Cock of the X86 systems walk, Dell is killing it

Dell has cemented its position as the world’s biggest IT hardware vendor, chalking up significant gains in market share for Q2 and growing revenues 18 per cent on the year to $22.94bn.


But when will that market dominance translate into generating profits? Dell made a loss of $461m in the second quarter – its fiscal year 2019 – an improvement on its $739m loss 12 months ago. It paid off $2.6bn in debt, had operating cash flow of $2.6bn, and counted up $21.5bn in cash and investments.

Revenue for the Client Solutions Group – notebooks, PCs, workstations and displays – climbed 13 per cent to $11.1bn. Commercial revenue grew 13 per cent to $8.1bn and Consumer revenue was up 14 per cent to $3bn.

The company nabbed its highest market share to date for total worldwide units and for commercial units at 18.2 per cent and 22.8 per cent, respectively.

Dell’s Infrastructure Solutions Group revenues were 24 per cent up on the year at $9.2bn. Within that storage did $4.2bn, up 13 per cent, and servers and networking jumped 34 per cent, reaching $5.1bn.

The company says, going by IDC numbers, it was the worldwide leader for x86 servers in the quarter, in units and revenue.

Michael Dell’s canned quote almost wrote itself: “We are in the early stages of a global, technology-led investment cycle in which every company is becoming a technology company. As our results indicate Dell Technologies is perfectly positioned to grow, gain share, drive innovation and be our customers’ best, most trusted partner on the journey to their digital future.”

Hard to disagree with that.

VMware revenue for the second quarter was $2.2 billion, up 11 per cent. Revenue from other businesses, including Pivotal, Secureworks, RSA Security, Virtustream and Boomi was $574 million, up six per cent.

A storage home on the mid-range

Jason Ader, an analyst at investment bank William Blair, noted that this is Dell’s “second consecutive quarter of double-digit revenue growth. Storage growth was driven by strength in Dell-EMC’s next-generation solutions, including triple-digit growth in HCI appliances (VxRail surpassed the $1 billion annualized run-rate) and improved performance in backup and recovery. Dell also saw better sales in its struggling commercial midrange storage segment.”

In the Q2 earnings call Dell’s Jeff Clarke, vice-chairman, products and operations, said demand was up in “file-based arrays, high-end storage and data protection offerings. Our focus remains on driving velocity in the mid-range.”

He talked about a new “mid-range product in which we are focused on and committed to have next year…We are going to be competitive in the primary storage space.” That will possibly be a single product covering the current Unity and SC product areas.

The changes Dell has made to its storage product and sales compensation plans since buying EMC are working according to Clarke, who cited the “progress we’ve made in the last year simplifying the portfolio, improving the competitiveness product lines … crisping up our marketing campaign … announcing new products; we’ll announce a new one next week.”

CFO Tom Sweet commented on Dell’s storage sales capacity: “We’re mid-range [in] an investment cycle in the enterprise selling organisation in terms of storage coverage.” Basically he means more and better incentivised sales heads on the ground and stronger channel programs. Dell added lots of sales heads in the first quarter.

William Blair’s Ader thinks Dell EMC’S storage lines still faces problems in the “near to medium term given significant product overlap, outdated products in certain key areas, inherent channel conflicts (VARs still fear Dell taking deals direct), and a poor reputation for support.”

However storage should grow more strongly in the next couple of quarters, and servers and client systems are booming. It’s no surprise then that, Dell has issued bullish revenue guidance for the full year of between $90.5bn and $92bn. During the earnings call the company declined to answer questions about its plans to go public.

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