Dell Q3 Earnings Tuesday: PC Biz Faces Strong Headwinds

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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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , DELL , HPQ , IBM , LNVGY

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