Reality Bites Microsoft's Earnings as Well

The Thai floods are taking the whole industry down, as Microsoft is the latest to pre-announce bad news.

Microsoft on Tuesday admitted that fourth quarter earnings would take a hit due to a drop in PC sales as a result of the massive floods in Thailand. How these are all connected shows that the term "supply chain" isn't just a saying.

Thailand was hit with the worst flooding in 50 years last October, and more than the tourist trade was impacted. All of the major hard drive vendors have manufacturing there, along with a number of suppliers of parts. Nidec, which manufactures the motors used in hard disk drives, reportedly had to cut production by about 60 percent, which was bad news because Nidec has a 75 percent share of the market.

Hard drive supply has dropped 30 percent since the floods, according to IHS iSuppli, which follows the technology supply chain markets. Prices for hard drives have doubled or even tripled at retail.

SSDs are not impacted by this since they are made by different vendors. They remain as ridiculously expensive as ever even as DRAM prices crash to earth.

The HDD supply is not expected to return to full production until mid-to-late second quarter. This means months of disruption, especially for the off-brand makers. If you're Western Digital and your supply is two-thirds of your demand, who will you satisfy first, HP and Dell or a white box maker?

Intel recently announced it is reducing its projections for Q4 revenue by $1 billion due to lost sales. You can't sell a PC without a hard drive, after all. Now it's Microsoft's turn. Microsoft will announce Q4 sales figures on January 19 but ahead of that, Bill Koefoed, Microsoft’s general manager of investor relations, told financial analysts at the JP Morgan Tech Forum on January 10 that sales will be off slightly.

"We will see that number decline further as the impact [of floods in Thailand] is felt faster than people anticipated," Koefoed said. He added "The supply chain is recovering faster than expected, but it has had an impact on the PC market."

It's unfortunate for the tech sector that its fourth calendar quarter got ruined, but really, a little context here; 800 people in Thailand lost their lives to those floods.

Meanwhile, at CES, Microsoft officials have said Windows 7 has surpassed 500 million copies to date. A beta of Windows 8 is due next month. There's quite a few Windows 8 tablets on display at the show earnings raves, according to this roundup from The Windows Club.

• Financial Results
• disasters
• earnings
• Microsoft
• Thailand
• Windows