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Intel Lowers Revenue Guidance by $1 Billion, Blames HDD Shortage

Intel warned that its revenue for the fourth quarter would likely fall short of previous guidance because its PC manufacturing customers have slowed their orders to align with the severe shortage in hard disk drives resulting from severe flooding in Thailand.
Posted December 12, 2011
By

Thor Olavsrud


Placing the blame squarely on a severe shortage in hard disk drives (HDDs), Intel Monday said its fourth quarter revenues are likely to fall short by $1 billion.

"The floods in Thailand have had an impact on hard disk drives and, as a result, on PCs," Intel (NASDAQ:INTC) Chief Financial Officer Stacy Smith told investors in a call Monday morning. "We are seeing a reduction in orders across the supply chain as a result of hard disk drive shortages."

Hard disk drives have been in short supply as a result of severe flooding in Thailand earlier this year. HDD factories in Thailand accounted for 40 to 45 percent of worldwide HDD production in the first half of 2011, according to research firm IDC. And as of the beginning of November, nearly half of the country's HDD production capacity was directly affected by the flooding. Assembly and component facilities were also flooded.

Smith explained that PC manufacturers have started to realign their backlog to account for the shortage and slowed their orders of Intel microprocessors as a result. Intel said that due to the slowdown in orders, it now expects fourth-quarter revenue to be $13.7 billion, plus or minus $300 million. That's $1 billion lower than its initial fourth-quarter guidance of $14.7 billion, plus or minus $500 million.

Intel said it expects fourth quarter PC sales to be up sequentially for the quarter, but reiterated that it is beginning to feel the squeeze as the worldwide supply chain has begun reducing inventories as a result of the shortages.

Smith noted that Intel has not yet seen a surge in solid state drives (SSDs) as a result of the HDD shortage, but predicted it is only a matter of time.

"So far we have not seen a big uptick in demand for SSDs," he said. "That said, I do expect that to happen. It will be one of the ways that the industry seeks to offset the HDD shortage."

Smith said Intel will seek to use the HDD shortage as an opportunity to drive the trend toward SSDs. Together with partner Micron Technologies, Intel founded a joint venture called IM Flash Technologies in 2006 to manufacture NAND flash memory, used in SSDs.

Smith said Intel expects the HDD shortages to continue into the first quarter, followed by a rebuilding sometime in the first half that will also lift microprocessor orders.

"We expect supply to catch up to demand somewhere in the first half of 2012," he said.

That estimate aligns with the forecast of Stifel Nicolaus Analyst Aaron Rakers. Rakers said he expects HDD production levels to normalize in the second quarter of 2012.

"We estimate Western Digital shipment levels to be in the 40 million to 50 million range for C1Q12, up from a low-30 million shipment level during C4Q11," he wrote in a note Monday morning. "We also highlight ongoing checks pointing to OEM HDD pricing up in the mid-20 percent range thus far through C4Q11."

Western Digital is one of the world's largest HDD makers and was severely affected by the flooding. Its facilities in Bang Pa-in Industrial Park and Navanakom Industrial Park were flooded, and its equipment was submerged. In the quarter prior to the flooding, it shipped 54 million hard drives from its facilities in Thailand and Malaysia. About 60 percent of those hard drives originated in Thailand.

Intel's Smith said that guidance for all other segments of Intel's business remains unchanged.

Thor Olavsrud is a contributor to InternetNews.com, the news service of Internet.com, the network for technology professionals.




Tags: Intel, HDD, revenue, stock price


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