By Noel Randewich
SAN FRANCISCO, Jan 18 (Reuters) - Hard-drive shortages may be the least of Intel Corp’s (INTC.O) worries in 2012: the top chip maker and distant rival Advanced Micro Devices Inc AMD.N, face a steady crumbling of global personal computer demand.
Intel warned last month that the damage wrought by flooding in Thailand - the world’s largest producer of computer drives - persists and would curtail December-quarter earnings, set to be unveiled on Thursday. [ID:nL1E7NC3AG]
But some on Wall Street think the short-term blip in storage supply blurs a deeper problem. Analysts increasingly believe demand for PCs may even fall short of the industry’s scaled-back expectations as consumers tighten their belts or opt instead for gadgets such as Apple Inc’s (AAPL.O) iPad.
“The hard drive supply issue is masking global macro demand issues. How much weakness in demand is being covered up by the hard drive shortage? I don’t think demand has materially gotten better,” said Evercore Partners analyst Patrick Wang.
Despite hopes Microsoft Corp’s (MSFT.O) long-awaited Windows 8 might give the lumbering industry a shot in the arm, many experts expect the PC industry to struggle through at least the first half of 2012 as hard drive plants in Thailand hit by catastrophic floods last year repair damaged production lines.
IHS iSuppli in December cut its 2012 forecast for PC shipment growth to 6.8 percent from 9.5 percent, but some analysts call that estimate optimistic.
Longer-term, analysts say Silicon Valley icon Intel needs to come up with an answer to Apple and the new breed of increasingly powerful gadgets, such as tablets, that are luring PC users away.
Intel is expected to post fourth-quarter revenue of $13.718 billion, down from $14.3 billion in the previous quarter. It is seen forecasting revenue of $12.799 billion for the current March quarter, according to Thomson Reuters I/B/E/S.
Santa Clara, California-based Intel’s net income for the fourth quarter is seen dipping 4 percent, year over year.
Intel’s processors still turn up in four-fifths of the world’s PCs, but the company that once lorded over personal computing has so far been shut out of a booming market for tablets and smartphones, such as Apple’s iPad and Google Inc’s (GOOG.O) Android smartphones.
Hoping to safeguard its position, Intel this year will kick off its largest marketing campaign since 2003, with “Ultrabooks” - instant-on laptops it hopes can stand up to the likes of Apple’s Macbook Air, while giving off some of the technological chic the iPad and other tablets exude.
The super-thin devices impressed some at last week’s Consumer Electronics Show in Las Vegas, but many remained skeptical consumers would be willing to shell out premium prices to buy them instead of cheaper, run-of-the-mill laptops.
“Intel’s (quarterly forecast) numbers look achievable, but going forward, I still think there’s too much optimism on PC units and too much optimism in the near term on Ultrabooks,” said Brad Gastwirth, co-founder of ABR Investment Strategy, an independent research firm.
Boosting optimism about a recovery in the wider chip sector, ASML Holding NV (ASML.AS) said on Wednesday demand for its lithography tools was improving, pushing its shares to an 11-year high. [ID:nL6E8CI067]
ASML’s performance suggests a rebound after a recent selloff in chip inventories and hints at the end of a slump in orders for semiconductors - especially for components used in smartphones and tablets.
But for now, PCs makers face uncertain demand and some buyers might hold off until Intel’s new Ivy Bridge chip hits the market, expected around April.
The world’s largest chipmaker has long argued that emerging markets such as China will take up the slack as the United States and Europe battle economic malaise.
But Kevin Cassidy, an analyst at Stifel Nicolaus, expects Intel’s PC processor shipments to stay flat this year. It is expected to expand its revenue a meager 2 percent in 2012, according to Thomson Reuters I/B/E/S.
Even Windows 8 could weigh on Intel’s 2012. Some experts say it will create new competition for Intel, with Microsoft’s flagship operating system compatible for the first time with power-sipping ARM Holdings Plc ARM.L chips - widely used in tablets.
Billed as Microsoft’s biggest refresh since switching from its text-based DOS system to a graphics interface over 20 years ago, Windows 8 is expected to lead to a crop of laptops made by Intel rivals such as Qualcomm Inc (QCOM.O) and Nvidia Corp (NVDA.O) using chip designs licensed from Britain’s ARM.
Analysts say ARM-powered laptops are unlikely to meaningfully dent the PC market this year. But they warn the arrival of Windows 8 on tablets could entice more consumers away from laptops to tablets capable of running Windows-compatible applications such as Microsoft Word and PowerPoint.
And any delay by Microsoft in launching Windows 8 risks creating postponing PC purchases further as consumers await the release, they warned.
Fears of falling PC sales hurt the shares of Microsoft, Dell Inc DELL.O and Intel for much of 2011. Intel’s stock has recovered over the past three months, partly due to the chipmaker’s still relatively high 3.3 percent dividend yield.
While still trading at a relatively low 10.6 times expected earnings, the shares recently hit a 52-week high.
AMD is expected to post $1.715 billion in revenue for its fourth quarter when it reports on Tuesday and to forecast $1.595 billion in revenue for the current quarter.
Sunnyvale, California-based AMD has not lowered its December quarter earnings forecast to account for the hard drive shortage, but it may get a boost from added sales as it ships extra orders to catch up from a September setback in manufacturing its new “Llano” processors, analysts say.
In recent quarters, Intel surprised investors with resilient growth in emerging markets, helping offset the tougher U.S. and European environment and analysts are hedging their bets.
“I think there’s a chance they’ll come out and guide (above expectations). If that were to happen, I’d expect the stock to pop. But I don’t think the stock has legs here because there’s really nothing to follow through with on that,” Wang added.
(Reporting By Noel Randewich; editing by Gerald E. McCormick and Andre Grenon)
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