It has reclaimed the honor of being the world's leading CPU manufacturer in every important respect. But like a kid with a hole in his Easter basket, Intel's leaving a trail behind it: Its flash memory business could be its Achilles' heel.

There's a point where you can't help but laugh at the night-and-day difference between Intel's business status and that of its singular competitor, AMD. Then there comes a point where you stop laughing and almost start to cry in sympathy for AMD's position, having been pushed back an entire process generation, fighting hard from its traditional stronghold in the value segment.

Then there's a later point in time when you pretty much run out of new emotions, and we may have finally reached that point with Intel's release of its quarterly earnings numbers late yesterday afternoon. It's a clearly healthy company, having completed its riskiest reorganization to date and having come out of it as not only the performance leader on the high end but poking big holes in AMD's front lines in the mid-range and value segments.

But not even the rose tint to the glasses everyone at Intel wore yesterday could hide a bad portent on the horizon: The economy is definitely turning south, and any company with a substantial investment in flash memory is going to feel the worst of it, as Intel acknowledged yesterday.

First, the good side of the news: Revenues were up about 9.3% for the quarter ending in March, to just over $9 2/3 billion. And with the total cost of goods sold only rising 1% on the year, gross margins skyrocketed 3.8% annually to 53.8%. That's a sign that buyers in all segments overall have been willing to pay an extra premium to invest in Intel's performance; and as always, its best performing CPUs do carry a premium.

When you break down the news by segment, you find that CPUs were 100% of the reason for Intel's gains. Desktop and server CPU revenues rose nearly 15.8% over the first quarter of 2007 to $4.1 billion, while mobile CPU revenues rose about 11.7% to $2.72 billion.

The drag continues to come from everything else that Intel's into these days, especially the chipset business. Chipsets have never been Intel's bread and butter; some have likened more to the broccoli on the side of the plate that never gets appreciated. Appreciating is something chipsets and flash memory-related businesses certainly failed to do for Intel this quarter, posting a 1.5% annual revenue drop in the desktop and server segment, to under $1.2 billion. There was a nearly 9% gain for chipsets in the mobile segment, but that's a low-revenue division anyway with nowhere to go but up, now at $943 million.

That's where you realize the storm front is almost here. First-quarter revenue for any consumer-facing company is always down "seasonally" over the fourth quarter of the previous year. But this year the drop was 10% over Q4 2007, and the double-digits often sound alarm bells. And even though operating income for the last quarter shot up a fantastic 23% over the previous year's Q1, once you figure in Intel's loss on investments (there's the flash memory part of the equation) plus taxes, the company actually dropped 12 points of net revenue.

A recent report from hardware analysis firm iSuppli assessed the worldwide revenue decrease in the NOR flash memory business for the final quarter of 2007 to have been 11.9%, to just $1.9 billion. (Keep in mind just Intel reaps from CPUs alone over five times what everyone in the NOR flash business makes in one quarter combined.) Intel took the worst hit of all over the holidays, iSuppli estimated: a 19.6% annual drop in revenues from NOR flash.

Had it not been for flash memory, Intel stated in a warning to investors last month, that gross margin would have been closer to 56% rather than the 53.8% it turned out to be -- actually on the low side of its adjusted estimate.

The company's plan for weathering the storm looks like this: Intel has already shed some more assets, and it may continue to do so for awhile. Already, it has about 7,200 fewer employees than it had at this time last year. There will be some costs associated with that paring down, and it'll be reflected in next quarter's guidance numbers, which average out at about $9.3 billion in revenue. But the company expects that gross margin to float back to 56% next quarter and 57% for the year overall, back where it belongs. It'll get there by virtue of those assets reduction charges being taken right away, and investments in research in development shifted sooner rather than later.

Had Intel CEO Paul Otellini not taken the steps he did to move his company back into the wholesale manufacture of black ink, it might not have nearly as much strength today to weather the economic storm of 2008.