Intel Cuts Forecast On Falling Flash PricesIntel Cuts Forecast On Falling Flash Prices

Flash memory prices are tanking, and financial analysts everywhere are having a cow because Intel on Wednesday cut its first-quarter gross-margin forecast to 54% from 56%. Hey, is anything really new here? Flash prices periodically crater, and there's always downward pricing pressure -- these are commodity parts, remember. Yet just two days ago, these same analysts were ecstatic over Intel's new Atom processor strategy. People, take a chill pill.Intel CEO Paul Otellini vowed that the drop in margins, caused by the cratering in NAND flash prices -- they've dropped 27% in recent months -- wouldn't be a drag on Intel, and that he's going to "fix the business and make it profitable." The flash chips are used in MP3 players, cell phones, and digital cameras.

A disinterested observer would say that Otellini is simply trying to calm the financial analysts. Truth be told, there's not much he can do to "fix" Intel's flash business. Like I said at the top, all the major makers of flash -- Micron (which is Intel's partner), Spansion (owned by AMD), Samsung, STMicroelectronics, Hynix, and Sony -- know it's a commodity business.

That's why Intel partners with Micron, why AMD spun Spansion off into a separate company, and why Micron and Nanya formed a joint-development partnership the other day. It's called sharing risk.

As for Intel, what it's really focused on is what I talked about the other day. Namely, attempting to diversify beyond its core PC processor business. Its latest attempt to do that is with Atom. That's the brand name it's given to the downsized chip, formerly called Silverthorne, which is aimed at ultra-mobile PCs and handheld Web browsing devices.

I wrote that I believed the Atom strategy is a non-starter because high-powered handhelds are likely to remain niche devices. They're destined to be forever stuck as the "third gadget" you might or might not buy, between laptops and smartphones.

Others disagree. Marketeer Michael Megalli of the strategic-branding firm Group 1066 blasted out an e-mail with his opinion that: "As a name, Atom is so good that it's a miracle it made it through Intel's trademark attorneys. It elegantly conveys the key benefits of the product line in a simple and appealing word (and only four letters!)."

Hey, I can think of four letters. Seriously, though, even if you grant that Atom is a good brand name -- and I don't think it is, except maybe for a weapon of mass destruction -- brands don't get people to purchase new categories of devices.

I'm more inclined to agree with EETimes, which opines that Atom is likely to be a success in many markets, including set-top boxes and mobile gaming devices. But it ain't gonna be da bomb.

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