Intel, the world's biggest microchip maker, stunned Wall Street after warning that sales had plunged by almost a quarter as global demand for laptops and mobile phones dried up.

The California-based group indicated that it had been taken unawares by the speed of the economic downturn in both the US and overseas as sales dropped even lower than revised forecasts made only in November.

The group, which makes 80 per cent of the world's microchips which are used to power computers, iPods and cell phones, admitted today that sales in the fourth quarter had fallen 23 per cent compared with the same three month period the year before.

Intel also warned that it had been hit on both sides - with falling demand reducing revenue and customers forcing the chip-maker to cut prices. The company admitted that gross margin had come in at the bottom end of expectations of around 55 per cent.

The statement from the company hit the group's share price, which dropped 6 per cent to around $14.43. The stock has already fallen from around $24 in August.

The performance of Intel is closely watched by Wall Street as a barometer of corporate America and the wider global economy. In the summer, companies such as Intel and Microsoft had sought to reassure the stock market, claiming that while the banking sector was in chaos and other industries such as construction and retail were suffering, their long term order books looked healthy. As major suppliers to the world's biggest companies, both Intel and Microsoft are scrutinised as indicators of broad economic health. However, in November, Intel suddenly wiped $1 billion off its third-quarter sales forecast to $9 billion and suggested that the US economy was deteriorating far more rapidly than many had forecast. Circuit City, America's second biggest electronics chain, filed for Chapter 11 bankruptcy protection and admitted that its management had been "upended" by the rate of decline.

Today, Intel was also forced to slice its valuations on key investments it holds. It said that it now expects to record a loss from equity investments of around $1.1 billion as it writes down the falling value of Clearwire. Intel had previously forecast a $50 million loss on its equity investments.

The group hinted that worse was to come with the 9.9 per cent drop in global chip sales in November expected to extend into 2009. Intel added that it was trying to cut costs to cope with falling demand and has chopped its research and development budget to $2.6 billion for the fourth quarter of the year, $200 million less than its own earlier estimates.

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