It has been expected for some time now that the fallout from Thailand’s well publicized flooding and resulting hard drive shortage would have wider ramifications than just impacting the businesses of Western Digital and Seagate and driving up hard drive prices, and now those other outcomes are finally starting to occur. Today Intel became the latest casualty of the shortage when they announced that they were reducing their Q4’11 earnings estimate from $14.7B in revenue to $13.7B due to the shortage and its impact on new computer sales.

Even though Intel is a moderately diversified business – they have their hands in everything from CPUs to NICs to SSDs – virtually everything Intel sells is tied to the sale of new computers. As the hard drive shortage has continued and existing stocks of hard drives have been emptied the lack of cheap hard drives has made them the de facto bottleneck in computer production, leading to the slowing the production of new computers for both the consumer and enterprise markets. This in turn is directly reducing the demand for Intel’s products, most notably CPUs, and is why Intel has had to revise their earnings estimate down.

Intel notes that Q4’11 computer sales are still up over Q3, which means sales are still rising as they traditionally do, but at this point the lack of hard drives is capping computer sales at a lower level than they would otherwise reach. After the final sales are tallied at the beginning of next year, Q4’11 sales will almost certainly be down versus Q4’10, representing an unusual contraction in an otherwise good year for the PC industry.

Intel’s own guidance suggests that the shortage will continue to dog the company through Q1’12, and only finally begin to abate in Q2’12. It may very well take longer than Q2 for hard drive production to recover, but Intel isn’t speculating out that far. Regardless, Q2 is widely expected to be the launch for their Ivy Bridge CPUs, so it will be in Intel’s best interest for the shortage to come to an end quickly.

Intel of course won’t be the only casualty, but by taking a $1B reduction in revenue (and shaving 0.5% off of their legendary gross margin) they’re among the largest. By the time the shortage ends we’re expecting to still see several more companies and industries take a hit; AMD is a likely candidate for the same reason as Intel, but also NVIDIA & AMD for their GPUs, and the DRAM industry is highly prone to boom/bust cycles – this being at a time where DRAM is already at record low prices. There are very few industries that can go unscathed when 25% of the global hard drive production capacity for Q4’11 disappears overnight.

In Intel’s case they are at least partially diversified against a hard drive shortage through their SSD business, and while Intel doesn’t provide estimates for specific businesses it’s likely to be one of their stronger units for the quarter. Still, SSDs are not great replacements for hard drives (in an economic sense) so strong SSD sales cannot compensate for the significant drop in CPU sales due to the hard drive shortage.

Source: Intel Investor Relations