Price War Pounds Intel

According to Intel, average selling prices for server and notebook chips increased sequentially in the fourth quarter, while desktop ASPs were flat.

But the increase in the price of its chips was offset by higher charges for underutilization in its factories, as well as by unspecified writedowns in its flash memory business and start-up costs for its new NAND joint-venture with Micron(MU Quote).

And Intel's profit margins appeared stalled for the foreseeable future. The company projected gross margin of 49%, plus or minus a couple points in the current quarter and 50% gross margin, plus or minus a few points, for 2007.

Those margin levels are down from the 55% to 60% levels the company regularly notched up before the recent price war with AMD.

Intel attributed its projections for stagnant margins to the costs of equipping its factories to produce a new generation of chips featuring 45-nanometer transistors. Bryant said the ramp-up will take two percentage points out of its gross margin in 2007.

Revenue in the seasonally slower first quarter will range between $8.7 billion and $9.3 billion, Intel said. Spending on research and development as well as marketing and administrative costs will range between $2.6 billion and $2.7 billion.

For 2007, Intel pegged MG&A (marketing, general and administrative) spending at $5.3 billion and R&D spending at $5.4 billion. Capital expenditures will be roughly $5.5 billion, plus or minus $200 million, in 2007, as the company incurs "significantly higher" equipment spending to ramp up manufacturing of new chips featuring 45-nanometer circuitry.