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Dell's Guidance a Concern, Say Analysts


Dell (DELL) is expected to report in-line third-quarter earnings on Tuesday, though a hard-disk drive shortage could take a toll on the PC-maker's guidance for the next few quarters.

These shortages, caused by flooding in Thailand, have disrupted operations in at least a dozen factories and its effect could last through the first quarter of 2012, according to research firm IDC.

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Dell CEO Michael Dell

Industrywide, PC shipments are expected to be cut by as much as 20% from previous forecasts during the first quarter. Thailand accounts for nearly half of all worldwide hard-disk drive production, IDC said.

Dell, whose supply parts maker Western Digital (WDC) has shut down several factories in Thailand, may see a significant impact from the flooding. Around 50% of Dell's revenue comes from products like desktops and notebooks which rely on hard-disk drives, said Jayson Noland, an analyst with Robert W. Baird.

"Dell is continuing to actively monitor the Thailand flooding situation, and while we expect hard-disk drive supply to be limited in the next several weeks, we are working closely with our HDD suppliers to mitigate any customer impact," Dell said in a statement. "We have teams engaging daily with affected suppliers regarding this industry situation in order to most effectively and efficiently manage our HDD supply chain."

Analysts don't expect the flooding to impact the third quarter and are estimating earnings of 47 cents a share on revenue of $15.7 billion.

Going forward, however, a lack of hard-disk drive supply could impact the next two to three quarters, said Kevin Hunt, an analyst with Auriga, with a full supply recovery unlikely until late 2012. A shortage will also likely boost prices that Dell will have to pay its suppliers.

As a result of the flooding, Bernstein Research analyst Toni Sacconaghi lowered Dell's fourth-quarter PC revenue forecast by 4% and the overall estimate by 2%.

"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 much too optimistic to think the company be unscathed," Stifel analyst Aaron Rakers wrote in a note. Rakers lowered his fourth-quarter estimates to earnings of 45 cents a share on revenue of $15.8 billion, down from previous estimates of 46 cents on revenue of $16.3 billion.

Overall, analysts expect guidance of 46 cents a share and revenue of $16.2 billion for the fourth quarter.

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