Shares in chip maker Advanced Micro Devices (AMD) fell by 27 per cent on Friday after the firm warned that its sales for the quarter to 1 July would be below analysts' expectations.
Analysts said AMD was "really not ready" for fierce competition from Intel.
"You wonder whether Intel is basically trying to deal AMD a death blow or just showing that it can fight back," said Pat Dorsey, director at analyst morningstar.com.
"The big surprise here is that Intel is waging an all-out price war, firing back at AMD to acquire market share a little more aggressively than people thought."
AMD said sales for the period would be £701m ($985m), 17 per cent lower than the £847m ($1.19bn) for the previous three months and considerably less than the £768m ($1.08bn) AMD had estimated for the three months to 1 July.
This is despite record unit sales for its Athlon and Duron processors and record total PC processor unit sales.
The firm said its second-quarter earnings would range from 3 to 5 cents a share when it reports on 12 July. Analysts had predicted 27 cents a share.
AMD blamed weak demand for flash-memory devices and a price war with Intel that depressed the firm's average selling prices.
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