Intel on Tuesday reported that its first-quarter net income fell 12 per cent year-over-year, although revenue was in line with analyst expectations.

The company's net income was $1.4 billion for the first quarter, ending 29 March. Earnings per share were $0.25, an 11 per cent drop compared to last year, but in line with expectations of analysts polled by Thomson Financial.

The company reported revenue of $9.67 billion, a 9 per cent increase compared to last year, and just over analyst estimates of $9.63 billion.

Intel in March warned that low prices for NAND flash memory chips would have a greater financial impact during the first quarter than company officials had initially anticipated. Lower prices for NAND flash would bring down Intel's expected first-quarter gross margin from 56 per cent, "plus or minus a couple of points," to around 54 per cent, the company said. The gross margins for the quarter were in line at 53.8 per cent, according to Intel.

The combined revenue of NAND and NOR flash memory was down 15 per cent compared to the fourth quarter last year, said Stacy Smith, chief financial officer at Intel, during an earnings conference call.

During the call, Paul Otellini, Intel's CEO, assured shareholders that the company was in the NAND memory business to make profits. When asked about Intel's chances of disposing its NAND assets, he said Intel has a lot of ideas to bring the business back on track, but said it would be inappropriate to discuss them publicly.

Similar questions were raised about the NOR memory business a year-and-a-half ago when the company was negotiating its NOR business options with other companies, Otellini said. Intel is now divesting its NOR assets to Numonyx, a flash-memory joint venture it formed with STMicroelectronics and Francisco Partners this quarter.

NOR and NAND flash are types of memory used as storage for MP3 players and mobile phones, as well as in removable memory cards slotted into digital cameras and other devices.

Intel took a charge of $275 million in relation to the assets sold to Numonyx.

Microprocessor revenue was $4.1 billion, driven by strong demand for Xeon server processors and mobile processors, Otellini said. The demand for dual-core Xeon processors is strong, with quad-core Xeon processor shipments growing as production ramps up, he said.

A healthy demand for microprocessors offset the impact felt by falling flash memory prices, Smith said.

Mobile processors made using the 45-nanometre manufacturing process also grew as users transition from desktops to mobile products like laptops, Otellini said. Intel says chips made using the 45-nanometre process are more power-efficient than chips manufactured using earlier processes.

Intel's mobility revenue accounted for more than a third of its revenue, pulling in $3.7 billion, up 11 per cent compared to the prior year.

Intel expects mobile revenues to grow with increased demand for "Netbooks," low-cost notebooks based on the company's new Atom Centrino processors officially launched during the first quarter. Atom processors are relatively inexpensive chips that consume little power and are targeted at laptops in the $250 to $300 price range.

"We're seeing PC penetration growing more rapidly ... more than previous years," Otellini said. As notebooks get more affordable, shipments will grow, Otellini said. That increased demand will generate good margins for Atom processors, which are relatively inexpensive to produce, Otellini said.

As users move to mobile PCs, the all-in-one PC segment provides a growth opportunity for desktops, Otellini said. All-in-one PCs, like Apple's iMac and Dell's XPS, combine most of the PC components and peripherals in the monitor.

The company launched new chips this quarter, officially announcing the Atom Centrino processors due to appear in PCs around the middle of the year. The company also said it will ship the six-core Xeon processor, code-named Dunnington, later this year. It also plans to switch to its new chip microarchitecture, Nehalem, in the second half of this year.