PC makers are likely to weather any hard drive shortages in the fourth quarter since they have inventory of supplies as a buffer. The first quarter, however, could be tricky, according to Jefferies.
In a research note previewing Dell and HP earnings Nov. 15 and Nov. 21, respectively, Jefferies analyst Peter Misek outlined the aftershocks from the floods in Thailand. As noted previously, flooding in Thailand has rattled hard drive makers and their suppliers. Western Digital took the biggest hit.
Misek concludes that the fourth quarter for PC makers like Dell and HP should be solid. However, these strong quarters aren't exactly demand driven. Given the hard drive shortages that loom it's likely that retailers and distributors will double-order PCs. Once this double-ordering plays out, an ugly quarter ending April 30 is likely to hit.
The Thailand floods disrupted hard drive supply but could counter intuitively help Dell's and HP's January quarter PC business as retailers and distributors clamor for as much supply as possible; however, we believe a significant shortfall could occur in the April quarter once PC and hard drive inventories are depleted.
The catch is that PC makers aren't likely to pass along these increased hard drive costs because demand is weak and the economy is uncertain. Toss in what could be a slowing corporate upgrade cycle, a pause ahead of Windows 8 and economic uncertainty and PC makers aren't in any position to be upbeat about future quarters.
According to Misek, the following scenarios could play out.
Vendors will push higher-end PCs to boost profit margins.
Solid state drives are pushed as an alternative.
Should PC supplies dry up, tablets may be chosen as replacements.
Branded PC makers will fare better than generic box makers.
For the PC buyer, it's unlikely you'll get great deals in the fourth and first quarter. If inventories are tight, vendors aren't going to be in a rush to drain the supply chain.