Intel: NAND slump cutting into margins

Mar, 4, 2008 – Intel has lowered its outlook for 1Q08 gross margins to 53%-55% from ~56% (vs. 58% in 4Q07), citing lower than expected pricing for NAND flash memory chips. All other expectations for the quarter remain unchanged, including a projected 4-12% sequential decline in sales to $9.4B-$10B.

A day ahead of a meeting with financial analysts, the news seemed to catch few by surprise, and some think more bad news could be coming. A MarketWatch report notes Pacific Crest Securities expects “further estimate cuts” in 2008 due to weak PC business, noting inventory builds at Dell and lower outlooks by Acer and Toshiba; JP Morgan also has reduced INTC earnings estimates. And Needham & Co. analyst Edwin Mok suggests the 2% reduction in GM is bigger than just soft NAND pricing, and in fact implies an actual writedown in NAND inventory.

Other analysts cited by the Associated Press have deeper concerns about INTC’s presence in the NAND area in the first place. Banc of America’s Sumit Dhanda thinks the growth of this segment in Intel’s sales, cast vs. still-soft NAND pricing, “puts into question the strategic rationale behind Intel’s involvement in this unprofitable business.” Nevertheless, even though Jefferies & Co. analyst John Lau likewise lowered his INTC share price and EPS targets, he thinks Intel still can wield its manufacturing prowess in this segment, and is expecting better business in microprocessors and PCs for the entire year.

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