Intel Corp., the world's largest computer-chip-maker, said fourth-quarter profit fell 39 percent after the company lowered prices to compete with Advanced Micro Devices Inc.

Net income fell to $1.5 billion, or 26 cents a share, from $2.45 billion, or 40 cents a share, a year earlier, the Santa Clara, Calif., company said yesterday. Sales fell 5 percent to $9.7 billion.

Earnings dropped as Intel fended off Advanced Micro with price cuts and started manufacturing new chips to win back orders. Chief financial officer Andy Bryant predicted that gross margin would narrow to about 50 percent this year, missing analysts' estimates, and said he expected a "continued competitive environment."

"It looks like they are regaining share at some expense to price," said Greg Barlage, who helps manage $35 billion at Boston-based Baring Asset Management Inc., including Intel shares. "The biggest question is the gross-margin forecast for '07. Most people were looking for 51.5 percent."

Shares of Intel fell 90 cents, or 4 percent, to $21.40 after the data were released, from a close of $22.30 in Nasdaq Stock Market composite trading. The stock had gained 10 percent this year as some investors anticipated the company would beat estimates.

Advanced Micro, Intel's only rival in the market for personal-computer processors, said last week that its fourth-quarter earnings and sales were hurt by lower prices. The Sunnyvale, Calif., company cited preliminary figures.

Bryant said in an interview that, while results were helped by demand for the faster chips Intel introduced last year, the margin forecast for 2007 showed there would still be tough competition. In the fourth quarter, gross margin fell to 49.6 percent from 61.8 percent a year earlier.