The chipmaker, the world’s largest, posted a 57% drop in second-quarter profit and slightly missed analysts’ revenue targets. Wall Street was expecting as much and Intel shares fell a modest 1.5% to $18.21 in after-hours trading on the Nasdaq.

But its forecast missed the market. For the current quarter, Intel guided for between $8.3bn and $8.9bn in revenue, lower than the $9.03bn analysts had pegged.

We look forward to our business improving in the second half, said Intel CFO Andy Bryant, on a conference call. While business remains competitive we are focused on doing the right things. Of course, Intel has been losing market share to its much-smaller rival Advanced Micro Devices Inc in recent years.

Intel posted an $885m profit, or 15 cents a share, down from $2.04bn, or 33 cents, a year ago. Analysts had pegged about 13 cents, on average.

Revenue came in at $8bn, down from $9.23bn and below the $8.23bn average that analysts had expected. Revenue met Intel’s guided range, but in the low end. Sales were down in all geographic regions, with the exception of Japan. The company saw its biggest slump in Europe.

Microprocessor and PC motherboard sales fell in the second quarter. Bryant said the company was surprised by lower-than-expected microprocessor pricing. Chipset unit sales were flat, while flash memory sales edged up higher.

In addition to its ongoing trimming of operations, which so far has netted 1,400 lost jobs, Intel recently took the wraps of its newest server chips and will soon officially launch its latest desktop line. The wares are based on Intel’s newest microprocessor architecture, Core, which is small on power-consumption and big on processing muscle.

We haven’t had this kind of lineup in a long time and certainly never had a three brand strategy, Otellini said on the call, referring to its high-end Core, mid-range Pentium and low-end Celeron portfolio. We have shifted virtually all our direct advertising in the second half of this year to focus on dual Core Duo. That will include billboards and TV ads, noticeably from Labor Day, September 4, onwards when the peak-selling season begins.

While dual-core applications currently exist in the high-end gaming communities, Otellini admitted there remained a dearth of them in mainstream computing, which means all that extra performance that Core packs won’t be readily accessible. With the mainstream processor business, we’ve got a ways to go before the applications can take advantage of the horsepower. But it’s not too far away, he said.

The new and forthcoming Core-driven products have enabled Intel to slash the prices of its Pentium line of chips, which Intel plans to push in emerging markets, said chief executive Paul Otellini.

Santa Clara, California-based Intel is now bit over half way through its operational analysis process that may well result in further job losses, Otellini said. It’s not about a single announcement, but a series of actions, he said. On what we’ve done today, we get below 100,000 [employees]. We may take more actions that will get us to below that before the end of the year.

And while Otellini said Intel had largely resolved inventory issues with its customers, the company currently has an inventory build that far exceeds historical levels. Otellini confirmed there was increase in inventory of Pentium D.

He deflected analysts’ concerns about the excess inventory. I don’t think we’re running up inventory or creating a problem, he said. If I made one mistake in the past two years, it was that we didn’t build enough chipset inventory at the right time, in the second half of ’04, early ’05, and that got us into trouble in terms of marketshare and in terms of our customers and everything else.

But he said he was currently comfortable with what he said amounted to a one-quarter inventory build the company currently has.

Bryant also said he was not uncomfortable with the level of inventory, which stood at $4.3bn at the end of the second quarter. Would I like it to be less? Of course, he said, but noted that the current level doesn’t necessarily lead to big write offs.

I think we’re still digging ourselves out of the chipset hole, Bryant said later on the call. He noted that there likely wouldn’t be much resolution in the third quarter, but to expect improved chipset inventory levels in the fourth.