That seems to be the reaction to Intel's (NASDAQ:INTC) second-quarter earnings report; the shares are off about 5% in early trading. I can understand why. Though per-share earnings of $0.15 beat analyst expectations and its 52.1% gross margin easily exceeded internal projections, sales and net profit plunged 13% and 56%, respectively, from last year's Q2.

What's more, Intel's outlook for the third quarter offers little room for optimism. Sales are expected come in between $8.3 and $8.9 billion. The mid-point, $8.6 billion, is at least $400 million less than the Street had expected, according to Capital IQ. Call it the price of a price war.

But is this rush to judgment really fair? Not in my book. Don't get me wrong; I've been critical of Intel's business and marketing for what I consider to be very good reasons. Nevertheless, CEO Paul Otellini only recently took the helm and has a tall order in restructuring the company, a job that is only half complete, if you believe press reports. (CNET and The Wall Street Journal are reporting that Otellini is reorganizing top management to reduce his direct reports by four, and that Intel will cut at least another 2,500 jobs before the end of the year.)

If you really want to be a worrywart, worry about the balance sheet. The chipmaker increased its debt load by roughly $1.7 billion, while burning through nearly half -- or $6 billion -- of its cash pile in just 12 months. At the same time, inventory is up 58%.

None of that implies impending doom, of course. What it says is that Intel is investing heavily. For example, over the last 12 months Intel spent several billion in equipment tied to the opening of new fabrication plants in Oregon, Arizona, and Ireland, and began construction on two other new facilities. Add in roughly $10 billion in stock buybacks and ramp-up costs for its newest chipsets and it's hardly surprising to see Intel's bank account dwindle.

What investors need to know are the odds that Otellini's bets will pay off, because that will determine the sort of returns investors can expect for at least the next year -- and maybe far beyond that. There's room for hope. Intel's newest chips are based on a 65-nanometer process, which makes manufacturing more efficient and, therefore, reduces costs. Notably, rival Advanced Micro Devices (NYSE:AMD) is still working on a transition from an older 90-nanometer approach.

Intel is also making big investments in WiMax technology, and plans to accelerate its schedule for delivering new chips. For example, its latest Xeon processors for servers sporting four or more chips are shipping now, two quarters ahead of schedule, probably in response to Dell's (NASDAQ:DELL) embrace of AMD's highly successful Opteron chip for big servers.

But will a slimmer, faster Intel make more money, at a higher margin, over the long run? Or is the pain investors are now feeling destined to become arthritic? Otellini obviously believes it's the former, and he deserves every chance to be proven right, even if skeptics like me have already put their money elsewhere.

Allow us to chip in with related Foolishness:

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Dell is also a Motley Fool Stock Advisor recommendation.

Fool contributor Tim Beyers thinks war doesn't do anyone any good, especially when it's over a bunch of computer parts. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what stocks are in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.