Intel (INTC) Slashes its Fourth Quarter Guidance on Thailand Floods

Intel (INTC: Charts, News), the world's largest chipmaker and tech bellwether, became the latest casualty of the floods in Thailand, slashing its previous fourth-quarter guidance significantly due to a resulting hard drive shortage. The worst floods in half a century have destroyed many of the country's plants, heavily used by the tech industry as a cheaper alternative to China, and had reduced hard drive output by 52.4% in October.

Intel guided ahead conservatively, stating that microprocessor inventories and hard drive supplies would recover during the first half of 2012. It reduced its fourth quarter revenue forecast from $14.7 to $13.7 billion. Analysts had expected Intel to post $14.65 billion in sales. Margins are also expected to shrink from an expected 66% to 65.5%. While investors were not surprised, considering Texas Instruments' (TXN: Charts, News) similar forecast reduction last week, shares were still punished, sliding over 5% during Monday trading. Ongoing market turmoil due to European woes accelerated the slide, dragging down computing stocks such as Hewlett-Packard (HPQ: Charts, News) and Dell (DELL: Charts, News), as well as fellow chipmakers AMD (AMD: Charts, News) and Nvidia (NVDA: Charts, News). Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here Income investors holding Intel have little to worry about, though - the company is still cash rich and pays a hefty 3.3% dividend. Shares have a low beta and are ideal for conservative investors avoiding volatility. However, growth investors have grown impatient with the movement of the stock, which has traded sideways for over a decade despite the dominance and growth of the Wintel empire. Meanwhile, mobile processor manufacturer ARM Holdings (ARMH: Charts, News) captured the heart of the mobile world, with its fast, power-saving architecture becoming the de facto standard of the smartphone and tablet industries. Even rival Nvidia (NVDA: Charts, News) laid claim to mobile computing with its popular Tegra all-in-one chips. Intel lagged its rivals, despite being the bread and butter of the corporate world. Yesterday, Hewlett-Packard made the surprising announcement that it was considering building servers based on ARM-based chips, which engineer Michael Wolfe insisting that it's time for them to be considered for high-performance computing applications which consume less power. Even Microsoft's (MSFT: Charts, News) always late to the party" CEO Steve Ballmer suggested earlier this year that Windows 8 would be optimized for ARM chipsets. These two announcements suggest that Intel's position in both servers and regular PCs is becoming increasingly vulnerable to the threat of previously niche processor manufacturers. Bullish analysts are suggesting that investors overlook the floods in Thailand in favor of a longer-term investment horizon, believing that the guidance reduction was also due to excess inventories, which can be corrected by the first quarter of 2012. Bulls also point out that the company's core business of enterprise data centers remains strong, despite macro weakness. In addition, Intel's new Ivy Bridge processor and Ultrabook laptops are expected to boost its margins considerably and offset further losses incurred by the Thailand floods. However, Piper Jaffray rates Intel as neutral, citing the company's shortages occurring at an extremely unfortunate time, falling on both Chinese New Year and Christmas - two major gift buying holidays in the east and the west, respectively. In addition, many gift buyers are likely to purchase a smartphone or tablet instead of a laptop or desktop - which benefits Apple AAPL, ARM Holdings, Qualcomm (QCOM: Charts, News), or Texas Instruments - but harms traditional processor makers such as Intel and AMD. Bears also believe that Intel has understated the damage done by the Thailand floods, which will be exacerbated by poor sales numbers during the holiday season. Shares of Intel currently trade with a forward P/E of 9 and a PEG ratio of 0.94, suggesting cheapness on a technical level. However, opposed to other growth tech stocks such as Apple (AAPL: Charts, News), Intel has hit a severe growth bottleneck that may get tighter as its underdog niche opponents start to ford the company's previously impregnable moat. Other News About INTC Intel: Bulls Rush to Defense; Sales Deffered or Sales Lost? Intel analysts battle it out. Intel Lowers 4th Quarter Guidance on Supply Constraints Intel gets hit hard by the ongoing floods in Thailand. Other Stocks in the News MF Global: Were The Risks Clear? MF Global is still in the embarrassing spotlight. AT&T: IPhone 4S Sales Fuel Record Smartphone Pace iPhone sales setting new sales records for AT&T. Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. 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Published on Dec 13, 2011
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

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