Dell Technologies Inc. (DELL) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Fiscal Year 2021 Third Quarter Results Conference Call for Dell Technologies Inc. I’d like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question-and-answer session. Rob Williams: Thanks, Erica and thanks, everyone for joining us. With me today are our Vice Chairman and COO, Jeff Clarke, our CFO, Tom Sweet along with our Treasurer, Tyler Johnson. Our press release, financial tables, web deck, prepared remarks and additional materials are available on our IR website. The guidance section will be covered on today's call. During this call, unless we otherwise indicate, all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, earnings per share, EBITDA, adjusted EBITDA and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Please also note that all growth percentages refer to year-over-year change unless otherwise specified and that VMware historical segment results have been recast to include Pivotal results. Additionally, I’d like to remind you that all statements made during this call that relate to future results and events are forward-looking statements, based on current expectations. Actual results and events can differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and SEC filings. We assume no obligation to update our forward-looking statements. Finally, before I turn it over to Jeff, I want to touch on the amended 13D we filed in July regarding our exploration of potential alternatives with respect to our ownership interest in VMware. We believe a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility, while maintaining a strong commercial partnership between Dell and VMware. Both Dell and VMware have publicly highlighted mutual interest and the potential benefits of such a transaction and have engaged on key work streams including mutually beneficial commercial arrangements and Dell's expectation of a substantial cash dividend to VMware stockholders in connection with such a transaction. As a reminder, the earliest a transaction could close would be September 2021 with an announcement coming between now and then assuming we can come to an agreement. There is also the possibility that we will not do anything and we would maintain our current ownership structure. With that said, we will not address the discussions any further or take questions related to this topic on today's call. Jeff Clarke: Thanks Rob. We have now been through three quarters of navigating an uncertain and at times, difficult year. We have been tested across our global society, across industries and companies, as teams and as individuals like never before. I could not be prouder of how the Dell Technologies team has responded. We’re growing, innovating and delivering for our customers in extraordinary ways, when and how they need us most. Through it all, one thing is clear, the mega technology trends that we have long called out are accelerating, and these trends are highly favorable to Dell Technologies. We are uniquely positioned to win in the growing markets of 2020, and we are making the right investments and innovating to capture the growing markets of tomorrow. For the vast majority of companies, digital transformation is now a must-have and accelerating. We see it in our customers’ interactions. We see it in our data. In October, we released the third installment of our latest digital transformation index, where we have been tracking digital transformation patterns of more than 4,000 customers since 2016. Our 2020 index revealed that 80% of organizations globally have fast-tracked digital transformation programs. And when compared to the 2018 study, nearly 25% of respondents have progressed from being digital laggards or followers to a more advanced stage in their digital journey. This is great news for our customers’ future and more broadly for the global economy. And it’s also great news for us with major investments going towards edge, distributed work and modern consumption, cybersecurity, 5G infrastructure, digital experiences and data management. Together, these trends are taking us to a future that is highly distributed with distributed workforce, learning and healthcare, enabled by distributed technology infrastructure, computing, analytics and real-time outcomes at the edge. Organizations investing today will have an advantage tomorrow. And they are turning to Dell Technologies as their strategic partner. Let me use a real customer example to talk about the edge. FedEx CIO, Rob Carter, was with me last month at Dell Technologies World, where we talked about how latency, decentralized computing and data-driven insights they need to lead in the Internet of Everything. FedEx uses an array of our hybrid cloud technology to bring simplicity and speed to the edge, including VxRail, VMware and Pivotal in cloud-native environments, all to keep our world connected and moving. Tom Sweet: Thanks, Jeff. Overall, we have executed well this year, navigating through an uncertain macro environment. We've delivered stable and differentiated performance by leveraging our diversified IT platform and leaning into the current growth opportunities in a disciplined way. And, we're driving value by expanding profitability faster than revenue and generating strong cash flow, which has enabled significant debt pay-down. Rob Williams: Thanks, Tom. Let’s get to Q&A. We ask that each participant ask one question to allow us to get to as many of you as possible. Erica, can you please introduce the first question. Operator: Your first question is from Toni Sacconaghi with Bernstein. Toni Sacconaghi: Yes, thank you. I’m wondering if you can comment a little bit about the forces at work on margins in both your PC and your enterprise business. So, specifically, how much is sort of cyclically lower OpEx spending, things like less travel, less promotion helping both sides of the business? Secondly, what are you seeing on components? DRAM is essential to both, yet, we’re seeing record margins in PCs and we’re not really – we’re seeing kind of weak margins in enterprise. And then thirdly, what are you seeing in the pricing and competitive environment? Should we be reading into the weak margins and the sequential deterioration in margins in enterprise being a function of incremental price competition, given continued softness in the market? Thank you. Tom Sweet: Hey, Toni, it’s Tom. Let me start and then Jeff can jump in here as well. So, look, as we think about sort of the margin dynamics – the operating margin dynamics across the various segments of the business, I’d characterize it like this. Obviously, the cost constraint actions that we did earlier in the year have been helpful from a – from an operating margin perspective. I would remind everybody that those were put in at the time when there was significant uncertainty on the COVID impact and obviously we’re still not through the navigation of that, but we will think our way through, how do we think about the long term sustainability or lack thereof of some of those OpEx actions as we get into next year. But as we think about PCs, for instance, right, that clearly component costs have – were inflationary for most of the year. The dynamic, though, Toni, has been that component – some of the parts shortage and parts dynamics have, I would say, prevented a bit of or sort of encouraged rational pricing in the PC space. And so when some of the – for instance, screens are in short supply, you don’t need extraordinarily aggressive pricing, it’s still price competitive, but not as competitive. And then on the enterprise mix or enterprise side of the house, clearly data center has been softer this year. And as a result of that, we have seen – and we’ve talked about it in the past calls, pricing pressure, particularly on the large bid business, generally in the computer server space. Storage is a little less sensitive to the pricing just given the IT that’s embedded and the solution capabilities. But net-net it’s – those are the dynamics that we’ve been navigating our way through. And maybe, Jeff, you can jump in and add some color if you’d like. Jeff Clarke: Sure. Let me start with component pricing, Toni, it might be helpful. So we look at Q3, Q3 from our perspective was slightly inflationary as Tom mentioned, driven by DRAM, NAND and LCDs, our structural commodity category. As we look into Q4, it flips to be slightly deflationary, driven by DRAM and NAND, offset by the shortages the industry is encountering around LCDs. So I think that’s the kind of component-driven cost environment. There are a couple of sub-categories that are, I think, important for you to think about. One would be LCDs and then particularly the components that go into the LCDs, most notably T-CONs and drivers, ICs. Those are in short supply driving up the cost of LCDs. And then likely, there is going to be challenges in the freight network towards the very end of the year as airplanes get filled up with vaccines and are all competing for a limited amount of space. So that’s how we look at the cost environment. Tom hit across pricing, if I went by specific product, notebook prices have generally firmed up around the industry. We have the demand supply dynamic that Tom talked about. Desktop pricing is a little more competitive than normal, given that the demand for desktops has fallen considerably over the year. If I were to look at servers, servers we still see the aggressiveness in the very big deals. Although as we mentioned in our prepared remarks, there is less of those and we mentioned that in Q2 as well, but nothing out of the ordinary beyond that in the big deals in servers. And the same is true in storage. We’re not seeing anything out of the ordinary. Obviously, when we’re doing competitive swaps, those bids are fairly aggressive. Our discounting has been stable. We’ve not seen any major price move in the industry since July. So that’s – in detail, how we look at the pricing environment that we’re operating in today. I hope that was helpful. Toni Sacconaghi: That was all helpful. If you could just comment on the cyclical OpEx reduction because of travel, et cetera, and does that become a headwind at some point. Tom Sweet: Yes, hey, Toni, it’s Tom. Look, I mean, as I mentioned, we did do a number of cost containment actions. And as we think our way through next year, as we build the AOP, our operating plan for next year, obviously there is a number of those cost containment actions that are not going to be sustainable long-term. So we are going to have to work our way through, how do we reset or rethink some of the OpEx framework. But that’s no – we’re always having to do a bit of that and so we’ll have to work our way through the P&L framework for next year to make sure everything holds together the way we want it to, but we’ll have to address it. Jeff Clarke: We recognize some of the cost moves we made this year are not sustainable as we head into next year’s plan. Toni Sacconaghi: Thank you. Tom Sweet: Thanks, Toni. Operator: Your next question is from Wamsi Mohan with Bank of America. Wamsi Mohan: Yes. Thank you. Jeff or Tom, can you talk about the enterprise spend outlook? And Jeff, you opened the call talking about digital transformation and sort of this hybrid cloud transition, over time how that should help. Why is that not creating a better uplift in server revenues? If you could just talk about, is ISG potentially on a trajectory of growth as we look into the next fiscal year. And I have a quick follow-up. Jeff Clarke: Of course, Wamsi, I’ll take a swing at it and Tom, I’m sure, will come over the top, and we step back and kind of look at this in the macro. FY2019 for us was an extraordinary enterprise year, specifically for servers. FY2020 was a year for digestion. And quite honestly, a year ago when we were planning the business for FY2021, we thought there was a modest growth opportunity. Pandemic hits, we see companies respond to the pandemic by really pushing their budgets towards three specific areas: work-from-home; business continuity, and strategic digital transformation activities. Broad-based enterprise deployment or buys have been slowed, as we’ve mentioned over the previous calls and we mentioned in our remarks. So if I start there that the pandemic has really changed the profile this year and really slowed down investments and those budgets are under pressure and those budgets are increasingly or have been increasingly been used over the year for things that certainly weren’t contemplated. A work-from-home environment, where large percentages of company’s workforces still remain at home, and that’s where the investments have gone. If you look at our business, in our remarks, we talked about enterprise continues to be challenged, the very large businesses, the very large bids continues to be a challenged area for us, but we did see signs where our small and medium businesses did grow. We saw sequential improvement in our server business, which we’re encouraged by. We continue to keep the product line fresh, we keep the product line in price position. And probably, maybe to close on it, before I turn it over to Tom. Look, we’re optimistic about what IDC and the other industry pundits talk about for next year. So this year, we are weathering through a server marketplace that’s down 6%, storage marketplace that’s down somewhere in the same ballpark, 7%, if I remember correctly. And we are looking into a calendar year 2021, our fiscal 2022 with servers being up nearly 4% and storage being up nearly 5%. We think if the market responds, companies can no longer defer their investments in infrastructure and that’s the rebound. I hope that helped. Tom? Tom Sweet: Yes, Jeff, the only thing I would add is obviously part of our thinking around the ISG space is evidenced in our guidance that we just talked about in the sense of, we still expect Q4 to be relatively soft and if you look at on a – from an ISG perspective, if you look at storage, their forecast – IDC is forecasting storage at a minus 6% in Q4 and servers at a minus – roughly at minus 4.5%, mainstream servers that is. And so we do think that we’ve got to work our way through the remainder of the year and then we are cautiously optimistic. Obviously, we’ll have to see how the macro uncertainty plays out, but we do think that an investment cycle sets itself up next year, given some of the indications we’re seeing. And then again the IDC trends over the next three years or so are encouraging, but there is work to do, clearly. Wamsi Mohan: Well, thanks for that. Jeff, if I could, in the prepared remarks, you guys noted that VMware spend could happen in September 2021, if you came to an agreement. I know you're limited in what you can say around this, but any chance you can comment on the moving pieces that agreement hinges on, in terms of perhaps debt levels or ownership structure or high voting share conversion there? What are the pieces to think about that would make you either reach or not reach an agreement? Rob Williams: Yes. Hey, Wamsi, it’s Rob. I appreciate the question. We’re going to pass on that. We’re just going to keep the comments specific to what I had in the lead in. So we’ll – If we have an update, we’ll definitely let you know. Thanks. Let’s go to the next question. Operator: We’ll take our next question from Amit Daryanani with Evercore. Amit Daryanani: Thanks for taking my question. I guess, Jeff, I was hoping you could talk a bit more on the storage side. I think it was down 7% this quarter, which is the largest decline we’ve seen in the last 2.5 years, I think, and that’s despite PowerStore sounds like it’s doing fairly well. So maybe just reconcile the storage declines versus the new product momentum. And then when I think about this 4% number that you talked about for infrastructure in Jan, how do you – how does that stack up across storage and service? Jeff Clarke: Sure. I think Tom and I will parse that and I’ll take the first part, talk about storage, what we are seeing, and then maybe a few comments about PowerStore, and then Tom can link that to our guidance and look forward. I mean, clearly we talked in our prepared remarks and you’ll see it in the web deck, our storage business was down 7% for the quarter. We were disappointed with that result. We talked about two areas where we have seen growth, in fact, strong double-digit growth with our PowerMax business and our VxRail business. And then we talked about its inability or it’s implied its inability to offset what’s happening in the mid-range, which is why PowerStore is so important for us, getting our mid-range trajectory on a take-share trajectory, which quite frankly it’s not with our performance. We’re encouraged by the first two quarters of PowerStore. I think I mentioned in my remarks, it was up nearly twice the revenue in Q2 and Q3, 15% of the customers are new storage buyers to the company, and that makes us feel very good that we are on the right trajectory with PowerStore. But remember, it’s on a base of starting literally at zero two quarters ago. It has to build momentum. We expect it to continue to ramp in Q4 and all through next year and that ramp is the key to our success in growing our storage business as we have strong success in the above-$2,050 segments and has actually taken share there. Tom Sweet: And then, Amit, why don’t I – it’s Tom. Why don’t I just take a – make a comment on your second part of that question, which I think was around the Q4 framework that we laid out with the seasonality that we called out with – for ISG, which we said last year was at a 4%, and we expect it to be slightly lower than that on a sequential basis this year. Look, I think the dynamics are pretty much what I just chatted about, which is we do continue to see softness in the data center space. Typically, Q4 is a larger storage quarter and so we do expect some uplift in storage, although, while we’re slightly cautious about how does data center spending play its way out through Q4. So it makes sense to us, given some of the dynamics that we’re seeing, that – and by the way that our Q3 results for servers were sort of buoyed up by the federal mix in the government space. We won’t have that in Q4. So we’re just slightly cautious about what we see for Q4 ISG spend at this point. Rob Williams: All right. Appreciate it. Let’s go to the next question. Operator: We’ll take our next question from Rod Hall with Goldman Sachs. Rod Hall: Yes, thanks for the question. I wanted to start off, Tom, and go back to your comments on investment grade. You said that you’re into that territory now, and I wonder if you could talk about what other pieces of data or evidence you think the rating agencies are waiting for to potentially make a change there. And also if you could give us any kind of an idea on what the next chance for that timing-wise might look like. And then I have a follow-up. Tom Sweet: Yes. Hey, Rod, it’s Tom. And then I’ll let Tyler jump in here as well, as he’s on the call. Look, the leverage ratio and we’ve made great progress on core leverage ratio. So as we highlighted – as I highlighted on the prepared remarks, we’re down slightly below the 3x, 3 times adjusted EBITDA sort of leverage ratio, that we have been – that we’ve talked about. Now the leverage ratio is only one element of what the rating agencies look at in terms of the totality of the credit, if you will. So they’re obviously thoughtful about the macro environment, the pandemic. We’ve got some news out there around the potential VMware spin. So I’m assuming they’re also trying to be – trying to sift through what that looks like. So we’re holding regular conversations with them, and we continue to share our perspective. But we recognize that it’s ultimately their call on when they might make that determination. And we’re continued to provide them our point of view and we’ll continue to stay focused on our capital allocation policy, which is centered around debt repayment at this point. Tyler, why don’t you jump in and add some thoughts there if you would, please? Tyler Johnson: Yes. I mean, look, I think you pretty much well covered it. I mean, we’re happy with where we are. I mean, if you go back and look at where we were really projecting when we were going to cross over, we were thinking it was going to be more of the end of the year, and that was really a pre-COVID projection. So I think the fact that we were able do this in the face of COVID, really speaks highly to the power of cash flow generation the business throws off. Look, I think the rating agencies and specifically S&P, which is the one that gives us credit for cash. And the one that we mentioned in the talking points, they’re going to want to see sustainability, so us staying under their targets for a reasonable period of time. And I think, Tom called out, I think in the face of COVID and also the potential of VMware transaction, that’s something that maybe top of their minds. So great progress, we’ll keep doing what we’re doing and we’ll go from there. Rod Hall: Okay. Thank you. And then I wanted to – on my follow-up just ask Jeff about the PowerStore range and maybe some of the feature functionality there. Some of your competitors have called out things like clustering, storage efficiency technologies as lacking and needing development. But I know you guys roll this thing out in a containerized sort of solutions that you can rapidly evolve it. I’m just wondering, do you think the ramp in that requires additional feature adds? Or do you think you’ve got everything you need is just more question attraction in the market and maybe COVID slowing it down and so on. Jeff Clarke: Sure. Good question, Rod. Let me try to break that down. So if I think about what COVID slowing it down, I think we last – we talked last call about the things we’re doing to ensure that the products in front of our customers. We’ve clearly made a lot of progress in Q3 in doing that. We put a large number of seat units in front of our largest channel partners across the globe. They are 95% up and running in front of customers at our channel partners. Today, we put an active try-and-buy program in place. We have our team out delivering units to customers. We have an internal team that’s out helping customers ramp their proof-of-concept, all with the desire to help drive assessment in the proof-of-concepts that go along with a new category and a new architecture that we put in the marketplace. We’ve done, for example, 6,000 virtual demos and proof-of-concepts to help our customers through this. So we’re very encouraged by that. So much that it’s ramping. You probably know our product line quite well, XtremIO, the groundbreaking all flash architecture, VxRail groundbreaking HCI architecture. PowerStore at this point in time through its first three quarters is ahead of both of the ramps. So I don’t know what competitors say, I know what customers say. Customers say, we have a very competitive product. We have a product that is meeting their needs. It’s revolutionary. And it is actually a modern storage product. To the point that the number of competitive takeouts we had in Q3 over Q2, nearly doubled. So we like our momentum or in patient we want it to be more, we want to grow faster, but we like what we’ve done. When I look at architectural features, from my seat, it’s the highest performance storage array in its price spans today in the mid range, it has the best data reduction in the marketplace today. It has features that are competitive today with more features coming. The fact that we can run an application on the array makes it a very differentiated architecture. And we're very pleased with its competitiveness, from a feature performance and capability point of view. To the point that is the first modern array in the marketplace. So I like our hand, where you just have to ramp it. Tom and I are impatient with the team. We want to see a more accelerated ramp. But again, it's ramp today as faster than the two groundbreaking – last two groundbreaking architectures in our company, XtremIO and VxRail. So the early signs remain good. Rob Williams: All right. Thanks. Thank you. Erica, next question? Operator: We will take our next question from Katy Huberty with Morgan Stanley. Katy Huberty: Thank you. Good afternoon. Can you just talk about the shape of demand recovery, if any, that you saw in the enterprise and the SMB markets separately during the October quarter, and whether there were any material changes in these trends in the month of November, as some of the countries rolled back their reopening plans? Tom Sweet: Katy, it's Tom. So look as we think about the ISG space in particular and within the SMB markets, the small and medium business did see improved transactional velocity. As we went through our quarter, it started sort of soft and improved. I don't want to overstate it, because it's still a bit of a tough slog. Jeff Clarke: Only it's a smaller portion of the business. Tom Sweet: I mean, yes, but it's a good indication of how we think about transactional velocity in the business. And in that case, what we saw was I think the demand velocity improving as we went through the quarter from something like a minus say, mid-teens type of down to a much better performance as we got through that – through month three of the quarter. Now remember that, I'm not going to comment on November, but which is our Q4 obviously, but we're encouraged by that. But we're also realistic to, as we think our way through how does ISG and infrastructure spending frame out in Q4. And our thinking is reflected in the results that are the guidance that we provided. Jeff Clarke: I think, Tom, it's spot on – over the quarter, month-over-month, we saw improvement in the absolute demand profile, quite honestly, in both server and storage. The small and medium business comments he made are smart spot on. We saw more code activity in that area. Conversion rates improved a little bit in that area. That's the trend. But again, we see budgets have tightened. They've been really redirected over the year to ensure the workforce is enabled to work from home, and that certainly delayed or push bigger spin projects over the course of the year. And there's no reason to believe that doesn't continue into Q4. Katy Huberty: Thank you. Jeff Clarke: Of course. Operator: We will take our next question from Jim Suva with Citigroup Investments. Jim Suva: Thank you. My question is just on shares, like share losses or shared gains. It sounds like your PC segment, you went through a shift to direct, any lost on some share. Are you now at a stabilization point? Or still some more to transition away than on the server side, was it – not server, storage. On the storage side, was it miss execution? Was it not having the right product out at the right time? Was it COVID, because you couldn't reach the end customer seems like on storage, you're really having some challenges there. Jeff Clarke: Well, I think there's certainly the devil's in the detail here. If you look at PC, we'll start there in Q3, we did lose absolute share. The market certainly shifted to consumer and the consumer growth was extraordinary. Our consumer business, if I recall correctly was up 14%, but that was certainly behind the marketplace. And I know I'm making a slight compare between a fiscal quarter and a calendar quarter, but you get the point. Strategically, we have been working particularly with the CPU shortages over the past two-plus years of prioritizing our business with commercial and premium consumer. Both of those businesses continue to respond well, but the commercial marketplace was soft in Q3, and consumer was significantly up in Q3, and our share loss is largely on the consumer side. We did lose some share in timing in the commercial, but it’s largely on the consumer side. We made a strategic shift actually at the end of last year of migrating to our heritage and advantage in the marketplace, which has been reinforced by the buying trends in the pandemic of our online direct business. That’s serving us well. I think I made comments that our online business was up about 62% and our consumer direct business was up 47% if memory serves me right. That’s encouraging. We want to participate in the broad swath of the marketplace for those only participating in the range and above, we’re not. I think I mentioned our Chromebooks doubled on a year-over-year basis. And we’ll continue to participate and catch up to the marketplace. I think our fiscal results our calendar share results. Our fiscal results are being 8% revenue growth I think is pretty significantly different than our share results that ended in September. In other words, we had a very big October. We’re encouraged about it. I look at the server side, the server side, we expect to take share. We think we’ve outperformed the market at a minus 2%. I think the market projection for Q3 in servers is minus 5%, minus 4%, something like that, if memory serves me right. Tom Sweet: It’s minus 5.5%, Jeff, ex-China. Jeff Clarke: Exactly. So we’re in a share position there. And then on the storage side, it’s not mis-execution per se, Jim. We’re taking share and consolidating in the high-end. We continue to do that. Our PowerMax product continues to do well. We’re taking share in the hyperconverged or software-defined space. It’s back to the mid-range. Our mid-range is shrinking. I think we’ve mentioned that each of the previous three quarters this year. And it’s why PowerStore is important. PowerStore is the catalyst. I think we’ve said this for the past couple of years in anticipation of the product. It is the catalyst for us to change our share trajectory in the mid-range, which is the single largest segment in storage, that’s why it’s important. That’s why doubling quarter-over-quarter is a good sign. That’s why being ahead of our XtremIO and VxRail ramp is key. And again, we like our hand. We need to continue to ramp it. And we believe we can. Jim Suva: Thanks so much for the details. Thank you. Jeff Clarke: You’re welcome. Operator: We’ll take our next question from Aaron Rakers with Wells Fargo. Aaron Rakers: Yes. Thanks. And I’ll try and stick to just one question. It’s on the storage business. And I guess my question is really simple in that we’ve seen the last couple of quarters, I think, last quarter you talked about triple-digit order growth in PowerStore, this quarter with double-digit. So, I’m just – help us understand how we think about the growth of orders relative to when that kind of orders turns into revenue growth. I’m just trying to understand when maybe we could see that – those businesses start to inflect and appreciating that PowerStore is a big component of that. Thank you. Jeff Clarke: Well, PowerStore would have been a small component in our products last quarter. Tom Sweet: Aaron, I – let me just – from a materiality perspective, PowerStore is going to take a while to ramp to the point where it is going to move the needle on a business that’s close to $4 billion on a revenue basis. Right? So it will take a bit of time. That’s why you heard me comment on the fact that we’re optimistic about PowerStore, and we expect it to ramp Q4 on into next year. So when we reference triple-digit or double-digit orders growth, obviously, we’re starting from a base that’s pretty small. And – but clearly, we’re optimistic and we think as we work our way through the year that you’d start to see that inflection point and particularly in the mid-range space. Jeff, let me – I just wanted to set that… Jeff Clarke: No, I think you summed it up well. And then we continue to focus on our PowerMax performance and growth in the high-end, which we continue to be a consolidator in the high end, the most valuable portion of the storage marketplace. And we continue to see excellent performance there. But as I mentioned in the last question or the question before that, it’s the mid-range and changing that trajectory that’s key, to Tom’s point, we’re impatient, we want to continue to accelerate the ramp of PowerStore because it’s the catalyst to change our share. Tom Sweet: All right, thanks, Aaron. Aaron Rakers: Thank you. Operator: We’ll take our final question from Shannon Cross with Cross Research. Shannon Cross: Thank you very much. I was wondering if you could talk to us about from a macro standpoint, how you’re thinking about the PC industry and we heard it from your competitor tonight, they’re talking about one computer per person. I would assume; at some point, we’re going to start seeing – lapping the initial Win 10 computers that were put out there. So, how are you kind of thinking about where this industry is going and the sustainability, because it feels like we keep getting to the point, where investors will say, we’re worried PCs are going to fall off a cliff in the next couple of quarters and then obviously the pandemic and everything seems to push that back? But I’m wondering, where you’re thinking? Jeff Clarke: Well, I suspect all of you are working on a PC right now taking note. The essential device it was pre-pandemic and it’s become even more of an essential device for productivity and for learning. And if you play that through and our industry fell 1.7 billion units, give or take in the installed base, 700 million of those are or older, which is a refresh opportunity. The public sector, which has been a laggard in terms of its desktop and notebook mix has been 50-50, rapidly moving to 75% notebooks and catching up to the rest of the industry, which is a source of growth. Education, the one-to-one initiative, the data I have, would suggest there’s still over 10 million children in the United States without a PC to learn on in this learn-from-home environment. There is 10 million in Japan. There’s over 40 million in Western Europe. There is a huge opportunity to get the necessary tools in our global students’ hands, so they can stay up and be educated along with everybody else. This notion of household rates going up, I think, is very real. I don’t think you can get by having a PC for everyone in the home now. You have two parents likely working from home, you have multiple children working from home, it’s a multi-PC environment in the home today and I don’t think that largely change — changes. As the industry moves towards the 75% or better in notebooks, you have a replacement cycle advantage. Notebooks are generally replaced about a year and a half faster than desktops, so that will feed itself. And you ultimately, have again, what I consider the essential device in this stay-at-home economy and ultimately, we’re bringing the world into the home through the PC. Maybe, that’s a long-winded way of saying I’m bullish. I think if you look at the prospects from IDC and Gartner, and look at low single-digit growth over the next three-ish years, four years is realistic. Again, last quarter, I think the market was $82 million give or take a few. That was the biggest quarter in 12 years. You’ve seen some of the forecasting for Q4. It’s in the high-teens; it will put the market roughly 300 million units in calendar 2020. That will be the biggest year in six years. This thing is far from dead. It has become far more an essential device for all of us in this work-from-home, stay-from-home environment. Shannon Cross: How material is the gaming? Sorry, just quickly, how material do you see gaming being? Tom Sweet: Well, I think it’s huge. Look at all the young people. That’s what they do. I know, I have one at home that is an active gamer and I think if – by the way, in this stay-in-home environment, entertainment is key and gaming is a huge entertainment outlet and I think it is essential and I think it’s key, and certainly with our Alienware brand, the success we’ve had there, we’re quite pleased and love to see more gaming. Got a few promos on the website today if you’re interested in getting a great Alienware 17-inch notebook. Rob Williams: All right. All right, thanks, Jeff. Thanks, Shannon. And thanks everyone for joining us today. As a reminder, we will be participating virtually in a couple of conferences next week. Tom will do a fireside chat on Tuesday at Wells Fargo, and Jeff will do a fireside chat on Thursday at Credit Suisse. Additionally, we will be attending several other virtual conferences in December and into January. So, check the IR website for the latest updates. And finally, thank you for joining us today and we wish everyone in the U.S. a safe and Happy Thanksgiving. Operator: This concludes today’s conference call. We appreciate your participation. You may disconnect at this time.
Dell Boosts Full-Year Outlook Despite Earnings Miss, AI Orders Shine
Dell Technologies (NYSE:DELL) delivered an optimistic outlook for fiscal 2026, lifting its full-year profit guidance even as first-quarter earnings came in below expectations. The mixed results sent shares more than 1% higher intra-day today as investors looked past the earnings shortfall and focused on strong momentum in key growth areas.
For the first quarter, Dell reported adjusted earnings of $1.55 per share on revenue of $23.38 billion. While revenue exceeded analyst expectations, earnings fell short due to demand headwinds stemming from recently implemented tariffs.
Performance across business segments was uneven. The client solutions group, which includes personal computers and laptops, saw overall revenue rise 5% year-over-year, driven by strong commercial demand. However, consumer sales within the segment dropped 19%, signaling continued pressure in the retail PC space.
On the upside, Dell’s infrastructure solutions group posted a 12% revenue increase, while AI server orders soared to $12.1 billion—surpassing forecasts—and the company ended the quarter with a $14.4 billion backlog, suggesting continued strength in enterprise tech demand.
Looking ahead, Dell expects a robust second quarter, forecasting adjusted earnings of $2.25 per share and revenue between $28.5 billion and $29.5 billion, both ahead of consensus estimates.
For the full fiscal year, the company raised its profit forecast to $9.40 per share at the midpoint and expects revenue to land around $103 billion, signaling confidence in its ability to navigate a complex economic landscape while capitalizing on growth in AI and infrastructure solutions.
Raymond James Lifts Dell Price Target on Long-Term AI Potential
Raymond James raised its price target on Dell Technologies (NYSE:DELL) to $144 from $139, while reiterating an Outperform rating, reflecting confidence in the company’s long-term AI-driven growth despite some short-term headwinds.
The revision comes as the firm adjusts its estimates to account for delays in AI platform rollouts and accelerated PC demand, partly driven by tariff-related buying behavior. The transition between GPU generations in Dell’s AI infrastructure has been more turbulent than expected, increasing the risk of a near-term sales shortfall in AI-related products.
However, analysts remain optimistic about Dell’s positioning beyond 2025. As enterprise adoption of AI moves from training-intensive workloads to inferencing and real-world applications, Dell is seen as well-positioned to deliver sustained growth above historical levels.
With the company set to report earnings on May 29, investors may need to brace for some softness in AI segment results, but the broader story remains intact as AI infrastructure demand matures across the enterprise landscape.
Raymond James Lifts Dell Price Target on Long-Term AI Potential
Raymond James raised its price target on Dell Technologies (NYSE:DELL) to $144 from $139, while reiterating an Outperform rating, reflecting confidence in the company’s long-term AI-driven growth despite some short-term headwinds.
The revision comes as the firm adjusts its estimates to account for delays in AI platform rollouts and accelerated PC demand, partly driven by tariff-related buying behavior. The transition between GPU generations in Dell’s AI infrastructure has been more turbulent than expected, increasing the risk of a near-term sales shortfall in AI-related products.
However, analysts remain optimistic about Dell’s positioning beyond 2025. As enterprise adoption of AI moves from training-intensive workloads to inferencing and real-world applications, Dell is seen as well-positioned to deliver sustained growth above historical levels.
With the company set to report earnings on May 29, investors may need to brace for some softness in AI segment results, but the broader story remains intact as AI infrastructure demand matures across the enterprise landscape.
Dell Shares Plunge 5% as AI Costs Weigh on 2026 Margin Outlook
Dell Technologies (NYSE:DELL) saw its shares drop more than 5% intra-day today after projecting a decline in adjusted gross margins for its fiscal 2026 year. The Texas-based company cited rising costs linked to AI server expansion and lukewarm demand for its PC segment as primary factors pressuring profitability.
Dell expects its full-year adjusted gross margin rate to decline by approximately 100 basis points. During a call with analysts, Chief Operating Officer Jeff Clarke also acknowledged the company is assessing potential cost impacts from proposed U.S. tariffs under President Donald Trump’s trade policies. Clarke suggested that if input costs increase, price adjustments may be necessary.
Despite margin concerns, Dell remains optimistic about AI-driven growth. The company forecasted a 53% year-over-year surge in AI server shipments, expecting to reach $15 billion in annual sales. These AI servers, powered by Nvidia chips, are positioned to compete with offerings from Super Micro Computer and are built to handle the heavy computational needs of AI training and deployment.
For the fourth quarter, Dell reported adjusted earnings per share of $2.68 on revenue of $23.93 billion, surpassing EPS estimates of $2.53 but falling short of the expected $24.56 billion in revenue.
Looking ahead, Dell provided a mixed outlook. The company projected current-quarter adjusted EPS of $1.65 and revenue between $22.5 billion and $23.5 billion, underperforming consensus estimates of $1.83 per share and $23.72 billion in revenue.
For fiscal 2026, Dell anticipates adjusted EPS of $9.30 on revenue between $101.0 billion and $105.0 billion, aligning closely with expectations of $9.29 EPS and $103.62 billion in revenue. While AI remains a bright spot, margin compression and macroeconomic uncertainty continue to be key concerns for investors.
Dell Shares Plunge 5% as AI Costs Weigh on 2026 Margin Outlook
Dell Technologies (NYSE:DELL) saw its shares drop more than 5% intra-day today after projecting a decline in adjusted gross margins for its fiscal 2026 year. The Texas-based company cited rising costs linked to AI server expansion and lukewarm demand for its PC segment as primary factors pressuring profitability.
Dell expects its full-year adjusted gross margin rate to decline by approximately 100 basis points. During a call with analysts, Chief Operating Officer Jeff Clarke also acknowledged the company is assessing potential cost impacts from proposed U.S. tariffs under President Donald Trump’s trade policies. Clarke suggested that if input costs increase, price adjustments may be necessary.
Despite margin concerns, Dell remains optimistic about AI-driven growth. The company forecasted a 53% year-over-year surge in AI server shipments, expecting to reach $15 billion in annual sales. These AI servers, powered by Nvidia chips, are positioned to compete with offerings from Super Micro Computer and are built to handle the heavy computational needs of AI training and deployment.
For the fourth quarter, Dell reported adjusted earnings per share of $2.68 on revenue of $23.93 billion, surpassing EPS estimates of $2.53 but falling short of the expected $24.56 billion in revenue.
Looking ahead, Dell provided a mixed outlook. The company projected current-quarter adjusted EPS of $1.65 and revenue between $22.5 billion and $23.5 billion, underperforming consensus estimates of $1.83 per share and $23.72 billion in revenue.
For fiscal 2026, Dell anticipates adjusted EPS of $9.30 on revenue between $101.0 billion and $105.0 billion, aligning closely with expectations of $9.29 EPS and $103.62 billion in revenue. While AI remains a bright spot, margin compression and macroeconomic uncertainty continue to be key concerns for investors.
Dell Shares Plunge 12% on Weak Q4 Revenue Guidance
Dell Technologies (NYSE:DELL) saw its shares tumble over 12% in pre-market today after issuing fourth-quarter revenue guidance that fell short of Wall Street expectations, driven by declining demand for traditional PCs and intensifying competition.
For the third quarter, Dell reported adjusted earnings per share (EPS) of $2.15, exceeding the Street consensus estimate of $2.06. However, revenue came in at $24.4 billion, below analyst projections of $24.69 billion.
Performance in the company’s client solutions group, which includes PCs and laptops, weighed on results, with revenue declining 1% year-over-year to $12.1 billion. The infrastructure solutions group, however, provided a bright spot, with revenue surging 34% year-over-year, fueled by robust AI-related demand. Meanwhile, consumer revenue slumped 18% to $2 billion.
Looking ahead, Dell projected fourth-quarter revenue in the range of $24 billion to $25 billion, missing the average analyst estimate of $25.57 billion. The subdued outlook, coupled with weakness in key segments, spurred investor concerns, leading to the sharp decline in Dell’s stock price.
Dell Shares Plunge 12% on Weak Q4 Revenue Guidance
Dell Technologies (NYSE:DELL) saw its shares tumble over 12% in pre-market today after issuing fourth-quarter revenue guidance that fell short of Wall Street expectations, driven by declining demand for traditional PCs and intensifying competition.
For the third quarter, Dell reported adjusted earnings per share (EPS) of $2.15, exceeding the Street consensus estimate of $2.06. However, revenue came in at $24.4 billion, below analyst projections of $24.69 billion.
Performance in the company’s client solutions group, which includes PCs and laptops, weighed on results, with revenue declining 1% year-over-year to $12.1 billion. The infrastructure solutions group, however, provided a bright spot, with revenue surging 34% year-over-year, fueled by robust AI-related demand. Meanwhile, consumer revenue slumped 18% to $2 billion.
Looking ahead, Dell projected fourth-quarter revenue in the range of $24 billion to $25 billion, missing the average analyst estimate of $25.57 billion. The subdued outlook, coupled with weakness in key segments, spurred investor concerns, leading to the sharp decline in Dell’s stock price.
