Fears that the dark days of the 2000 technology bust are coming back to haunt the semiconductor industry have been rekindled by news that US chipmaker AMD is massively undershooting its sales targets.

After US stock markets closed on on Tuesday evening, the company warned investors that its revenues for the July-September quarter would be 18% down on what it had predicted.

The weakness is not entirely surprising, but the magnitude of the miss is

Dan Scovel Needham & Co

Worse still, the persistent weakness in the PC market means that inventories are building up - one of the key symptoms that heralded the end of the 1990s tech boom.

Investors punished AMD, with trading in the after-hours market pushing its shares down $1.10 or 20.5% to $4.27.

The result of the sales shortfall - $500m instead of its earlier predictions of more than $600m - is likely to be a fat operating loss, the company admitted, with the shelves beginning to stack up with unsold stock.

The last three months of the year should show an improvement, said chief financial officer Robert Rivet, claiming to be in a "much-improved position take advantage of the anticipated seasonal improvements in demand".

AMD's problems are partly specific to the company itself, analysts said.

"AMD is not getting the benefit of having the highest-end processors in the marketplace, and that hurts their ability to support their average selling prices," said Dan Scovel of Needham & Co.

"The weakness is not entirely surprising, but the magnitude of the miss is."

Broader woes

But even Intel, the giant in the microprocessor world thanks to the dominant position of its Pentium chips and its close relationship with software leviathan Microsoft, is suffering.

Its own financial position is certainly more healthy than AMD's, having predicted in September that sales would be at the lower end of expectations of $6.3bn-$6.9bn.

But it too is seeing inventory buildup, as demand for new PCs languishes.

Forecasts from investment bank Investec warn that third quarter PC shipments worldwide are likely to rise just 5%, rather than the usual 10-15%.