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Intel Cuts Margin Forecast

Alexei Oreskovic

SAN FRANCISCO -- Intel(INTC) said its profit margin would be lower-than-expected in the current quarter due to slumping prices for flash memory chips.

The Santa Clara, Calif., chipmaker said first-quarter gross margin would come in at 54% plus or minus one point, vs. its initial expectation of 56% plus or minus a couple points. Intel said all other financial projections remain intact.

Shares of Intel fell nearly 3%, or 59 cents, to $19.42 in extended trading Monday.

Intel controls roughly three-quarters of the world's market for PC microprocessors, but the company also develops NAND flash memory chips through a joint venture with Micron(MU).

NAND flash is used to store data in electronic gadgets, like the music on MP3 players and the photos in digital cameras. An industrywide oversupply of NAND flash has sent prices for the chips to plummeting in recent months.

On Saturday, industry research firm Gartner halved its 2008 growth forecast for the entire semiconductor industry to 3.4% due to weakness in the NAND flash market.

Intel's new forecast comes as the company moves to rebuild its profitability in the wake of fierce competition and a bruising price war with Advanced Micro Devices(AMD). Intel's margins fell as low as 47% earlier in 2007, but rebounded to 58% in the fourth quarter of 2007.

The company -- which is scheduled to hold its annual briefing with analysts Wednesday -- has previously projected 57% gross margin for the 2008 year, although that target may now be in doubt.

Analysts polled by Thomson Financial expected Intel to earn 31 cents a share on sales of $9.7 billion in the current quarter.