Intel (INTC) will report earnings later today, and Wall Street is looking for $9.6 billion and 30 cents a share, followed by $10.4 billion and 37 cents in the fourth quarter. PC sales have been strong, up 12% in the September quarter, so I suspect inventory levels of microprocessors are a little low going into the holiday build season. Intel may guide a bit higher for the December quarter.

It's interesting that Intel had a good quarter due to strong sales of personal computers, digital cameras (+20% in the September quarter), cellphones (+18%) and other consumer electronics. Yet flash memory suppliers like SanDisk (SNDK) and DRAM suppliers like Micron (MU) are having a tough time. How can that be? There is serious weakness in spot prices for memory chips, and it is now impacting contract prices. Most memory chipmakers have seen October contract prices for DRAM drop about 20%, while flash memory fell 15%. They were looking for flat prices, based on good demand for end products. Instead, the Tier 2 suppliers are running at losses and the Tier 1 suppliers are getting squeezed. Flash memory prices are down 40% from August, when they were expected to be strengthening about right now due to a projected shortage. Because Samsung and Toshiba are still profitable, I expect further price pressure.

The problem is overcapacity, as the existing suppliers convert to 65-nanometer and even 45-nanometer processes, while DRAM suppliers accelerate their flash memory production in the vain hope that those products will be more profitable than DRAM. It's turning into a real mess for SanDisk, which has been quite weak during this most recent upturn, and I expect some very unpleasant guidance from them when they report on October 18.