Intel Cuts Q1 Gross Margin Outlook On Lower Flash Memory Prices [INTC]

3/3/2008 7:35:02 PM Intel Corp. (INTC), the world's biggest chipmaker, said late Monday that it was lowering its first quarter gross margin forecast due to lower than expected prices for NAND flash memory chips.

The Santa Clara, California-based company said it now expects first quarter gross margin to be 54%, plus or minus a point, compared to the prior forecast of 56%, plus or minus a couple of points, provided on January 15. For the fourth quarter, the company had reported gross margin of 58.1% that reflected the impact of a legal settlement.

The company left its all other first quarter business outlook, announced in January, unchanged.

Intel said its corporate representatives may reiterate the company's business outlook during private meetings with investors, investment analysts, the media and others during the remainder of the week.

NAND flash memory chips are used in MP3 players, cameras, USB flash drivers and cell phones. Intel develops these chips through a joint venture with Micron Technology Inc. (MU). Korea's Samsung Electronics Co. Ltd. is the world's largest maker of NAND flash memory chips. Prices of those chips have plummeted in recent months because of an industry glut.

In January, Intel reported higher earnings and revenue for the fourth quarter, but the company's quarter revenue missed market expectations.

The company reported net income for the fourth quarter of $2.3 billion or $0.38 per share, compared to $1.5 billion or $0.26 per share for the year-ago quarter. The latest fourth quarter results included one-time charges of $0.025 per share, while the year-ago quarter results included one-time items, which boosted earnings by $0.01 per share.

Fourth quarter revenue rose 10.5% year-over-year to $10.7 billion, yet trailed the mean analysts' estimate of $10.84 billion. The worse than anticipated revenue growth was due to weakness in NAND memory revenues, as the semiconductor industry is grappling with falling prices of memory products.

For the seasonally weak first quarter, Intel forecast revenues of $9.4 billion to $10 billion and gross margin of 56% plus or minus a couple of points at that time. For the full year 2008, the company forecast gross margins of 57% plus or minus a few points.

Analysts polled by First Call / Thomson Financial currently expect the company to earn $0.31 per share on revenue of $9.70 billion for the first quarter.

Meanwhile, the Semiconductor Industry Association said Monday that global chip sales fell 3.6% to $21.5 billion in January from $22.3 billion in December. Sales were little changed from a year earlier, the San Jose, California-based group said.

Prices for memory chips used in mobile phones and personal computers declined as competition increased, pulling revenue down. Semiconductor shipment growth may drop as consumers curb purchases of electronics to cope with a slowdown in the U.S. economy, the group said.

Intel shares, which are trading in the range of $18.05 to $27.99 over the past year, closed Monday's regular trading session at $20.01, up 4 cents but lost 55 cents or 2.75% in after hours trading.