NEW YORK (CNN/Money) - Chipmaker Intel Corp. Tuesday logged a third-quarter profit that rose from the same period last year but still fell short of expectations, on sales that were flat with a year earlier.

The world's largest supplier of PC microprocessors also said it does not expect to see an improvement in profits in the fourth quarter, which led to a sharp selloff of its shares during extended-hours trade.

After the closing bell, Intel (INTC: Research, Estimates) said its third-quarter earnings, excluding acquisition-related charges, totaled 11 cents per share. That's a penny per share more than it earned in last year's third quarter.

At $6.5 billion, Intel's third-quarter revenue was flat with the year-ago quarter and in the middle of its targeted range of $6.3 billion to $6.7 billion. The company during a mid-quarter update last month narrowed that range from a previous target for revenue between $6.3 billion and $6.9 billion.

The consensus estimate of analysts polled by First Call was for operating earnings of 13 cents per share on revenue of $6.5 billion.

Intel's third-quarter gross margin, the percentage of sales remaining after subtracting product costs, was 48.8 percent. That was lower than executives had forecast last month, when they said they were aiming for a gross margin ranging between 49 percent and 53 percent.

Intel typically does not provide specific per-share earnings estimates, choosing instead to set expectations for gross margins.

"We're just not seeing the demand pickup we'd like to see, and we hit a wall on some of the cost savings we were driving for," Andy Bryant, Intel's chief financial officer, said on a conference call Tuesday evening.

A weak back-to-school selling season has weighed heavily on most PC-related companies, some more than others.

Advanced Micro Devices (AMD: Research, Estimates), which ranks a distant second to Intel in PC processor sales, earlier this month told investors it had missed its third-quarter revenue target by more than $100 million.

Flagging demand also has put pressure on pricing for both Intel and AMD, as they continue to battle for market share. A broad shift in demand away from computer systems powered by high-end processors such as Intel's Pentium 4 or AMD's Athlon XP, to machines with less expensive chips like the Celeron and Duron also has weighed on both chipmakers' profits.

Paul Otellini, Intel's president and chief operating officer, said Tuesday that the average selling price of Intel microprocessors had fallen slightly in the third quarter, due primarily to a higher percentage of sales of lower-end processors.

Looking ahead, Intel executives said they expect the pickup in demand during the fourth quarter to be on the low end of what is typical. Historically, fourth-quarter sales of semiconductors have shown a sharp sequential increase, sometimes rising as much as 20 percent as sales of PCs and other electronics rise during the holiday season.

This year, Bryant said Intel is aiming for fourth-quarter revenue ranging between $6.5 billion and $6.9 billion, a scenario suggesting a 6.2 percent sequential increase at best.

Gross margin in the fourth quarter is expected to be approximately flat with the third quarter, Intel said. The company did not provide a per-share earnings estimate for the fourth quarter. Wall Street generally had expected an improvement, with a forecast of 16 cents per share.

Dan Scovel, semiconductor analyst at Needham & Co., said he had expected to see some compression in gross margins, given Intel's large capital requirements. However, he said the magnitude of the pressure on margins was more than he had expected, both for the third quarter and the forecast for the fourth quarter.

"The outlook is a little bit weaker than we thought, but it is consistent with a lot of the fears that have been brewing over the past couple of months," Scovel said.

Needham does not list Intel among its investment banking clients, and Scovel said he does not own any Intel shares.

When they provided the mid-quarter update last month, Intel executives narrowed their revenue estimate but stood by their previous gross margin forecasts.

Bill Fleckenstein, a short-seller who runs Fleckenstein Capital, suggested that the company's latest profit report and its weaker-than-expected business outlook may damage Intel management's credibility. Investors who sell short borrow their shares from a broker in the hopes that the price will fall. They can then purchase those shares later at lower prices, pocketing the difference as profit.

"I would think that anyone with an ounce of brains will know that they've been snookered," Fleckenstein said.

"The reality is that the end markets are not good; it looks like Intel is starting to accept reality," Fleckenstein said. "And I would expect more bad news to follow."

Indeed, investors dumped Intel shares in extended-hours trading following the news The stock fell to $14.40 on the Instinet trading system after rising more than 9 percent to $16.52 on Nasdaq.

Other chipmakers as well as the suppliers of chipmaking equipment were dragged down as well.

Chip-equipment makers were pressured in part because Intel lowered its capital spending plans for the year. The company said it expects to spend $4.7 billion. Previously, it had said it planned to spend as much as $5.2 billion.

Intel said the majority of the spending reduction is being driven by cost savings within ongoing construction projects. In addition, the company said it is slightly reducing its fourth-quarter equipment spending by reusing certain equipment used in older manufacturing processes.