Downside to HP and Dell as PC Shipments Drop
Intel (NASDAQ:INTC), the world’s largest chip company, recently reduced its fourth quarter revenue estimates by 6.8% citing that the continued hard disk drive supply shortage due to flooding in Thailand is holding up computer manufacturers. This is leading to lost sales for microprocessors and memory chips.  With PC manufacturing taking a near term hit, we see some possible downside for leading PC makers like HP (NYSE:HPQ) and Dell (NASDAQ:DELL) using some back of the envelope estimates given our market share and pricing assumptions for these companies.
We estimate PCs make up nearly 13% of our $42 Trefis price estimate for HP.
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HP Could Lose $1 Billion in Revenues
With processor pricing close to one-fifth of that of the PCs, we estimate that $1 billion of lost revenue for Intel could roughly amount to a $5 billion loss for the PC makers.
Also Intel’s market share in the PC processors is close to 80% for desktops and notebooks combined, and the total loss for overall microprocessor market could be even higher at around $1.25 billion as other players like AMD (NYSE:AMD) and nVIDIA (NASDAQ:NVDA) are also likely to take a hit. This would mean a potential revenues loss of $6 billion with PC pricing at five times that of processors for PC vendors.
This is particularly bad for HP, the leader in the PC market, as it has 18% share in worldwide PC shipments.  This roughly equates to HP missing out on revenues worth $1.1 billion (out of the total $6 billion revenue loss for the market) as a result of the current hard disk drive supply crisis.
First Quarter 2012 will Be Worse
Research firm IDC also estimates PC shipments may be hit by as much as 10% in fourth quarter of 2011,  which leads to similar figure of $6 billion revenue loss for PC makers using an average PC price of $600.
However, the worst impacts could come in the first quarter of 2012 when the total PC shipments could be depressed by more than 20% in Q1 2012 as HDD prices rise sharply due to supply-demand mismatch resulting in more revenue loss for firms like HP and Dell. If it gives any idea of the scale of the crisis, Thailand accounted for 40 to 45 percent of worldwide HDD production in the first half of 2011.
As the shipments go down in 4Q11 and 1Q12, we foresee a downside to our $42 Trefis price estimate for HP.
Dell Likely To Be Impacted More Than HP
Even though HP is the largest PC maker, we expect the impact of the crisis to be more pronounced on Dell which is much more dependent on its PC business and derives nearly 22% of its value from it. We estimate there could be meaningful downside to our $21 Trefis price estimate for Dell as a result.
Understand How a Company’s Products Impact its Stock Price at TrefisNotes: