decline of around 28 percent
from last year.

Intel did not provide a formal outlook for the quarter but
said it was planning for revenue of roughly $7 billion.

Despite the economic turmoil, Intel continues to dominate
the global microprocessor market. Intel commanded an 80.5
percent share in 2008 of the microprocessor market, as measured
in total revenue, compared with a share of 78.9 percent in 2007,
according to research house iSuppli.

The company increased its share in every quarter of 2008.

Intel's low-cost Atom processor has been a huge hit in
netbooks, the fast-growing lower-cost laptop segment. The
company expects to sell at least 50 percent more Atom chips in
2009.

However, concerns remain that the chip is eating into sales
of Intel's higher-priced products.

"One of the bigger risks for Intel is potentially
cannibalization from Atom," Mok said. "They've been aggressively
pushing netbooks and it's (Atom) been widely successful, but to
be really fair I think in 2008 there was some cannibalization of
notebooks."

The PC market is shifting rapidly, with desktop sales drying
up and the introduction of new, ever more portable products
shaking up the industry.

Intel just unveiled two new Atom-based processors for
so-called mobile Internet devices, or MIDs, a new class of
device which will likely be larger than smartphones but smaller
than netbooks.

Shares of Intel, which slid 1.2 percent on Wednesday, are
trading at just below 40 times forward earnings, cheaper than
Texas Instrument's (TXN.N) 51 times and Broadcom's (BRCM.O)
68, according to Reuters Estimates.
(Editing by Edwin Chan and Matthew Lewis)