Dell
posted unexpectedly strong earnings for its fiscal first quarter thanks to revenue that slightly exceeded expectations combined with some big cost reductions for components that were previously in short supply.
Dell’s (ticker: DELL) stock was halted for news after another media organization broke an embargo on the earnings release. Dell shares, which were up about 13% for the year through Wednesday, rose initially, but lost ground after the company provided guidance on its earnings call. The stock is off about 2% in late trading.
Dell’s business has come under pressure in recent quarters from weakening PC demand and tighter IT budgets amid widespread macroeconomic concerns. But this quarter’s results hint at better times ahead.
For the quarter ended May 5, Dell posted revenue of $20.9 billion, down 20% from a year ago, but about $600 million above the Wall Street consensus of $20.3 billion. The real eye-opener is that adjusted profits were $1.31 a share, way above the Wall Street forecast of 86 cents a share. Under generally accepted accounting principles, the company earned 79 cents a share.
The company’s revenue beat was spread across the company’s two major operating segments.
Client Solutions Group, the company’s PC arm, had revenue of $12 billion, down 23%, but ahead of the Wall Street consensus forecast of $11.4 billion. Infrastructure Solutions Groups, which includes servers, networking, and storage products, had revenue of $7.6 billion, down 18%, but ahead of the consensus estimate of $7.5 billion.
“We executed well against a challenging economic backdrop,” Dell Co-COO Chuck Whitten said in a statement. “We maintained pricing discipline, reduced operating expenses, and our supply chain continued to perform well after normalizing ahead of competitors.”
The surprise ingredient here is that margins are improving as component costs fall.
While rival
HPInc.
(HPQ) this week said that it is still working down channel inventory that piled up in the postpandemic period, Dell says it has solved that issue, with normal product lead times now in place.
Meanwhile, like HP, Dell sees some opportunities in artificial intelligence. Last week the company announced a new project with
Nvidia
(NVDA) to develop on-premises AI hardware. Late last year the company announced a new server that runs on Nvidia graphics processors.
Dell is optimistic that the client business has found a bottom; the company said it is feeling more upbeat on the outlook for the 2023 second half. But it also warned that gross margins would fall by about half a percentage point sequentially, give what the company expects to be “a more competitive pricing environment.”
For the fiscal second quarter, Dell sees revenue of between $20.2 billion and $21.2 billion ranging from a 3% sequential decline to a 1% increase, a little below the old Street consensus at $21.8 billion. The company expects Client Services revenue to be flat sequentially, with Infrastructure Solutions Group revenue down in the low single digits sequentially. The company said it expects EPS for the quarter of $1.10 a share, give or take 10 cents, a little below consensus at $1.16.
For the full year ended in January 2024, Dell continues to see revenue down 15%, give or take 3 percentage points, with profits of $5.50 a share, given or take 25 cents, above consensus at $5.31 a share.
Write to Eric J. Savitz at [email protected]
Read the full article here
