Dell's third quarter: All eyes on the supply chain

Summary:Dell faces multiple wild cards, but the biggest one will be its fourth quarter outlook amid hard drive shortages.

Dell's third quarter earnings are likely to meet or beat Wall Street estimates, but most analysts are expecting the company to cut its fourth quarter outlook due to hard drive shortages and demand wild-cards.

The company is expected to report earnings of 47 cents a share on revenue of $15.7 billion. However, the outlook is tricky.

Related: PC makers vs. hard drive shortages: Q4 likely ok, Q1 a clunker | Thailand floods to lead to hard drive shortages for months

Wanted: More hard drive supply after floods in Thailand.

Dell is facing weak consumer demand that could affect a third of its business. On the bright side, Dell's results live and die with enterprise demand, which is solid for now. What's unclear is how Dell will manage through hard drive shortages.

Wall Street is expecting fourth quarter earnings of 45 cents a share on revenue of $16.17 billion.

Sterne Agee analyst Shaw Wu highlights how unpredictable Dell's outlook may be. He said:

In terms of its outlook, investors pretty much expect Dell to lower expectations due to the ongoing situation with hard drive production. However, the wildcard remains how much the company will do so. There are several conflicting data points including talk of PC production cuts of as much as 20%. However, there are positive ones as well with production being made up elsewhere, spot pricing somewhat subsidizing, and contract pricing, on which the majority of OEM deals are based, not being impacted much. In addition, alternative sources including SSDs have also made up some of the slack.

Stifel Nicolaus analyst Aaron Rakers said:

It is becoming increasingly apparent that the PC/server/storage industry will be faced with hard drive shortage related challenges in 1H2012 (2-3 quarter issue?). While we expect the larger system vendors such as Dell will be able to mitigate the impact of this disaster better than others, we believe it would be much too optimistic to think that the company be unscathed.

Topics: Dell, Hardware

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.