Microsoft Executives Warn 4Q PC Shipments May Be Worse Than Feared

Microsoft executives warned that industry analysts' expectations for a 1% decline in fourth-quarter personal-computer shipments may be too optimistic, as the aftermath of flooding in Thailand disrupts the supply of a key computer component.

The remarks suggest PC makers continue to struggle with production issues stemming from Thailand's worst flooding in decades, which had caused the shutdown of a large chunk of the world's hard-disk drive manufacturing operations. Meanwhile, the rise in tablets is weighing on demand for PCs and economic concerns are mounting, in part because of Europe's debt problems.

Tami Reller, the chief financial officer and head of marketing for Microsoft's Windows business, said Tuesday that the PC shipment forecasts from industry research firms Gartner and IDC could be too large.

Microsoft Investor Relations General Manager Bill Koefoed echoed that sentiment, saying of industry analysts' estimates for a 1% decline in volume, "you will likely see that number decline further."

Both executives blamed disruptions related to the Thailand flooding for the worse-than-expected volume, while Reller also referred to "macroeconomic reality."

"The impact had been felt faster than I think people had anticipated," Koefoed said. "I think some of the supply chain vendors have talked about how they are kind of recovering faster than they had expected. But certainly, it has had an impact on the PC market."

The executives were speaking at analyst forums during the consumer electronics show in Las Vegas. Their comments came as Gartner and IDC are due to report fourth-quarter PC shipment data Wednesday afternoon.

Microsoft shares declined 1.5% to $27.41 in premarket trading Wednesday. Meanwhile, shares of bellwether chip supplier Intel Corp. (INTC), dipped 4 cents to $25.45.

Last month, Intel warned its fourth-quarter revenue will fall $1 billion short of its prior estimates due to hard-disk drive shortages hurting its core PC market. Chip makers Texas Instruments Inc. (TXN) and Altera Corp. (ALTR) have also recently cut financial forecasts, citing weaker demand amid economic worries.

About 40% of the hard-disk drive industry's total output originates in Thailand. Heavy flooding there had caused companies such as hard drive maker Western Digital Corp. (WDC) and component supplier Hutchinson Technology Inc. (HTCH) to suspend operations there.

--By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; [e-mail]