Intel Corporation (NASDAQ: INTC) has been the beneficiary of the great  NASDAQ 100 rebalancing act, but things have been a bit rough for holders of late.  Last Friday we noted how the Semiconductor HOLDRs (NYSE: SMH) were acting terminally weak, and a solid part of that was Intel.  We have wondered if (or even by how much) the company would talk down its second quarter sales  this earnings season.

We are not alone.  This morning came a note from Canaccord Genuity with a dampening of what to expect from Intel.  The firm sees Intel lowering targets ahead as second quarter PC production is tracking below forecasts.  The firm did note supply chain disruptions, but the demand for notebooks and a potential server share shift in the second half of the year could pressure the stock.

As a result of the concerns, Intel’s price target objective has been moved down to $19 from $22.  The prior 5% to 15% quarter over quarter build might be as low as flat to 5% now.  Overall PC growth is now being put at flat to 5% year over year versus what had been 12% to 15%.

Advanced Micro Devices (NYSE: AMD) is also a concern.  Canaccord Genuity noted that AMD may begin taking back some server market share with the launch of Hercules as its share is low at close to 6%.

The firm cut the first quarter estimates by $100 million to $11.6 billion and it cut the full 2011 from $53.775 billion to $51.3 billion in sales.  Earnings for Q1 were also cut a penny to $0.46 EPS, 2011 was cut to $1.92 EPS from $2.05 EPS, and $even 2012 was cut to 2.00 EPS from $2.20 EPS.

What is interesting is that the cuts apply all the way out to 2012.  This is not  the norm that we are seeing elsewhere.  Other firms are more concerned about this year, but few have killed the 2012 estimates.  Thomson Reuters consensus estimates for 2011 is $2.04 EPS and that has only come in a penny or so in the last month.  The consensus estimate of $2.20 EPS for 2012 is unchanged.  What Canaccord is doing is dragging the current problems out farther from the pack of analysts.

Our own thesis now is that Intel’s drag will be a one or two quarter issue, but what lies beyond that is a question mark.  How Intel does in processor sales for smartphones and smaller tablets is still to be determined.  We know not to count Intel out, and we also are not sure that the endless need for the PC-upgrade cycle can continue forever.  At some point, smartphones and tablets will be viewed as supplemental devices again (our take).

We also want to point out where Intel shares are.  The 1.1% gain here to $19.70 is due solely to the excitement of possible chip mergers and due to the NASDAQ 100 rebalancing. Intel shares were above $22.00 as recently as February and have been weak of late.  Shares hit $19.50 just yesterday.

It is becoming assumed that Intel is going to talk down guidance.  If it does not talk down expectations too much, then there will be too much bad news priced in and shares may get a “less bad news is good news” rally as a result.  We’ll get to find out on April 19, 2011 what Intel is seeing ahead with its scheduled earnings report, assuming it doesn’t give a quarter update between now and then.

JON C. OGG

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