NEW YORK (CNNMoney.com) - Intel's first-quarter earnings were in line with Wall Street's earnings forecast Wednesday, even as the company lost market share to rival Advanced Micro Devices and grappled with inventory problems.

Intel, the world's largest maker of computer chips, reported first-quarter earnings of 23 cents a share, down from 35 cents a share last year, but in line with Wall Street analysts' expectations. The company reported net income of $1.3 billion, a 38 percent decline over the year-earlier period. Operating income was $1.7 billion.

The company also issued revenue guidance for the current quarter that was disappointing, but Intel (Research) shares rose as much as 2 percent from Tuesday's closing price of $19.56 in after-hours trading.

"The stock is reacting to the fact everyone has been writing about gloom and doom, but when it finally came, it's no worse than people (already) wrote about," said David Wu, analyst at Global Crown Capital.

Santa Clara, Calif.-based Intel said revenue fell 5 percent from last year to $8.9 billion, also in line with analysts' expectations.

Revenue in the Asia/Pacific region, the Americas and Europe fell from the same period last year, but sales in Japan rose 8 percent due to strong sales in the laptop market.

Gross margin, a measure of profitability, came in at 55.1 percent, down from an expected 59 percent, due to lower chip revenue and higher inventory writedowns.

Intel said it expects revenue to range from $8 billion to $8.6 billion in the current quarter, below analyst estimates for revenue of $8.9 billion.

Intel has been grappling with limited supplies of chipsets -- pairs of chips that surround each microprocessor. That has resulted in above-normal customer inventory levels that are "limiting demand" in the short term, the company said.

But in a conference call with analysts, Intel executives expressed confidence that inventories would return to more normal levels in the second half of the year.

Intel CEO Paul Otellini also said the company plans to unveil its Woodcrest chip for servers and Conroe chip for desktops in the third quarter, which should set the stage for a strong second half.

Intel also said average selling prices were slightly lower in the first quarter. The company has traditionally cut prices when faced with intense competition, and rival AMD has been chipping away at Intel's market share, especially in the market for server chips used to run business networks.

Wu expects Intel to reduce prices before the release of its new chips in the third quarter, since the company will want to move merchandise before changing to new models. "And if you're a competitor, you're probably going to want to do the same," he said.

Price remains a component to winning back market share, and "you have to win business back that you lost," Intel CFO Andy Bryant said during the conference call.

But he said that while price cuts in the first quarter were more aggressive toward the bottom of the market, there wasn't a radical overall change in pricing because Intel did a good job of selling high-end products, such as in the notebook market.

Global Crown Capital's Wu does not own shares of Intel and his company does not have a banking relationship with the company.

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