Intel's Warning Will Mean Pain for Everyone

When you sell $200 products and sales drop by a billion dollars, that's a bad sign for everyone involved, including Microsoft.

Intel ruined the start of the trading week with some very bad news: it was lowering guidance for the fourth quarter by $1 billion due to lower sales, thanks to the flooding in Thailand.

For those not keeping up, allow me to backtrack.

In October, Thailand was hit with some of its worst flooding in decades and it lasted a while. Unfortunately for the tech industry, virtually all of the storage industry has factories there. On October 24, Fabrinet, a manufacturer of components for hard drives, said its plants would be closed through the rest of the quarter.

The end result can be seen in any local computer store. Hard drives are not an option, and with production essentially stopping dead, the entire supply chain has been impacted. Drive prices have gone through the roof, as documented by Bright Side of News, it won't end any time soon. Not with component makers closed through the year.

Apple warned in October it would have trouble getting supplies, and HP and Dell have also been affected. I listened to both of their earnings calls and hard drive supply and prices were top of mind for the Wall Street guys. With the economy in the state it is in and PC prices so sensitive to change, the last thing we needed was a shortage in parts and cost increase.

Now, Intel sells parts across a wide price spectrum, but whether it's a $200 desktop processor or $1,000 server, that product very likely as a Microsoft operating system on it, so we know what we can expect. At some point, Microsoft is going to have to say a) it will be negatively impacted and here's how much, or b) by some miracle it's not negatively impacted. I can't imagine how the second possibility takes place. Unsold PCs means unsold Windows licenses.

Dell and HP have said they don't expect the situation to return to normal until at least the second quarter of next year. You don't just pop these things together like Lego art. Getting a high-precision manufacturing plant up and running at full capacity is no easy task, especially given it took quite a while for the floods to recede in the first place. This was no minor flood. A large portion of the country was impacted.

People who've been to Fry's Electronics have noticed the prices have gone way up. As we burn through inventory of already built PCs during the Christmas quarter, this is going to mean PCs will get a lot more expensive going into the new year. IHS iSuppli, which monitors the supply chain for the PC industry, has said as much.

"The PC supply chain says it has sufficient HDD inventory for the fourth quarter of 2011. However, those stockpiles will run out in the first quarter of 2012, impacting PC production during that period," Matthew Wilkins, senior principal analyst of compute platforms for IHS iSuppli, said in a statement.

So if you need to buy a replacement PC, better do it now before prices spike.

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