NEW YORK (MONEY) - Since January, the world's biggest chipmaker has been disappointing investors. As a result, Intel's share price is now close to three-year lows.

In response, the company has an aggressive comeback plan under way. Analysts are starting to think it will pay off in the second half of this year, and two brokerages upgraded the stock to a buy on Monday.

Earlier this year, Intel reported decent gains in fourth-quarter earnings, but results were below guidance. Among the negative signs: PC sales were weaker than expected. Intel also had trouble managing its inventory and ran short of certain components. In addition, the company lost market share to its rival AMD.

At the time, I concluded that "Intel may be dead money for the next six months, but the problems aren't fatal and the stock looks awfully cheap." (Full column.)

So far, Intel has remained dead in the water. For the first-quarter, net income and earnings per share were down more than 30 percent. And not only has Intel has lost five percentage points of market share to AMD over the past year, gross profit margins have also eroded.

Intel CEO Paul Otellini has responded with plans to slash costs by $1 billion in 2006 and clean out old inventory.

That follows recent plans announced in the fourth quarter to spend a hefty $6.5 billion on research & development and $6.9 billion on capital spending. The company has also authorized a $25 billion share-repurchase plan.

Welcome as such moves are, they would not be able to sustain a recovery without success in boosting revenue. Fortunately, Intel also has plans to grow the top line over the long term.

The company's latest chips, which feature paired microprocessors, are expected to start helping sales before the end of the year. Intel is also prepared to upgrade its chips again in both 2008 and 2010.

Finally, Otellini has announced plans to spend $1 billion promoting inexpensive PCs -- in the $300 to $400 range -- for less-developed counties. Last week, Intel announced an agreement with the Mexican government to make such low-cost PCs available to 300,000 teachers in Mexico.

Analysts expect that Intel's second-quarter results won't be very good, but some think Otellini's turnaround plan will start paying off soon enough.

And although consensus estimates may be optimistic, they call for a 27 percent gain in earnings in 2007 and 15 percent compound annual earnings growth over the next five years.

At today's $20.11 share price, Intel (Research) is trading at 16.8 times next year's projected results. Considering that the stock pays a 2.1 percent dividend, any return to above-average growth would make today's P/E multiple look like a bargain.

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