It has been expected for some time now that the fallout from Thailand’s well publicized flooding and resulting hard drive shortage would have wider ramifications than just impacting the businesses of Western Digital and Seagate and driving up hard drive prices, and now those other outcomes are finally starting to occur. Today Intel became the latest casualty of the shortage when they announced that they were reducing their Q4’11 earnings estimate from $14.7B in revenue to $13.7B due to the shortage and its impact on new computer sales.

Even though Intel is a moderately diversified business – they have their hands in everything from CPUs to NICs to SSDs – virtually everything Intel sells is tied to the sale of new computers. As the hard drive shortage has continued and existing stocks of hard drives have been emptied the lack of cheap hard drives has made them the de facto bottleneck in computer production, leading to the slowing the production of new computers for both the consumer and enterprise markets. This in turn is directly reducing the demand for Intel’s products, most notably CPUs, and is why Intel has had to revise their earnings estimate down.

Intel notes that Q4’11 computer sales are still up over Q3, which means sales are still rising as they traditionally do, but at this point the lack of hard drives is capping computer sales at a lower level than they would otherwise reach. After the final sales are tallied at the beginning of next year, Q4’11 sales will almost certainly be down versus Q4’10, representing an unusual contraction in an otherwise good year for the PC industry.

Intel’s own guidance suggests that the shortage will continue to dog the company through Q1’12, and only finally begin to abate in Q2’12. It may very well take longer than Q2 for hard drive production to recover, but Intel isn’t speculating out that far. Regardless, Q2 is widely expected to be the launch for their Ivy Bridge CPUs, so it will be in Intel’s best interest for the shortage to come to an end quickly.

Intel of course won’t be the only casualty, but by taking a $1B reduction in revenue (and shaving 0.5% off of their legendary gross margin) they’re among the largest. By the time the shortage ends we’re expecting to still see several more companies and industries take a hit; AMD is a likely candidate for the same reason as Intel, but also NVIDIA & AMD for their GPUs, and the DRAM industry is highly prone to boom/bust cycles – this being at a time where DRAM is already at record low prices. There are very few industries that can go unscathed when 25% of the global hard drive production capacity for Q4’11 disappears overnight.

In Intel’s case they are at least partially diversified against a hard drive shortage through their SSD business, and while Intel doesn’t provide estimates for specific businesses it’s likely to be one of their stronger units for the quarter. Still, SSDs are not great replacements for hard drives (in an economic sense) so strong SSD sales cannot compensate for the significant drop in CPU sales due to the hard drive shortage.

Source: Intel Investor Relations

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  • TEAMSWITCHER - Monday, December 12, 2011 - link

    I think the biggest cause is the surge in ARM powered devices like the Apple's iPad, Kindle Fire, and Nook Tablet. Intel is finding itself yet another victim of the Post-PC world that it believes simply does not exist. Reply
  • Fleeb - Monday, December 12, 2011 - link

    What post PC world? Reply
  • fic2 - Monday, December 12, 2011 - link

    Both HD shortage and ARM powered devices should hit MS just as hard as Intel. Reply
  • p05esto - Monday, December 12, 2011 - link

    Post PC world, lol. Idiot. PCs are now in every home and almost as common as the TV. Many families like mine have multiple PCs/Laptops.... and then for toys we have smart phones and tablets.

    But let's be CLEAR. You can't do real work on a cell phone or tablet. At best you can write some short emails and surf the web. You won't be editing spreadsheets, graphic design, CAD, programming, writing a book or doing really anything useful on a tablet and never will. A keyboard and mouse is required to be truly productive and that will never change. Why you ask? Because we are HUMANS with hands, and our hands are not getting any smaller.... we also can't work on a 4" or even a 10" little screen with much speed.

    Post PC world is the most ridiculous phrase I've heard. We'll see the rise in popularity of other gadgets, but like portable DVD players 8 years ago we didn't see the end of the TV. PCs are going no where.... imagine going to the office cubicle and they hand you a 10" tablet to do your days work on, LOL LOL LOL
    Reply
  • Powerlurker - Tuesday, December 13, 2011 - link

    That's certainly true of the industrial/business market, but in the consumer sphere, most people don't go home and run CAD on a computer they bought themselves. 95% of non-gaming consumer use cases consist of email, web, and video. The most computationally taxing workload that a non-gamer will likely encounter is decoding h.264 video. Reply
  • TSS - Tuesday, December 13, 2011 - link

    My dad just bought my little sister a new, fast PC.

    She plays a few games, sure, but simple looking games. The PC she had before this one was a small form factor PC.

    Now though she's got a full fledged power monster under her control, for the sole reason of video editing. She's been reading stories on youtube and started to make her own videos at some point. Along with her interest in photography she's now decided to go deeper into desktop publishing.

    Mind you this is one sweet girl that litteraly does not hurt a fly, and she's always been so into animals we where sure she'd do something like animal caretaker or animal nurse. Oh, and she also has a tablet. Which she does use, to watch youtube video's in bed and the sort. But any work gets done on the PC.

    Post PC era my ass. Kids these days are just as inventive as the kids of yesterday and they will find new ways to make use of the power nothing but a desktop can bring them, and then demand more.
    Reply
  • JonnyDough - Wednesday, December 14, 2011 - link

    Give her a few years and she'll be posting half nude videos of her and her friends dancing and some old guy will be watching it. I worry about what my 9 year old will do, especially since her mom and I are split... Reply
  • Hector2 - Monday, December 12, 2011 - link

    Balony. You haven't been paying attention. Intel has been breaking quarterly revenue, profit and margin records for about 7 or 8 quarters in a row todate primarily based upon emerging markets and data centers. They were on track for another record breaking quarter until being hit with HDD shortages Reply
  • BSMonitor - Tuesday, December 13, 2011 - link

    The VAST majority of predictable PC sales is the business PC. Tablets are not in any way cutting into business PC sales.

    Grow up
    Reply
  • darckhart - Monday, December 12, 2011 - link

    I think the bigger problem is that companies throw around numbers like a BILLION dollars earnigs loss in a quarter like its common place. Reply

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