Slowing demand for computers has hit chipmakers
Slowing spending on computers saw Intel profits fall by 90% from $2.3bn to $234m (£159.6m) in the last three months of 2008.
Sales at the world's fourth largest chip maker slumped 23% to $8.2bn in line with the warning the firm gave earlier this month.
And it forecast sales of just $7bn billion in the first quarter of 2009.
IT departments are being cautious while domestic users think twice before buying new computers, analysts say.
The growing popularity of smaller netbook computers, which use lower profit margin processor chips, is also having an impact on the firm's takings.
Intel shares rose 2.1% in after-hours trading with investors relieved the results were no worse than feared.
The severity of the drop was driven in part by a $1bn writedown in the value of Intel's investment in Clearwire Corp.
Clearwire works on a new type of wireless broadband that Intel is building into its chips - but there are fears that the credit crunch will impede its business plans.