Intel’s profits have dropped by 39% as it comes under pressure from AMD. Also set to hurt them is the move by Dell to AMD processors a classic example is the new 1000 watt Media Centre from Alienware a Dell owned Company that is powered by fast AMD processors.

Intel is clearly suffering from softer demand as their net profit dropped 39 percent from the year-earlier period, while revenue was down five percent. Still the revenue figure was well above analysts’ expectations, giving some cheer to disgruntled investors.

Chief financial officer Andy Bryant forecast gross margin will narrow to about 50 percent this year, missing analysts’ estimates, and said he expects a “continued competitive environment” – read, more pricecutting battles with AMD.

Intel’s stock, which had closed at US$22.30, up 17 cents, dropped to $21.65 in after-hours trading, after the figures were released.

AMD has become much more competitive in the microprocessor market over the past year, forcing Intel to cut prices and step up the pace of new product introductions.

But Intel said the average selling price of its chips rose in the quarter on record unit volume.

Asked about the apparent disparity, Andy Bryant said Intel had regained market share for some new chips for laptops and servers, which tend to command higher prices than chips for desktop PCs.

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