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Intel is expected this week to report its worst quarter in years, with the world’s biggest chipmaker suffering from a slowdown in the personal computer market, an inventory build-up and loss of market share to its chief rival AMD.

Semiconductor analysts at Merrill Lynch have predicted the most disappointing set of results and forecasts since the technology bubble burst and have even questioned whether Paul Otellini is the right man to lead the company – less than a year after he became chief executive.

“We think that Intel is in need of an overhaul similar to what Lou Gerstner undertook at IBM following that company’s crisis,” said Joe Osha, Merrill Lynch analyst, in a research note this month. “We’re not yet convinced that Paul Otellini, a career Intel man, is the guy to do it.”

The note suggests there is “a disconcerting lack of urgency at Intel” and says it is unlikely to “ever return to the dominance it once enjoyed”.

Intel shares nearly all of the market for the “x86” processors at the heart of PCs with AMD, but still enjoys more than 80 per cent of industry sales. However, AMD has been gaining.

Its share grew from 11.9 per cent to 15.3 per cent between the third and fourth quarters of 2005, and last week it reported further gains in the first quarter. Bank of America analysts said it appeared to have gained up to a further percentage point.

AMD has benefited from the superior performance of its chips. Intel has suffered from double-ordering by customers who have then cut back as PC demand has slowed. This has left it with a substantial inventory.

Intel is expected to fight back with chips based on its first new architecture in five years. The increased performance and energy-saving features of the Woodcrest and Conroe chips will make it more competitive in desktop PCs and servers.

First-quarter earnings of 23 cents a share and revenues of $8.93bn are expected on Wednesday, according to a poll of analysts by Thomson First Call. Second-quarter forecasts should be downbeat and Apjit Walia, semiconductor analyst at RBC Capital markets, sees nothing to spark a rally in Intel shares, which hit a 52-week low of $19.10 last week.

“People are saying maybe the worst is over, but the PC market is slowing down and AMD has reached a threshold that’s unprecedented so I’m not that optimistic – I think [the shares are] dead money,” he says.

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