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Dell shares are up 13% this year.
dream time
dell
posted unexpectedly strong earnings in its fiscal first quarter, thanks to revenue that slightly beat expectations, combined with some big cost reductions for previously scarce components.
Dell (ticker: DELL) stock was halted for news after another media organization broke an embargo on reporting earnings. Dell shares, which are up about 13% for the year through Wednesday, initially rose but lost ground after the company provided guidance on its earnings release. The stock was down about 2% in late trading.
Dell’s business has come under pressure in recent quarters due to weakening demand for PCs and tighter IT budgets amid widespread macroeconomic concerns. But this quarter’s results point to better times ahead.
In the quarter ended May 5, Dell posted revenue of $20.9 billion, down 20% from a year earlier, but about $600 million above the Wall Street consensus of $20.3 billion. . What’s really eye-opening is that adjusted earnings were $1.31 a share, far above Wall Street’s forecast of 86 cents a share. According to generally accepted accounting principles, the company earned 79 cents per share.
The company’s revenue hit was spread across the company’s two main operating segments.
Client Solutions Group, the company’s PC arm, had revenue of $12 billion, down 23% but above the Wall Street consensus forecast of $11.4 billion. Infrastructure solutions groups, which include servers, networking and storage products, had revenue of $7.6 billion, down 18% but above the consensus estimate of $7.5 billion.
“We performed well in a challenging economic environment,” Chuck Whitten, Co-COO of Dell, 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 come down.
as a rival
hp
Inc.
(HPQ) this week said it is still working on channel inventory that has built up in the post-pandemic period, Dell says it has resolved this 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 local AI hardware. At the end of last year, the company announced a new server that runs on Nvidia graphics processors.
Dell is optimistic that the customer’s business has bottomed out; the company said it is feeling more optimistic about the outlook for the second half of 2023. But it also warned that gross margins would decline by about half a percentage point sequentially, giving what the company expects to be “a more competitive pricing environment”.
For the fiscal second quarter, Dell sees revenue between $20.2 billion and $21.2 billion, ranging from a 3% sequential decline to a 1% increase, just short of the old Street consensus of $21.8 billion. The company expects Customer Services revenue to be flat sequentially, with Infrastructure Solutions Group revenue falling sequentially in the single digits. The company said it expects EPS for the quarter of $1.10 a share, plus or minus 10 cents, just below the consensus of $1.16.
For the year ended January 2024, Dell continues to see revenue decline 15%, plus or minus 3 percentage points, with earnings of $5.50 per share, plus or minus 25 cents, above the consensus of $5 .31 per share.
Write to Eric J. Savitz at eric.savitz@barrons.com
