NEW YORK (CNN/Money) - Intel Corp. on Thursday lowered its forecast for revenue and a key measure of profitability in its second quarter, blaming weak demand in Europe and a larger-than-expected proportion of sales from less-profitable products.

After the close of trading, the world's largest chipmaker said it expects second-quarter revenue to be between $6.2 billion and $6.5 billion. The company entered the quarter targeting revenue in a range between $6.4 billion and $7 billion.

At the same time, Intel said its gross margin, the percentage of sales remaining after subtracting product costs, will be "approximately 49 percent, plus or minus a couple of points," where previously it had said it expected a gross margin of 53 percent, plus or minus a couple of points.

The company does not typically provide specific quarterly earnings-per-share estimates, choosing instead to set expectations for its gross margin.

Intel (INTC: Research, Estimates) is the world's largest supplier of PC microprocessors. It also sells microprocessors used in servers and flash memory chips, as well as chips used in communications devices.

During a conference call late Thursday evening, Andy Bryant, Intel's chief financial officer, pinned the blame for the revenue shortfall primarily on softer-than-expected demand in Europe.

He attributed the weaker-than-expected gross margin to the lower revenue expectations and a larger percentage of sales coming from the company's low-end "Celeron" brand microprocessors as opposed to its high-end Pentium 4 line.

Bryant also said Intel's enterprise, mobile and communications businesses are in line with prior expectations, and the company continues to expect a seasonally stronger second half. However, he did not offer any specific forecasts for the second half, nor did he present any concrete evidence showing that the second-half strength would materialize.

The second half of the year typically is stronger for Intel as sales of PCs and other electronics increase during the back-to-school and holiday buying seasons. And Bryant said so far the early signs are pointing to a similar pattern this year.

Even though the second quarter is proving to be weaker than expected, Bryant said the first quarter was a little bit stronger. He said it is likely that Intel shipped products during the first quarter that ended up sitting in customers' inventories, while consumption has been about as expected.

On balance, Bryant said the first half is proving to be stronger than Intel executives had anticipated at the outset of the year.

"I can't tell you for sure I'm right, but based on what was happening in the first quarter and based on what we've found in the second quarter, that's what it feels like," Bryant said.

As for the larger proportion of revenue coming from low-end products, Bryant said the shift was likely the result of a shortage of Celeron chips in the first quarter. He said he does not think it signals a larger shift in end demand, nor does it suggest that the company has been gaining market share on the low end from its smaller rival, Advanced Micro Devices.

"From what we can tell, there's not much share gain or loss going on," Bryant said.

AMD (AMD: Research, Estimates) ranks a distant second to Intel in the global PC processor market, garnering roughly 20 percent of the market share.

The two companies also have been locked in a price war for several quarters, which has weighed on both companies' bottom lines. So far, Intel's gradual shift to a more efficient manufacturing process has helped it to offset the impact of the aggressive pricing environment.

Donald Luskin, chief investment officer of Trend Macrolytics, an economics research and consulting firm, called Intel's announcement "an inevitable logical consequence" of the economic recession.

"Moore's Law says that every 18 months, customers can buy the same processor for half the price, or twice the power in a processor for the same price," Luskin told CNNfn's Money & Markets program Thursday.

"When you don't have an expanding market and have people wanting to save money by moving down the quality curve ... that goes straight to the revenue line of a company like Intel, and they are bound to miss," Luskin said.

Shares of Intel fell $1.18 to $27 in Nasdaq trade ahead of Thursday's announcement, which it made after the close of regular trading. They tumbled a further 10 percent to $24.29 in extended-hours trade.

Over the past couple of weeks, analysts have been suggesting that Intel may narrow its targeted revenue range toward the lower end, but many had expected the company to hold the line on its gross margin.

At last count, the consensus estimate of analysts polled by First Call was for Intel to report a second-quarter profit of 15 cents per share on revenue of roughly $6.7 billion.

Earlier Thursday, Merrill Lynch downgraded its rating on Intel's shares to "neutral" from "buy," citing concerns about the lack of visibility into the PC end market, especially on the corporate side.

Joe Osha, Merrill's senior semiconductor analyst, had been expecting Intel to narrow its revenue range to something closer to $6.5 billion to $6.8 billion, and he pointed out the fact that much of Intel's second-quarter business is booked in the final weeks.

Merrill, which has been among the most bullish brokerage firms when it comes to chip stocks, also cut its ratings on a raft of other chip stocks Thursday, advising its clients that valuations had been over-inflated relative to realistic expectations for an industry recovery.

Chip stocks led the broader U.S. stock markets sharply lower Thursday, a direction Luskin said they are likely to continue during Friday's session after Intel's latest news.

"This is going to rub everybody's face in a reality that we've been in a lot of denial about, even after almost two years of a bear market," he said.