UPDATE: Intel Cuts 4Q Revenue Outlook On Lower PC Production

Intel Corp. (INTC) warned its fourth-quarter revenue will fall about $1 billion short of its previous guidance as shortages of hard-disk drives is expected to hurt its core PC market for the next few months.

The worst flooding in decades in Thailand has dismantled or damaged a large chunk of the world's hard-drive manufacturing operations, causing a slowdown in PC production and the need for fewer chips by computer makers, Intel said. The Santa Clara, Calif., company had said it didn't expect an impact in the current period from the flooding.

Intel expects the weakness to continue through the first quarter. The slowdown in computer production comes as the rise of tablets weigh on demand for PCs and as concerns grow about the global economy because of Europe's problems and the perception of slowing growth in China.

Monday, Intel said it now expects fourth-quarter revenue of $13.7 billion, plus or minus $300 million, down from the previous view of $14.7 billion, plus or minus $500 million. Intel also lowered its fourth-quarter gross margin view to 64.5%, plus or minus a couple of percentage points, versus 65%, plus or minus a couple of percentage points.

The news sent Intel shares down 4.1% to $23.98 in recent trading, trimming some of the stock's gains from the past few months. Despite the slide, the stock has climbed nearly 10% over the past 12 months. PC chip rival Advanced Micro Devices Inc. (AMD) also traded lower, off 4.3% to $5.30, while computer graphics chip maker Nvidia Corp. (NVDA) slid 3.8% to $14.33.

Intel added that it expects sales of personal computers to be up sequentially in the period, despite the flooding and PC makers buying fewer chips. The company said it 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.

The warning is a sharp reversal for Intel, which has been blowing away estimates in recent quarters, helped by its server chips. The company also has held a more optimistic view of the PC industry because of strength in so-called "white-box" desktops in emerging markets.

Those PCs are either self-built or made by small computer shops, as opposed to PCs produced by Hewlett-Packard Co. (HPQ), Dell Inc. (DELL) and other computer giants. Intel Chief Executive Paul Otellini said earlier this year that about a third of all PCs sold in emerging markets are not branded machines.

While Dell and other large manufacturers have expressed caution around the hard-drive shortages caused by the flooding, it's likely to be white-box manufacturers who suffer the most, Bernstein analyst Stacy Rasgon said.

"Intel has been pointing to a ton of upside coming from emerging market white-box machines," Rasgon said. "But if somebody's not going to get hard drives, it would be white-box manufacturers."

IHS iSuppli earlier this month said the Thailand flooding will spur a shortfall of PCs in the first quarter and cause global computer shipments to rise only 6.8% in 2012, down from its previous outlook for 9.5% growth.

Many tech companies--including hard drive maker Western Digital Corp. (WDC) and component supplier Hutchinson Technology Inc. (HTCH)--had suspended operations in Thailand as rising water floods their facilities. About 40% of the hard-disk drive industry's total output originates in the country, something that is leading to supply shortages and hurting customers such as computer makers.

Last week, Texas Instruments Inc. (TXN) and Altera Corp. (ALTR) cut their guidance for the fourth quarter as worries about the broader economy led to weaker demand across most of the chip makers' end markets.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

--Lauren Pollock contributed to this report.

Altair Engineering (NASDAQ:ALTR)
Historical Stock Chart
From May 2024 to Jun 2024