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

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.

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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.