Analysts had expected the chip maker to report earnings within a few cents either way of the First Call estimate of 91 cent per share. "I've been mildly conservative on Intel lately and I think these numbers support that," said Michael Geran, an analyst at Donaldson Lufkin & Jenrette. "The Street just sort of assumed that this major product transition would go smoothly and that influenced the First Call number. Personally, I think they did as well as could be reasonably expected." Intel's third-quarter earnings rose 19 percent because of slower than expected flash memory sales and higher costs. The world's biggest computer chip maker also said it expects its fourth quarter revenue to rise only "slightly" compared with the third quarter, signaling that the company will continue to have a tough time increasing production of its new Pentium II microprocessor. Intel's stock was the NASDAQ's most heavily traded issue, closing down 75 cents per share to $91.81 on volume of 21.6 million. "This quarter isn't terribly important, from an investing standpoint, as the next one will be," said Don Collier, president of ProLytix Corp., a Santa Barbara, Calif. stock tracker. "If they can't increase their sales and profit margins in the fourth quarter, you're going to see that stock take a big dive." Intel's third-quarter sales of $6.2 billion is a 20-percent increase over the year-ago quarter, but only up 3 percent from the second quarter of this year. "Will gross margins continue to come down?" Geran said. "That's going to be the big question for Intel in the next three months." Analysts expect Intel to report a profit of about $1.06 per share in the fourth quarter. "Intel's in rarified air," Collier said. "They control their own destiny. Now, they have to find a way to increase their profits in spite of the fact that cheaper computers with older chips are making up the bulk of new sales. But I wouldn't bet against them either meeting or beating estimates next quarter." Intel officials said they expect gross margins over the long-term will be roughly 50 percent. Earnings per share in the third quarter increased 19 percent from the year-ago quarter, but were down 4 percent from the 92 cents per share reported in the second quarter of this year. "This quarter saw a lot of energy going into product conversions as the Pentium processor with MMX technology continued to ramp and we accelerated shipments of the Pentium II processor with its novel high performance bus architecture," said chief executive Andy Grove in a prepared release. "Our factories were especially responsive to the challenges presented by this rapid conversion, by meeting our volume needs with excellent yields of advanced microprocessors." Expenses in the fourth quarter are expected to be 10 to 15 percent higher than the $1.3 billion reported in the third quarter. Most of the spending will go toward seasonal advertising and marketing programs.