Intel cutting margin expectations on soft flash prices

Updated March 5 at 5:40 p.m. PT to clarify paragraph on Intel's flash business.

Intel's profits will fade a bit in the first quarter as the company bears the brunt of falling flash memory prices.

The company announced late on Monday that it was reducing its expectations for gross margin from 56 percent to 54 percent "due to lower than expected prices for NAND flash memory chips." In a way, it's a narrowing of Intel's forecast, since the previous expectations came with a "plus or minus a couple of points" caveat. But narrowing to the low end usually isn't that well received.

Intel is trying to get out of the boom-then-bust NOR flash memory business, setting up a joint partnership with STMicroelectronics to create a company called Numonyx, which is expected to open for business by the end of the first quarter. With stakes of less than 50 percent, both companies will then be able to get their flash businesses assets off their books. UPDATED 3/5 545pm to clarify that Numonyx is involved with NOR flash memory, and that only the assets vanish with that deal. Intel will still record a portion of Numonyx's profit or loss in accordance with its stake.

Until then, however, the volatile flash memory market is very much an Intel concern. Also, 2008 doesn't appear to be shaping up as the tech industry's best year in recent memory, and falling flash prices might be a harbinger of further things to come.

Apple was reported to have cut its own flash memory purchases for 2008, with apparent expectations that the consumer tech spending frenzy of the past several years has finally run its course as credit tightens and the prices of other goods soars. On the other hand, Intel makes a type of flash memory called NOR, which has been losing ground to NAND flash memory.

Intel will host an investors meeting Wednesday in Santa Clara, Calif., that might provide some further details on what the chip maker expects from the rest of the year.