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Intel, the world's largest computer-chip maker, said fourth-quarter profit fell 39 per cent after the company lowered prices to compete with Advanced Micro Devices.
Net income fell to US$1.5 billion ($2.17 billion), or US26c a share, from US$2.45 billion, or US40c a share, a year earlier, the Santa Clara, California, company said. Sales fell 5 per cent to US$9.7 billion.
Earnings dropped as Intel fended off Advanced Micro with price cuts and started manufacturing new chips to win back orders.
Chief financial officer Andy Bryant forecast gross margin would narrow to about 50 per cent this year, missing analysts' estimates, and said he expected a "continued competitive environment".
"It looks like they are regaining share at some expense to price," said Greg Barlage, who helps to manage US$35 billion at Baring Asset Management in Boston.
Shares of Intel fell US90c, or 4 per cent, to US$21.40 after the release. The stock had gained 10 per cent this year as some investors anticipated the company would beat estimates.
Advanced Micro, Intel's only rival in the market for personal-computer processors, said last week that its fourth-quarter profit and sales were hurt by lower prices.
Intel ended the quarter with 94,100 employees, down from its peak of 102,500 at the end of the second quarter.
Bryant said he expected consumers to be quicker than companies to start using Microsoft's new Vista operating system. He said Intel was not banking on Vista to boost PC sales.
- BLOOMBERG
