The slow-motion supply-chain tsunami caused by the Thailand flood has reached Intel.
On Monday, the dominant microprocessor maker revised its earnings estimates for the fourth quarter, dropping them from $14.7 billion to $13.7 billion. The company said the revenue shortfall is due to the hard disk drive shortage caused by the October flood. A large portion of the world’s hard disk drive manufacturing base is in the part of Thailand that was largely underwater for several weeks this fall.
“The floods in Thailand have had an impact on the supply of hard disk drives and as a result [on] the PC supply chain,” said Stacy Smith, Intel’s CFO, in a conference call with analysts. “We’ve seen a drop in orders for microprocessors in the fourth quarter.”
Intel has seen a rapid drop in the backlog of chip orders in the last few weeks as the company’s customers have aligned their purchases of microprocessors with the availability of hard drives. “One of the reasons we’re seeing such a rapid reduction in backlog over the last couple of weeks is … it’s a pretty efficient supply-chain,” he said.
The hard disk drive shortage is not expected to impact PC production in the fourth quarter, but it is expected to in the first quarter, according to Dale Ford, senior vice president with market research firm iSuppli. “Intel may not have anticipated the supply-chain response in terms of [computer makers] cutting their inventories going into the first quarter,” he said.
The impact on Intel is strictly a matter of supply, and the company has not seen a change in demand patterns. Once hard disk drive supply returns to normal sometime in the first half of next year, orders for Intel’s microprocessors should return to normal as well, Smith said.
The order shortfall is mostly in the PC business. “That seems to be where it’s really hitting us. This is hitting us in terms of our order pattern more at the low end of our pricing set,” he said.
Demand for server processors has remain unchanged so far. The enterprise segment has been a pocket of strength for Intel, said Smith. According to iSuppli’s Ford, the server makers are shielded from the hard drive shortage because of the types of drives involved.
Despite the drop-off in orders, Intel hasn’t changed its manufacturing plans. The company expects orders for the company’s new 22 nm Ivy Bridge processor to be unaffected by hard disk drive supply, and initial production of the chip should sell out quickly. The processor should show up in computers next spring.
The hard disk drive shortage has boosted prices for solid-state drives (SSDs), but hasn’t increased orders for Intel’s SSD products. “So far we haven’t seen a big uptick in demand for SSDs,” said Smith. But the company expects demand to rise, especially for SSDs for the new thin, lightweight ultrabook laptop computers, he said.