Shares of Intel Corp. (INTC) sank Wednesday after the world's largest chip maker said its second-quarter profits jumped 16 percent and sales increased to $9.23 billion, but its profit margin came in lower than expected.

Shares of Intel fell $1.74, or 6.1 percent, to $26.97 on the Nasdaq Stock Market. (search) The stock had been trading near the high-end of its 52-week range between $19.64 and $28.84.

Intel, which reported its results after financial markets closed Tuesday, said total microprocessor shipments for the quarter set records, while chips designed specifically for mobile computers jumped 68 percent over last year. Flash memory chips used in cell phones and wireless chips also saw record shipments.

Intel also set revenue records in emerging markets, including China, and it posted double year-over-year growth in Latin America.

Intel also said it expects the growth to continue into the current quarter, with overall sales rising to between $9.6 billion and $10.2 billion, said Andy Bryant, Intel's chief financial officer.

Still, Intel's gross margin percentage — a measurement of the difference between sales and the cost of the products sold — came in slightly below forecasts because of higher startup costs and lower margins in products other than processors.

"This is a good second quarter — a period when business is typically slow," Bryant said. "The momentum of the first half appears to be continuing as we enter the third quarter. Demand is strong. The factories are full. We're ahead of our cost targets, and business is generating high levels of cash."

For the three months ended July 2, Intel earned $2.04 billion, or 33 cents per share, compared with $1.76 billion, or 27 cents per share, in the same period last year. Revenue rose 15 percent from the $8.05 billion reported in the second quarter of 2004.

Analysts were expecting the chip maker to earn 32 cents per share on sales of $9.22 billion, according to a survey by Thomson Financial.

In June, Intel raised its second-quarter sales forecast to between $9.1 billion and $9.3 billion from its previous guidance of $8.6 billion and $9.2 billion. At the time, it attributed the improvement to strong sales of microprocessors designed specifically for notebooks.

"Our investments in new products, advanced silicon capacity and emerging markets are paying off with growth that is outpacing the industry," said Paul Otellini, Intel's chief executive.

But Intel, whose microprocessors have a 90 percent share of their market in terms of revenue, is facing significant legal battles. Intel has denied any wrongdoing.

In a lawsuit filed last month, rival Advanced Micro Devices Inc. (AMD) claims Intel abused its monopoly power and bullied computer manufacturers into using its chips over those offered by AMD. The lawsuit, which is expected to take years to litigate, seeks billions of dollars and a halt to some of Intel's business practices.

Intel also is being investigated by European Unionantitrust regulators in a probe that's lasted more than four years but culminated earlier this month in a series of raids at the chip maker's offices in the United Kingdom, Germany, Italy and Spain.

Analysts don't expect the litigation to have an impact — at least for the time being.

For the first six months of the year, Intel earned $4.22 billion, or 68 cents per share, compared with $3.49 billion, or 53 cents per share in the same period in 2004. Sales have grown to $18.67 billion from $16.14 billion last year.