A giant came from Santa Clara
To show us some numbers so fair-ah.
He ended his spiel
With a guttural squeal:
"That share price brings me to despair-ah!"
-- Anders Bylund, five minutes ago

Mystery solved: Now we know why Intel (Nasdaq: INTC) expected lower gross margins for the rest of the year. In the words of CFO Stacy Smith, most of the drop from 57.1% last quarter to 53.8% this time "was due to the significantly lower pricing and higher volume in our NAND memory business."

That's a bit of a shift from what the same man said three months ago. Allow myself to quote ... myself.

In response to an analyst's question late in the earnings call, CFO Stacy Smith explained that pricing pressure on NAND flash chips will continue, but should have a 'negligible impact on the gross margin in Q1.'

I'm still stumped as to why he couldn't have just said so from the start because the results are coming in right where Smith said they would. It's not a surprise, just a phenomenon worthy of explanation up front.

That said, the quarter as a whole was quite impressive. The processor price war with AMD (NYSE: AMD) is becoming a distant memory, and management said average selling prices have stayed "roughly flat," four quarters in a row. "I think we really are benefiting from the strength of our product lineup," said Smith.

Here's a handy comparison chart of the most important numbers, most of which came as delightful surprises to analysts and investors alike:  

Q1 2008

Q4 2007

Q1 2007

Revenue

$9.67

$10.71

$8.85

Gross Profit

$5.21

$6.11

$4.43

Net Income

$1.44

$2.27

$1.64

EPS

$0.25

$0.38

$0.28

Cash From Operations

$2.00

$4.77

$1.55

Amounts in billions, except per-share items.

The report struck a pleasant chord with investors, who drove Intel's stock price up by as much as 8% in after-hours trading. This could be the start of a long slog back to a respectable valuation. I still think that the stock is undervalued at an updated P/E ratio just above 19.

It also sets a jovial tenor for the start of this earnings season alongside similarly jolly reports from fellow giants Coca-Cola (NYSE: KO) and JPMorgan Chase (NYSE: JPM). Looking over the early earnings haul, I see many more positive surprises than negative ones, so maybe the "Recession!" catcalls were voiced a tad early this time.

Then again, that's how it looked after IBM's (NYSE: IBM) last earnings report, too, and that was followed by an avalanche of red ink. Stay tuned.

Further Foolishness: