Intel Corporation (NDAQ: INTC) shareholders have seen their investment drop more than 25 percent during January 2008 alone on fears of worsening economic conditions. Many investors and analysts believe that the drop was not justified by any underlying fundamental reasoning, but just the assumption that technology stocks (especially semiconductors) are the first casualties during an economic downturn. The notion was somewhat confirmed by a weak guidance offered by the company in the fourth quarter suggesting that business may slow down. However, do these two concerns justify such a steep drop?

Intel did not indicate that it expected chip sales to soften in 2008, despite its cautionary outlook. Rather, the chipmaker announced that it expects robust demand for processors and chipsets as PC sales are expected to remain consistent. Furthermore, they expect any slower sales in the United States to be offset by emerging markets around the world. In fact, a growing piece of Intel’s record operating income of $8.2 billion in 2007 came from emerging markets and other overseas markets.

So, how can the drop in fourth quarter earnings be justified? Well, the drop stemmed from an excess in supply of flash memory chips in the market, which affected more companies than just Intel. In fact, this is also the main reason that the chipmaker issued cautionary guidance - it expects its other products to remain strong. Luckily, these flash drives only account for a small portio of Intel’s total sales, and all other parts of the business promise to remain strong performers.

In the end, Intel’s demand is set to remain strong during 2008. These expectations have been confirmed by other industry giants like Microsoft (NDAQ: MSFT) who expects PC sales to rise by 11% to 12% in 2008 despite the economic problems in the United States. Moreover, 75% of Intel’s sales come from other countries and these countries have shown record growth. Overall, we should not see any significant downfall in 2008 as is currently priced into this stock. Combined, these factors make INTC a stock worth watching!

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