Intel cuts sales outlook, blames hard drive shortage

With the warning, Intel becomes just the latest technology company to take a hit because of hard drive shortages.
Written by Larry Dignan, Contributor on

The hard drive shortage is backing up the supply chain and Intel's revenue will fall well below expectations as a result.

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Intel said that its fourth quarter sales will be $13.7 billion, give or take $300 million. The company projected fourth quarter sales of $14.7 billion, give or take $500 million. Wall Street was looking for sales of $14.65 billion and earnings of 69 cents a share. Intel also said gross margins would be lower than expected at 64.5 percent. Wall Street expected 64.96 percent.

With the warning, Intel becomes just the latest technology company to take a hit. Texas Instruments also cut its outlook and cited the hard drive shortages. Even DuPont noted that demand for its chemicals used in electronics manufacturing fell because of the hard drive shortage. Flooding in Thailand set hard drive makers and the associated supply ecosystem on its heels.

The working theory among analysts a few weeks ago assumed that the fourth quarter would be OK, but the first quarter would be rocky. Given the warnings of late, it's clear that the fourth quarter is hampered by the hard drive shortage too.

In a statement, Intel said:

Sales of personal computers are expected to be up sequentially in the fourth quarter. However, the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages. The company expects hard disk drive supply shortages to continue into the first quarter, followed by a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.

On a conference call, Intel CFO Stacy Smith said that demand for servers remained strong:

The demand across the various segments, again, is playing out pretty much as we expected when we started the quarter. And we are seeing that in our sales pattern. Server has been relatively strong, but we are seeing a pretty significant reduction in backlog in the PC-related segment of our business, so that seems to be where it is really hitting us. In terms of the shape of this thing, we do expect continued shortage of HDDs to be pretty significant in the early part of 2012; and we expect supply to catch up to overall demand sometime in the first half of 2012. Where exactly that happens over the course of the first half, it is too early to say, but we do expect that this will catch up sometime in the first half.

Texas Instruments said demand was weak in all of its markets---excluding mobile. Ron Slaymaker, TI's head of investor relations, said:

In the computing space, computing overall is down, with the declines at storage or hard disk drive customers especially exacerbated by the flooding in Thailand. In the consumer products areas such as televisions and video games are also weak this quarter.


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