Dell (
DELL
) is set to report its third quarter earnings of fiscal 2012 on
Wednesday. Here we highlight a few key trends to watch for in the
upcoming earnings release. Dell, the third largest PC vendor in the
world, offer a number of products and services to both consumers
and business clients and competes with firms like Apple (
AAPL
), Hewlett-Packard (
HPQ
), and IBM (
IBM
) among others in broad information technology sector.
We currently have a
$20.75 Trefis price estimate for Dell
, about 35% above the market estimates.
See our full analysis on Dell
Revenues and Margins Likely Take a Hit Going
Forward
While Dell's revenue has grown for the past four quarters, the
growth rate has consistently declined as the company's core PC
business suffered from weakening demand due to rise of media
tablets as well as stellar performance from competitor Lenovo (
LNVGY
), which recently surpassed Dell to become the second largest PC
vendor in the world. (See
Military Use Gives Dell's Tablets New Life as PC
Market Share Slips
)
The global PC industry, already struggling against the growing
popularity of tablets and other mobile devices, is now bracing for
a potentially severe shortage of hard drives in 2012 in the wake of
severe flooding in Thailand, which yields a quarter of the world's
hard drives. Dell is expected to lower its outlook for the coming
quarter and full year as it stands to face supply chain
disruptions.
The flooding in Thailand has left many factories stranded which
may result in holding back of shipment. In addition to loss of
revenues due to inadequacy of supply, Dell's margin may also go
down in the coming quarter as supply shortage will push hard drive
prices up - as much as 40% according to some estimates.
PC Still Significant for Dell
Dell in the recent years has made a number of acquisitions and
moved fast to transform itself into software and services focused
organization. However, PC sales still make up a major chunk of
Dell's revenue and contribute nearly 20% to our $20.75 Trefis price
estimate for Dell. As Dell PC business faces multiple adversaries
like alternative products, increased competition, and supply chain
issues, the outlook does look grim for Dell.
We will be revisiting our valuation for Dell after it announces
Q3 earnings providing (hopefully) a clearer picture of what to
expect.
Understand How
a Company's Products Impact its Stock Price at Trefis