The knock-on effects of Thailand’s damaging floods continues with Intel lowering its Q4 forecast
The impact of the widespread flooding in Thailand continues to be felt across the tech sector, after Intel announced it is cutting its fourth-quarter revenue forecast by $1 billion (£642m).
Intel officials announced 12 December that they expect fourth-quarter revenues to come in at about $13.7 billion (£8.8bn), adding that while they expect PC demand to be up over the third quarter, supply chain partners are reducing their inventory of systems and the number of chips they’re buying as they deal with the fallout from the months-long flooding in Thailand, which puts together about 70 percent of the world’s HDDs.
The HDD shortages that already have hit the industry since the flooding from an unusually heavy monsoon season began hitting Thailand in October will continue into the first quarter of 2012, according to Intel officials. They don’t expect the supply of hard drives to improve until later in the first half of 2012 and, with it, an improvement in the demand for microprocessors.
“The floods in Thailand have had an impact on the supply of hard disk drives, and as a result, the PC supply chain,” Intel Chief Financial Officer Stacy Smith said in a conference call with analysts and journalists. “As hard drive vendors have committed supply availability into the first quarter of 2012 on a customer-by-customer basis, we have seen a drop in orders of microprocessors for the fourth quarter.”
Intel is only the latest tech vendor to talk about the impact the flooding has had on their bottom lines. Officials with Western Digital, the world’s largest HDD vendor with 40 percent of the global market, said in November that they expected to ship less than half of the HDDs it had expected through the end of 2011, with the lower shipments continuing into the second quarter of 2012.
Other vendors, such as Hitachi Global Storage, Toshiba/Fujitsu and Samsung Electronics also were expected to be affected by the flooding, as many HDD-making facilities in the country have been shut down. Meanwhile, OEMs like Apple, Dell and Hewlett-Packard have been taking a cautious approach to potential problems caused by the flooding.
Analysts also have said the Thailand flooding will have a ripple effect throughout the industry.
Market research firm IHS iSuppli said in a report 8 December that the flooding would limit the number of PCs that ship in the first quarter of 2012. IHS iSuppli analysts reduced their first-quarter worldwide PC forecast, saying they expected PC shipments to hit 84.2 million units, a drop of 3.8 million units from the firm’s prediction in August. The notebook segment will be the hardest hit, they said.
“The PC supply chain says it has sufficient HDD inventory for the fourth quarter of 2011,” Matthew Wilkins, senior principal analyst of compute platforms for IHS iSuppli, said in a statement. “However, those stockpiles will run out in the first quarter of 2012, impacting PC production during that period.”
The PC already was facing other hurdles – including the rise in popularity of tablets and the ongoing global economic situation – but the HDD shortages will add to those woes, according to IHS iSuppli analysts.
Analysts were not surprised by Intel’s 12 December announcement. In a research note, analysts at Jefferies said Intel’s admission now leaves Nvidia as the only semiconductor company not to lower expectations in the face of tightening HDD inventories.
“Our view was that it was only a matter of time before” Intel officials admitted the problems caused by the floods, the analysts said in a 12 December note.
Supply Chain Recovery
Ross Seymour, managing director of US semiconductor research at Deutsche Bank Securities, said it will take several months for the supply chain to begin improving, and that Intel eventually will benefit.
“The disruptions are cascading through the supply chain, and in response, customers are reducing their inventory of MPUs,” Seymour said. “We believe these supply concerns will dissipate over the course of 2012, and Intel is likely to benefit as customers restock depleted inventory.”
The IHS iSuppli analysts said HDD supply issues should improve in the first quarter, with suppliers having already moved production to sites outside of Thailand. That means that with the outside production site running, once HDD facilities in Thailand ramp up to speed, there could be a glut of supply in the market for a while, they said.