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Intel Chief Executive Paul Otellini

Boldness has always been part of Intel's DNA. In 1965, co-founder Gordon Moore predicted that the number of transistors that could in a cost-effective manner be put on an integrated circuit would increase exponentially, setting the pace for the computer industry for decades to come. In the mid-1980s, Moore and then company President Andrew Grove killed Intel's biggest business--computer memory--in order to place the risk-it-all bet that turned it into the world's largest manufacturer of microprocessors.

Now, with the global economy facing its darkest days since the 1930s, Chief Executive Paul Otellini says he will spend around $7 billion over the next two years to upgrade Intel (nasdaq: INTC - news - people )'s factories--or fabs--to crank out processors built from even smaller transistors.

Otellini has decided to hustle to market a new generation of affordable mass-market processors, code-named Westmere. "One of the best ways to use this kind of capacity is for what I call a 'square-wave transition,' to bring massive amounts of new technology at a great price point," Otellini told Forbes. Here are edited excerpts from his interview.

Weak demand is further chipping away at Intel’s microchip business.

Early Wednesday, Intel (nasdaq: INTC - news - people ) announced preliminary fourth-quarter sales below its previously-announced estimates as the sale of microprocessors used in personal computers and inventory reductions fell as a consequence of weakening global demand. The Santa Clara, Calif.-based company said it now expected its top line figure to be approximately $8.2 billion, down 23.4% from year-ago sales of $10.7 billion, and below analyst estimates for sales of $8.7 billion.

Shares in Intel fell 4.6%, or 71 cents, to $14.66, in morning trading in New York.

"Clearly we are going to be in an ugly period for corporate earnings. That shouldn't be a surprise to anybody," said Tim Ghriskey, chief investment officer at Solaris Asset Management. "I think we are going to see announcements like this throughout the earnings season and especially this preannouncement period.”

In November, Intel had forecast sales of $9.0 billion, plus or minus $300.0 million, marked down from an even earlier forecast of $10.1 billion to $10.9 billion. Intel Chairman Craig Barrett had said in late November that the revision was final. (Watch "Intel Warns, Stock Drops.")

Intel also said it would post a fourth-quarter impairment charge of approximately $950.0 million related to its investment in Clearwire (nasdaq: CLWR - news - people ), a wireless broadband network operator which it has worked with in the development of the next generation of wireless data technology since 2006. (See “Intel's WiMax Bet.”) Intel expects the net loss from equity investments to be between $1.1 billion and $1.2 billion, compared with prior estimates of a loss of $50.0 million.

Reuters contributed to this article.

The U.S. auto industry may get its multibillion-dollar bailout. Hundreds of U.S. banks already have big piles of government money. But in the technology industry, by contrast, Darwinism still rules. When the economy gets tough, the strong take what they need to survive.

And with the downturn grinding up hundreds of thousands of U.S. jobs each month, Advanced Micro Devices (nyse: AMD - news - people ) is just the latest midtier tech company looking at a tough fight with a larger, better-financed rival for vanishing consumer dollars.

The U.S. auto industry may get its multibillion-dollar bailout. Hundreds of U.S. banks already have big piles of government money. But in the technology industry, by contrast, Darwinism still rules. When the economy gets tough, the strong take what they need to survive.

And with the downturn grinding up hundreds of thousands of U.S. jobs each month, Advanced Micro Devices (nyse: AMD - news - people ) is just the latest midtier tech company looking at a tough fight with a larger, better-financed rival for vanishing consumer dollars.

"We think AMD's relatively stale product offering of desktop and mobile chips means its business is faring worse than Intel's business as Intel takes share," Friedman, Billings, Ramsey & Co. analyst Craig Berger wrote in a note to investors Thursday.

Not that Intel is doing great, either. The Santa Clara, Calif.-based chip giant cut its fourth-quarter targets three weeks ago. The company, however, has used its research smarts and multibillion-dollar factories to devastate its smaller rival just as the economy has begun to sour. AMD shares have fallen more than 70% year-to-date. Intel's shares, by contrast, are down 50%.