Intel (Santa Clara, Calif.) also reduced its 2006 capital spending and sales expectations, pinning hopes that a stronger second half would offset what is expected to be a weak second quarter.

For the first quarter, Intel earned $1.3 billion, or 23 cents per share, down 45 percent from $2.5 billion the fourth quarter of 2005, and down 38 percent from $2.2 billion the first quarter of 2005.

Revenue of $8.9 billion was down 5 percent from $9.4 billion for the first quarter of 2005, and down 12 percent from $10.2 billion in the fourth quarter of 2005.

First quarter results were in line with modified guidance that the company gave last month. At that time, Intel lowered its revenue guidance to $8.7 billion to $9.1 billion from $9.1 billion to $9.7 billion.

Consensus analyst expectations called for revenue of $8.91 billion and non-GAAP earnings per share of 23 cents. Slower-than-expected growth in the PC sector was cited as the reason for the low expectations.

Intel’s first-quarter gross margin was 55.1 percent, below the 59 percent the company projected in January, which the company contributed to lower microprocessor revenue and higher inventory write-downs.

During a conference call with analysts, Intel chief financial officer Andy Bryant said sales were particularly weak in Europe, declining 26 percent sequentially. Chief executive Paul Otellini added that both consumer and enterprise sales were soft in that region.

Intel said it expects second-quarter revenue of $8 billion to $8.6 billion, "below normal seasonal patterns,” as inventory issues linger. However, the company is banking on a stronger second half as it launches new microprocessors based on its Core microarchitecture.

For 2006, Intel is now projecting revenue to be down approximately 3 percent from 2005 revenue of $38.8 billion. Intel originally said it expected 2006 sales to rise 6 to 9 percent from 2005.

Intel also lowered its capital spending plans for 2006 to $6.6 billion, plus or minus $200 million. The company had originally said it would spend $6.9 billion, plus or minus $200 million.

R&D spending has been lowered to $6.1 billion from $6.5 billion.

During the call, some analysts, disappointed with Intel’s performance in recent quarters, were skeptical the company could even muster a second-half rebound to meet its diminished financial goals.

Bryant replied that Intel’s second-half outlook was realistic in light of its product and production roadmap. He said the company was continuing to make progress ramping up production using its 65-nm process, with 65-nm wafer starts now surpassing 90-nm starts.

Bryant, replying to one analyst’s question of whether any layoffs would be required for Intel to meet its financial goals, said at the present time none are planned.