UPDATE 1-Intel cuts margin forecast, citing memory chips

(Adds analyst comments, details, background)

By Duncan Martell

SAN FRANCISCO, March 3 (Reuters) - Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz) lowered its gross margin forecast for the current quarter on Monday, citing weaker pricing on certain types of memory chips and the company's shares fell 2 percent in extended trading.

Intel said it now expects gross margin in the first quarter of 54 percent, plus or minus a point. Its previous forecast for gross margin was for 56 percent, "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 Corp last month slashed its 2008 revenue growth forecast for NAND flash memory to single-digit percentages from a previous estimate of 27 percent 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.