Intel is the latest victim of a slowing US economy announcing it will drastically reduce its workforce and slashed revenue expectations for its first fiscal quarter.
The chip behemoth will cut 5,000 jobs over the next nine months as part of an effort to offset lagging revenues, the company said in a statement.
Intel now expects revenue to be down 25 per cent from the immediate prior quarter, when revenue was US$8.7 billion.
Initially, Intel indicated that first-quarter revenues would be down 15 percent from the prior quarter.
Research and development expenditure will be cut by 15 percent from the prior quarter's total of $2.4 billion, the company said.
Intel cited slower than expected demand for microprocessors used in servers as the main reason for the revisions; however, the vendor said demand for networking, communications and PC processors also slowed.
The company's server chip business was particularly hard hit, with several telecommunications firms cancelling orders during the quarter, Andy Bryant, Intel's chief financial officer, said in a conference call with press and analysts.
"If desktop processors were our only problem we would be close to forecasts," he said. "What's driving our problem is that it is spreading into the server space as well."
The decision to cut R&D spending contrasts sharply with the message delivered just last month by Intel President and Chief Executive Officer Craig Barrett at the Intel Developer Forum in San Jose, California.
At that time, Barrett urged that the IT industry can't save its way out of a recession, and said Intel would boost its R&D budget to $4.3 billion over the next year.
"This is what I think every one of us has to do," Barrett told his industry peers at the time. "Never save your way our of a recession."
The Intel chief also said that Intel's broad portfolio of products would help it ride out the economic roller-coaster.
Intel is due to report its first-quarter financial results on April 17.
The company has met the same fate as some of the technology industry's other large players. Other companies to announce layoffs in recent weeks include Nortel Networks, Dell and Toshiba.