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How bad is the hard disk shortage?

Intel forecasts a $1B revenue miss and blames the hard disk drive shortage. How bad is it? For the next few months, at least, pretty bad.

The price of a 1TB Seagate Barracuda drive has stabilized a bit but is still up about $80 from its price in October.
The price of a 1TB Seagate Barracuda drive has stabilized a bit but is still up about $80 from its price in October.

Intel's market-moving statement today that it expects a fourth-quarter revenue shortfall of roughly $1 billion has crystallized the impact of the hard disk drive shortage. So how bad is it?

A report last week from IHS-iSuppli said it's pretty bad--a preview of what Intel said today. That is, the flooding in Thailand will hit PC shipments in the first quarter. iSuppli says the shortfall will be about 3.8 million PCs.

And it will knock down PC numbers for the whole year. Global PC shipments for the whole of 2012 are now expected to expand by only 6.8 percent in 2012, down from the previous outlook of 9.5 percent growth, according to iSuppli.

Let's look at the highlights of what Intel executives said today in a conference call, as they were pretty straightforward about the shortage's severity.

It's the first quarter where things really get dicey: "We do expect...[the] shortage of HDDs to be pretty significant in the early part of 2012," said Stacy J. Smith, Intel's chief financial officer today to analysts in the call.

Smith added that things have taken a turn for the worse over the last couple of weeks as customers have reduced future orders for Intel chips as they realize that they can't get enough hard drives for their computers. "It's really been in the last couple of weeks as the big hard disk drive manufacturers have given their statement of supply on a customer-by-customer basis that we saw a quick dropping off of backlog as customers aligned the purchases of microprocessors with future shipment of an HDD," Smith said.

What kind of computers are getting hit the hardest?: In a word, PCs. "Server has been relatively strong but we're seeing a pretty significant reduction in backlog in the PC-related segment of our business so that seems to be where it's really hitting us," said Smith.

When will supply catch up with demand? That's not clear. Intel is only guessing at this point. "We expect supply to catch up to overall demand sometime in the first half of 2012. Where exactly that happens over the course of the first half, too early to say, but we do expect that this will catch up sometime in the first half," said Smith.

And what about solid-state drives? So far, Intel has not seen a significant pick-up in solid-state drive orders. But that may change as more SSD-packing ultrabooks hit the market and companies reassess HDDs. "So far, we have not seen a big uptick in demand for SSDs. That said, I do expect that to happen. I think it will be one of the ways that the industry helps offset some of the HDD shortage," said Smith.

What's happening on the street at retailers? Retailers still have drives but some of the bigger stores have sold out of the least expensive variety. And prices are going up, up, up. "Prices are going up tremendously," said a sales representative at Fry's Electronics, whose warehouse-size stores sell lots disks to consumers.

"And we're all out of OEM (original equipment manufacturer) drives. Those are the ones shipped from the manufacturer without any packaging or retail box. We're pretty much all out of those," he said. "Those were the cheap ones. All we have is the boxed (more expensive) ones now."

How much has the price of a 1TB (terabyte) drive risen? "Right now you're looking at $99 where before it was $50," the representative said, citing one of the least expensive models. And he added that prices will not be going back down for a long time. But how long a "long time" is, is anybody's guess.

(Note: a Newegg price tracker tool shows how the price of a Seagate Barracuda ST31000524AS 1TB drive has stabilized a bit over the last few weeks but is still $80 above the price it was in mid-October.)