Intel Cuts Q4 Revenue Forecast As Hard Drive Shortage Continues

Intel Monday reduced its fourth quarter revenue forecast due to hard disk drive (HDD) shortages caused by the massive flooding in Thailand. The chip maker now expects fourth-quarter revenue to be around $13.7 billion, compared to the previously forecasted $14.7 billion.

The Thailand floods have been ravaging the country’s hard drive industry since October, and their adverse effects are starting to be seen within the worldwide PC supply chain. As hard drive shortages persist, PC makers are being forced to reduce their inventories and, as a result, microprocessor demand is declining, Intel said. The company expects hard drive shortages to continue into the first quarter of next year, with the rebuilding of inventories to occur throughout the first half of 2012.

In addition to a drop in revenue, Intel announced an adjusted fourth-quarter gross margin of approximately 64.5 percent, down slightly from the previously expected 65 percent. All other quarterly expectations, Intel said, remain the same.

The company stressed that its lower-than-expected microprocessor sales are purely supply-driven and in no way reflect a lack in customer demand. "This is a supply-driven shortage of HDDs, not a demand issue," Intel CFO Stacy Smith said Monday during a conference call. "Our underlying view of demand is still intact."

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Smith also noted that, while the company is seeing a pretty significant reduction in PC chip segment, its server sales seem unaffected by the shortage. "We have seen no change at all in server order rates," Smith said. What’s more, Intel still anticipates strong demand for its new Romely platform upon its launch next year.

Intel isn’t the only chip maker reducing Q4 expectations in light of Thailand’s hard drive shortage. Last Thursday, Texas Instruments lowered its quarterly revenue forecast from an initial $3.26-$3.54 billion range to a $3.19-$3.33 billion range, due to "broadly lower demand across a wide range of markets."

Altera, a Silicon Valley-based manufacturer of programmable logic devices, also lowered its Q4 revenue expectations last week, citing economic uncertainty.

Hard drive manufacturer Western Digital, which hosted approximately 60 percent of its manufacturing plants in Thailand, offered a glimmer of hope earlier this month, announcing it had rebooted production at one of its Thailand facilities a week ahead of schedule.

"The passion, perseverance, ingenuity and execution exhibited by the WD team has been extraordinary and enabled us to make substantial progress in partially restoring our operations in Thailand, well in advance of our earliest expectations when the floods hit," said John Coyne, president and chief executive officer of Western Digital, in a statement.

The restored Western Digital production facility had been sitting under six feet of water since mid-October. The hard drive vendor said that it has commenced decontamination and restoration of its remaining Thailand buildings, many of which are still submerged in about two feet of water.