Curf, or the width of your cutting tool, would have a lot to do with it. If you use a saw blade to cut it, the width of your cut section would be up to an 1/8 of an inch. So, if your pencil were divided into sections only 1/8" wide, then your pencil would then be disintegrated by the saw blade the next time it cuts. A knife however would create a much smaller curf and could go much smaller. Technically, if you had the means to do it you could get the width down to a few sub-atomic particles that, depending on the strength of the atomic bond they have, would only be nano or even picometers wide. Maybe even smaller. Pretty useless pencil at that point though :)