Intel, who is currently spending up big promoting their highly popular Ultrabook technology, has revealed its revenue in the third quarter will plummet by more than $1 billion after a slump in demand for regular PCs.The world’s largest maker of computer chips now expects to post third-quarter revenue of US$13.2 billion. That would represent a 7 percent decline from Q3 last year when Intel’s revenue totaled $14.2 billion.

The company has been grappling with flagging interest in laptop computers, exacerbated by competition for consumer dollars from smartphones and tablets. Intel responded with a heavily funded campaign to promote sleeker “ultrabooks” that compete with Apple’s MacBook Air, but sales have so far been disappointing.

Intel said it is seeing hardware makers reduce chip inventories during a time when they would normally expand them, particularly with high-profile new software on the way.

Intel also cited slowing demand in emerging economies – a key source of sales growth in recent years – and softening sales of PCs to enterprises.

While a warning from Intel had been widely expected, given downbeat results last month from Dell and Hewlett-Packard, some analysts said they were surprised by the magnitude of the revenue shortfall.

“The outlook looks grim right through the new year,” said Roger Kay, market researcher with Endpoint Technologies.

While Intel has long been the bellwether for the PC sector, it has struggled to play a significant role in the faster-growing smartphone and tablet markets, where chip designs licensed by ARM Holdings of the UK have become the norm.

Intel in July had predicted Q3 revenues would be $14.3 billion, plus or minus $500 million. On Friday, it restated its target as $13.2 billion, plus or minus $300 million. The midpoint of the new range indicates a decline of about two percent over the second quarter, a period in which its revenues typically grow.