Intel today announced a lowered guidance for the fourth quarter compared to the previous outlook. Instead of $14.7 billion plus or minus $500, the company now expects revenue to be at $13.7 billion plus or minus $300 million, both GAAP and non-GAAP. That’s a cool $1 billion less than the initial forecast given. Intel blames the scaled down outlook on the HDD shortage, which emerged after the flood in Thailand.
Gross margin is now expected to be 64.5% (GAAP) or 65.5% (non-GAAP) versus the previous 65% (GAAP) and 66% (non-GAAP). All other forecasts remain unchanged. Interestingly, this reduction in margin is entirely volume driven. According to CFO Stacy J. Smith, ASPs should actually go up a bit, since the HDD shortage affects the lower end of their sales mix the most.
Intel strains that sales of PCs are still up sequentially in the fourth quarter, due to strong seasonality. However, companies in the PC supply chain are reducing inventories due to the HDD shortage, which had a negative effect on microprocessor sales. Intel expects the HDD shortage and thus constrained CPU sales to continue into the first quarter of 2012. Only in the first half of the second quarter the company expects that inventory levels should rise a bit again, which means more business for them.
Intel in general doesn’t see any general trend and still believes that CPUs remain in high demand. In the conference call on today’s announcement, company executive explained, that while server sales are healthy, the PC segment of their CPU business was hit the hardest. Analysts expressed some concerns over inventories building up at Intel, but according to the CFO these should remain below what one might expect.
Another interesting point mentioned on the call was, that Intel actually expects SSD sales to go up in response to the HDD shortage. Until now, they couldn’t observe a change in the SSD sales pattern and demand yet, though. But obviously it would be a nice outcome for Intel and also align with their Ultrabook strategy.
It remains to be seen how it affects other suppliers in the ecosystem as well as companies downstream. In our analysis on the crisis published at the beginning of November, we already doubted the claims AMD and Intel gave at the beginning of the quarter. Back then the chip companies claimed the HDD shortage won’t affect their bottom line substantially. We already expected there to be an adverse effect on the whole industry and now they start to materialize. Intel tries to explain this oversight, by stating that their business proceeded as normal in October, but once their customers got informed by HDD manufacturers of the changed supply situation, orders for certain products declined substantially.
After Intel made this announcement, various technology stocks on NASDAQ made a substantial downward movement. AMD and Intel stocks declines by about 4.6%, which clearly shows that investors believe AMD to be in the same boat in that regard.