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SAN FRANCISCO, Sep 6 (Reuters) Intel Corp. said on Tuesday it is cutting 10,500 jobs, or about 10 percent of its work force, as part of a plan to become more competitive against a resurgent Advanced Micro Devices Inc.

The cuts, along with other cost-cutting measures stemming from a three-month top-to-bottom review of operations, would help the technology giant save $1 billion this year, $2 billion next year, and $3 billion in 2008, the chip maker said.

Intel shares fell 25 cents, or 1.3 percent, to $19.74 in extended trading following the announcement of the cuts, which were at the low end of the 9,000 to 15,000 jobs analysts expected would be shed.

Analysts have said Intel, the world's biggest microchip maker, needs to take drastic action to reverse sliding profits and halt steady market share gains by its far smaller rival, AMD, that gathered steam in 2005.

''I am impressed by the magnitude of the cost savings in getting to $3 billion,'' said Doug Freedman, an analyst with American Technology Research. ''The $3 billion is a welcome surprise and I'm sort of glad they can do it without cutting more people.'' The cuts, Intel's largest in 21 years, include 1,000 managers Intel laid off in July and 2,000 workers in two business units that it sold over the past few months. Another 2,000 jobs will disappear through attrition.

''These actions, while difficult, are essential to Intel becoming a more agile and efficient company, not just for this year or the next, but for years to come,'' Chief Executive Paul Otellini said in a statement.

Intel said it would take a charge of $200 million in severance costs.

Highlighting Intel's recent difficulties, market research firm iSuppli said on Tuesday that its share of total microchip industry revenue hit a four-year low in the second quarter.

''Intel's recent actions show it understands the need to improve its efficiency and sharpen its focus on its core business of microprocessors and integrated circuits for computing systems,'' iSuppli Vice President Dale Ford said in a statement.

Keen to regain market share and the technological lead over AMD, Intel has slashed prices and revamped its entire line of microprocessors for desktop, laptop and server computers in recent months.

The latest round of job cuts was not as extreme as some scenarios discussed by analysts, such as jettisoning the company's flash memory chip business, but analysts said it showed management was moving in the right direction.

''It looks like they are taking the right steps,'' said Cody Acree, an analyst with Stifel Nicolaus. ''We think the products are correct. The (old) products got them into this problem and the new products will get them out.'' Most of the reductions will hit management, marketing and information technology workers, but they would not be concentrated in any specific geographic area, Intel said.

Freedman said the fact Intel was not shedding engineers was positive, though he expected it to divert some of them away from research efforts with few commercial prospects.

A Malaysian newspaper said on Monday that Intel would offer voluntary layoffs to up to 2,000 workers in that country, where the company has employed 10,000 people for assembly, packaging and testing. Intel also has major operations in Israel, Ireland, and the U.S. states of Oregon and Arizona.

Intel's share price has fallen about 20 percent in the year to date, against a 19 percent drop in AMD. AMD closed up 6.3 percent at $26.22 on the New York Stock Exchange.

REUTERS CS DS1404