Updated from 5:57 p.m. EST

Weakening demand for desktop PCs and continuing manufacturing constraints stunted

Intel's

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fourth-quarter sales growth, the world's largest chipmaker reported after the bell Tuesday.

And the outlook for 2006 is equally bleak, with Intel projecting that its annual growth rate will dip into single-digit territory for the first time in three years. In fact, it was difficult for investors to find anything in the company's results in which to take solace.

The bundle of bad news sent shares of Intel plunging more than 9% to $23.11 in extended trading on Instinet.

Intel posted fourth-quarter revenue of $10.2 billion, missing its own guidance of a $10.4 billion and $10.6 billion revenue range delivered in its December midquarter update. As if to prevent any future such disappointments, Intel declared that it would no longer provide midquarter updates. The company earned 40 cents a share in the fourth quarter.

Analysts polled by Thomson First Call had been expecting $10.56 billion in revenue, with a 43 cents EPS.

In a conference call with analysts following the announcement, CEO Paul Otellini ascribed the shortfall to a combination of factors including chipset manufacturing constraints, softer-than-expected demand for desktop PCs and tougher competition from arch-rival

Advanced Micro Devices

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. According to Otellini, Intel lost a point in market share to AMD in the market for low-end desktop microprocessors during the quarter.

AMD will report its results Wednesday.

As Intel strives to retake this share, the company will aggressively boost spending in 2006, with capital expenditures slated to rise 19% year-over-year to $6.9 billion, and research and development expenses set to increase 27%, to roughly $6.5 billion. These expenditures mean the company's spending growth in 2006 will exceed its projected revenue growth, deviating from the company's goal of keeping the two in sync and denting profit margins.

"Although the year did not finish as strong as we expected, we look forward to a year of solid growth in 2006 thanks to a very strong product roadmap," said Otellini.

Intel recorded $38.8 billion in sales for its full 2005 year, up 13.5% from 2004. The company earned $8.7 billion in net income, or $1.40 EPS.

But the company outlook for 2006 was not very inspiring, with annual revenue projected to increase between 6% and 9%, after three consecutive years of double-digit growth. Intel CFO Andy Bryant said the pace was somewhat slower than in recent years due to the outlook for the worldwide economy in 2006.

The fact that Intel offered full-year guidance marked a change from its recent practice of offering guidance strictly for the current quarter. Otellini said the company had decided to revert to an earlier practice of providing full-year guidance, while doing away with midquarter updates, in order to foster meaningful discussion about the company's long term strategy instead of focusing attention on short-term results.

The company also projected that revenue in its first quarter of 2006 will be between $9.1 billion and $9.7 billion, below the average analyst expectation of $10.05 billion. Gross margin for the first quarter was pegged at 59%, plus or minus a couple of points.

The forecast stood in sharp contrast to what the Street expected to hear from Intel.

With a slew of recently unveiled products, and new customer

Apple Computer

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shipping Intel-based Macs earlier than expected, many analysts and investors expected the first quarter to be the point at which Intel would rediscover its stride.But according to Intel, a worse-than-expected inventory build-up among Intel customers is limiting new orders for the company's microprocessors. That inventory build means that sales in Intel's first quarter could be off by 8% -- the midpoint of its guidance - vs. Intel's historical first-quarter seasonal decline of 5%.

For its fourth quarter, Intel attributed flat sequential sales in the Asia Pacific region, and a 3.5% sequential decline in sales in the Americas region, to lower-than-expected demand for desktop processors among certain OEM customers.

Sales in Intel's desktop microprocessor group, which accounts for the company's largest source of revenue, were down 6.2% from the year-ago period. Notebook processor sales during the quarter, on the other hand, jumped 40% from a year ago.

Overall, the company shipped more microprocessors than ever in the quarter. But the average selling price of its microprocessors experienced a slight decline in the quarter, Intel said.