Flash Memory Prices Affecting Intel Bottom Line

Intel warned Monday that low prices for NAND flash memory chips will have a greater financial impact during the first quarter than company officials had initially anticipated.

NAND flash is a type of memory used as storage for MP3 players and cell phones, as well as in removable memory cards slotted into digital cameras and other devices.

The lower prices for NAND flash bring down Intel's expected first-quarter gross margin from 56 percent, "plus or minus a couple of points," to around 54 percent, the company said in a statement. The announcement comes ahead of an Intel meeting with investors and financial analysts on Thursday and Friday.

Gross margin reflects the basic profitability of a company's products during a given period before taking into account the cost of running the company and other expenses. It's one of the most important profitability ratios, and managers generally track this number to gauge a company's financial health.

Concerns about the economy and consumer spending recently prompted research firm iSuppli to slash its NAND flash revenue forecast for the year. ISuppli cut its growth prediction for 2008 to between 7 percent and 9 percent, down from its earlier projection of 27 percent. Global NAND revenue in 2007 was US$13.9 billion.

If concerns about the U.S. economy deepen, consumers may reduce spending on phones, MP3 players and the other devices that use NAND flash, weakening demand for the chips and depressing prices, said Nam Hyung Kim, director and chief memory analyst for iSuppli. He predicted prices could fall by as much as 55 percent this year.

Intel showed strong NAND revenue growth in 2007, growing 269.6 percent, according to iSuppli. Nevertheless, Intel cited low flash memory prices when its fourth-quarter results, announced in January, fell short of analyst expectations.