Computer chip-maker Intel Corp. (INTC) lost almost 5 percent today after lowering its revenue outlook for the fourth quarter. Intel stated that the lowered outlook was connected to a reduction in the global supply of hard discs.
Shortage Most Likely Due to Thai Floods
While Intel declined to state the reason for the reduced supply, it is most likely due to the flooding in Thailand that still has some areas under as much as six feet of water. Major hard drive makers Western Digital Corp. (WDC) and Seagate Technology (STX) are among the many companies that operate factories in Thailand, which produces about 45 percent of the world's hard drive supply. Santa Clara, CA-based Intel had previously forecast revenues for the 4th quarter between $14.2 billion and $15.2 billion. However, with the disruption to supply, the chip-maker is now forecasting $13.4 billion to $14 billion. Markets responded poorly to the revised outlook, and Intel's shares dropped over 4.25 percent in early trading.
More Bad News to Come?
With hard drive makers predicting that supply chain disruptions will continue for at least several quarters, Intel could just be the first domino to fall in downward trends across the technology sector. Other PC makers like the Hewlett-Packard Company (HPQ) and Dell Inc. (DELL) have already announced expectations for disruption in their supply chains as well. Across the board, PC-makers are expecting to be building fewer PCs than normal because of the shortages, which have manufacturers buying up as many hard drives as possible in order to weather the coming storm. This appears to be paired with a growing weakness in the PC market.
“We highlighted a much weaker than normal November for our ODM Barometer on Friday,” Brian White, an analyst with Ticonderoga Securities LLC, said in a note. “We believe this speaks to weakness in the PC and consumer markets, while the disruption in Thailand could also be impacting these results. This November was the second-weakest November on record, next to November 2008 when revenue fell 16% (month to month).” The weak numbers could also mean more doom and gloom prediction for the lagging economy as the industry has often acted as a bellwhether in the past. “If you see a slowdown in chips, it often is a leading indicator for the economy as a whole,” Bruce McCain, chief investment strategist at Cleveland’s Key Private Bank, a subsidiary of KeyCorp, told the Wall Street Journal.
Stocks were down across the technology sector as the markets on the whole had a rough day. Hewlett-Packard lost almost 2.5 percent, Dell was off close to 3 percent, and Western Digital also dropped nearly 3 percent.
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