Gross margin in the second quarter was 46.9%, short of the company's forecast of 48%. Intel said it expected the margin to be 52%, plus or minus "a few points," in the third quarter.
Profit margins were hit as lower prices for personal computer processors and weak demand for memory chips for mobile telephones offset higher revenue and unit volumes.
Expectations that the technology bellwether is on the rebound have sent Intel shares up 30% so far this year, and almost 9% in the last month alone.
"It's definitely a mixed bag because the stock has been so strong. Given the strength, it was going to be very difficult to please Wall Street with performance and outlook," Stifel Nicolaus analyst Cody Acree said.
"Of course margins will expand, it's just a question of what will be the trajectory. Right now they are keeping expectations pretty low," Acree said.
"We did see more pricing pressure than we expected, and that depressed margin by one point," Intel Chief Financial Officer Andy Bryant said, adding that weakness in flash memory also contributed to the low margin.
Intel, which lost market share to smaller rival Advanced Micro Devices, has fought back with a slate of new chips and price cuts on older ones. AMD countered by slashing prices, and is set to roll out a new processor in August.