SAN FRANCISCO, April 19 — Intel, accustomed to riding high, is getting more practice in delivering bad news.
Intel, the world's largest chip maker, reported a 38 percent decline in quarterly profit Wednesday in the face of stiff competition from Advanced Micro Devices and a general slowdown in the personal computer market that caused inventories to swell.
The downturn included a decline in revenue for the first quarter and lower-than-expected revenue forecasts for the current quarter and full year.
But investors' expectations seem to have been so diminished that Intel's stock price, driven down more than 20 percent since the start of the year, actually rose after the announcement, to $19.77, up from $19.56 at the end of regular trading.
Apjit Walia, an analyst with RBC Capital Markets, called the quarter "a disaster," though certainly not a surprise. The slowdown in PC growth rates and the resulting inventory problems have analysts concerned that the road to recovery could be bumpier than Intel is predicting.
Paul S. Otellini, Intel president and chief executive, acknowledged in a conference call with analysts that PC growth had "moderated somewhat" from the double-digit rates of recent years.
Intel executives, however, insisted the company would work down its inventory by the end of the second quarter. "The first half of 2006 has been a time to reset our business," Mr. Otellini said.
He added that he expected Intel to return to "normal seasonal patterns" in the second half of the year.
In lowering its revenue forecast for the full year, Intel said it now expected revenue to decline 3 percent from last year's revenue of $38.8 billion, rather than increase 6 percent to 9 percent, as the company had said in January. It said revenue for the second quarter would be $8 billion to $8.6 billion, below Wall Street's forecast of $8.85 billion.
To help address the problem, Mr. Otellini said Intel was cutting its costs by more than $1 billion for the year, while maintaining its current product plans.
In the third quarter, Intel is expected to roll out a new chip design, the "core microarchitecture," which the company hopes will help it gain back market share. Intel has lost some ground as Advanced Micro ramped up its new dual-processor server line faster than Intel, giving it an early-lead advantage.
But perhaps just as significant for investors is that Intel's gross profit margin has shrunk to 55.1 percent, substantially below the 59 percent the company forecast in January. Intel executives said margins were hurt by lower microprocessor revenue and higher inventory write-downs.
Andy D. Bryant, Intel's chief financial officer, defended the company's performance against Advanced Micro during the quarter, asserting that Intel did not lose any additional market share after conceding last month that it had experienced a "slight" loss in the fourth quarter.
In the fourth quarter of 2005, Intel's share of the overall microprocessor market was 76.9 percent, compared with 82.2 percent a year earlier, while Advanced Micro rose to 21.4 percent, from 16.6 percent, according to Mercury Research.
Intel's net income declined 38 percent during the first quarter, which ended April 1, to $1.35 billion, or 23 cents a share, compared with $2.18 billion, or 35 cents a share, a year earlier. Without a change in accounting to reflect stock options, Intel said the first-quarter earnings would have been 27 cents a share.
First-quarter revenue fell 5.2 percent, to $8.94 billion, roughly the midpoint of the revised guidance the company issued in March. Analysts surveyed by Thomson First Call had forecast earnings of 23 cents a share on revenue of $8.91 billion.
In March, the company lowered its revenue forecast to a range of $8.7 billion to $9.1 billion, down from a previous estimate of $9.1 billion to $9.7 billion, citing a "slight" loss of market share and weaker sales of microprocessors.
Mr. Walia, the RBC analyst, said he wished that Intel would be more realistic in its assessment of how long its turnaround was going to take, adding that the worst might not yet be over. "For all the things Intel needs to work out, you've got to have a perfect scenario," he said. "They're being hit from all sides."