INTEL TAKES CHIP SHOT; MICROPROCESSOR DELAYS SEND STOCK STUMBLING.

Byline: Catalina Ortiz Associated Press 

Investors expressed disappointment Monday with a delay in Intel Corp.'s next-generation microprocessor, while analysts disagreed whether it was a serious setback for the world's largest maker of computer chips.

Intel's stock dropped almost 5 percent as Wall Street reacted to the company's announcement late Friday that the processor, known as Merced, would not be delivered until mid-2000. The chip, designed in collaboration with Hewlett-Packard Co. for high-end business computers, had been expected to be released in the second half of next year.

Some analysts said the delay was not surprising given the complexity of creating a chip using a different fundamental design than its predecessors. They also said the new chip had not been expected to give much of an immediate boost to Intel's revenues.

``This indicates the complexity of the (new) architecture,'' said Robert Chaplinski, an industry analyst with Hambrecht & Quist in San Francisco.

But Drew Peck, an analyst with Cowan & Co. in Boston, said Merced was Intel's best chance of stabilizing prices and profit margins in 1999 in the wake of falling computer prices and rising competition.

``It leaves the question whether 1999 can be a better year than 1998,'' he said.

Intel's stock fell Monday to close at 68 points on the Nasdaq Stock Market, down 3.437 or 4.8 percent.

The company, based in Santa Clara, makes about 80 percent of the microprocessors that serve as the brains of personal computers. Recently, however, it has been squeezed by the popularity of low-cost PCs and increasing competition in that market by companies like Advanced Micro Devices Inc. and National Semiconductor Corp.

Intel recently introduced a chip, dubbed Celeron, for entry-level personal computers. But it is setting great store on Merced, which would extend the company's reach in the lucrative corporate market. Those chips could be more profitable than the current Pentium family of processors.

The delay, however, also will affect other companies planning on using or adapting products to Merced, which can run Microsoft Corp.'s Windows NT operating system or versions of Unix. Those include Hewlett-Packard, Silicon Graphics Inc. and Sun Microsystems Corp.

Those companies, however, have said the impact won't be serious because they expected the transition to Merced to take a long time.

But Peck said the delay prompted him to downgrade his recommendation on Intel's stock from long-term buy to neutral.

``Merced was the keystone of Intel's . . . strategy by which they intend to offset declining prices in mainstream products with the ability to develop much more (profitable) products to the server and workstation market,'' he said. ``If you delay that by a year, it's just going to take that much longer.''