Shares in a number of leading chip makers have slumped after Morgan Stanley warned investors about a possible price war in the sector.

Intel shares fell by $0.57 or 2.2 per cent to $25.81 in US trading on Wednesday following the publication of a Morgan Stanley report from analyst Mark Lipacis advised investors to sell stock in both Intel and its main competitor Advanced Micro Devices (AMD).

AMD's stock declined by 3 per cent during late trading on Wall Street but later rallied to close virtually unchanged at $13.23.

In its investor briefing earlier this week, Morgan Stanley said an oversupply of chips could lead to a price war between Intel and AMD if they opt to cut prices.

Micron Technology also saw its share price slump in the US on the back of Morgan Stanley's report and following its announcement of a fourth quarter loss of $158m, or $0.21 a share on Wednesday. Shares in Micron closed at $10.74, down $1.05, the firm's worst decline in a year.

Morgan Stanley's recommendation saw Intel, AMD and Nvidia all seeing a fall in share price in Europe and Asia.

Other firms associated with the chip sector have also been hit hard. Ibiden, a circuit board manufacturer and Intel supplier saw its shares fall by 3.4 per cent in trading in Japan overnight. A large number of other hi-tech companies operating in other sectors have also been affected; Intel's performance is widely viewed as indicative of the technology sector's health in general.

© 2007 ENN