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Memory chips weigh down Intel's margin forecast

Intel lowered its gross margin forecast for the current quarter Monday, citing weaker pricing on certain types of memory chips and the company's shares fell 2% in extended trading.

Intel said it now expects gross margin in the first quarter of 54%, plus or minus a point. Its previous forecast for gross margin was for 56%, "plus or minus a couple of points."

Intel, the world's biggest chipmaker, cited lower prices for NAND flash memory chips, a market that saw dramatic price declines last year. Intel said all other business expectations remained unchanged in the quarter.

"I'm not surprised. NAND flash exposure is what had them cautious on their full-year guidance," said Douglas Freedman, an analyst at American Technology Research who has a "buy" rating on Intel.

"The piece of the equation that we were missing was the fact that they were ramping NAND flash output into a weak pricing environment."

Research firm iSuppli last month slashed its 2008 revenue growth forecast for NAND flash memory to single-digit percentages from a previous estimate of 27% growth.

The company said global NAND flash revenue would rise "marginally" in 2008 from the $13.9 billion booked in 2007, amid "troubling signs" of order reductions and weakness in consumer spending.

NAND flash memory is used in consumer electronics, such as flash storage cards, MP3 players and USB flash drives.

And in January, Japanese electronics group Toshiba said it expects NAND flash memory chip prices to show a fall of 50% in the business year ending March 31, steeper than its previous forecast for a 40% fall.

Toshiba hopes to overtake Samsung Electronics as the top maker of NAND, but it has been struggling with steeper-than-expected falls in the prices of such chips.

Intel shares fell 2% in after hours trading to $19.60 from a Nasdaq close of $20.01. (Additional reporting by Philipp Gollner in San Francisco; Editing by Andre Grenon)

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