Blaming a slump in PC growth rates, Intel reported US$8.9 billion in revenue for the first quarter of 2006, down 5 percent from the same quarter last year.
Net income for the quarter was $1.3 billion, down 38 percent from Intel's profit in the first quarter of 2005.
Because of the drop in PC sales over the past few quarters, Intel's customers have been unable to sell their inventories of chips, Intel President and CEO Paul Otellini said in a release.
Many market watchers see another reason for the disappointing results. Although Intel enjoys an 86 percent share of the worldwide semiconductor market, it has recently been losing business to its chief rival, AMD.
In fact, AMD posted strong quarterly earnings of $185 million last week, citing hardy sales of its dual-core Opteron processor for servers and workstations and an increase in average selling price.
Intel, of Sunnyvale, California, had seen this problem coming. The company issued a warning in early March that it would miss its previous profit target, lowering its revenue prediction to $8.7 billion to $9.1 billion from the original range of $9.1 billion to $9.7 billion.
After the warning, analysts reduced their own estimates. Intel's earnings per share of $0.23 matched the consensus estimate of analysts polled by Thomson Financial, despite being down 34 percent from the first quarter of 2005.
The disappointing results were driven by more than a slump in PCs alone, according to Intel.
Sales of products throughout the industry were lower, including total microprocessor units, average selling price, chipsets, motherboards, flash memory units, and application processor units for cell phones and PDAs.
This trend held true worldwide, as Intel missed its revenue targets in every geographic sector except Japan. Sales of Intel products in Europe, the Americas and Asia-Pacific were down compared to the first quarter last year.
Intel also predicted this slump will continue. The company forecast revenue prediction for the second quarter of $8 billion to $8.6 billion. If it holds, that would come in below analysts' consensus estimate of $8.85 billion.
But Intel is positioned for better results in the second half of 2006, Otellini said. He pointed to promising shipments of Intel's 65-nanometer dual-core processors, the Centrino Duo mobile platform and the Viiv platform for the digital home. Also, the company plans to launch a long-awaited family of processors in 2006 to compete with AMD's Opteron; the Conroe, Woodcrest and Merom chips for desktop, server and mobile segments.