Key takeaways from Dell's full-year results
The vendor opened up on how it plans to bolster its waning infrastructure unit, riding the Windows 10 refresh and the impact of the coronavirus
Dell has reported a record year for its first 12 months back on the stock exchange, despite its infrastructure division falling short.
Revenue climbed a modest one per cent to $92.2bn for the year ending 31 January 2020, but some divisions fared better than others.
We parse through the vendor's earnings call with analysts where COO Jeff Clarke and CFO Thomas Sweet cover the infrastructure dip, expectations for the PC market and the obstacles it expects to face for FY21.
Dell has revealed its numbers for its first full year back as a publicly-traded company, reporting a "record" full-year revenue of $92.2bn for the 12 months ending 31 January 2020.
Subsidiary VMware also reported strong figures for its fiscal 2020, with revenue up 12 per cent year on year to $10.9bn.
We parse through the vendor's earnings call with analysts where COO Jeff Clarke and CFO Thomas Sweet cover ISG's dip, expectations for the PC market and the obstacles it expects to face for FY21.
This year is ISG's year
Dell's Infrastructure Services Group (ISG) - which houses its servers and storage business - saw full-year revenue tumble to $34bn, a seven per cent decline compared to the previous year's figure.
However, the vendor is confident that its ISG revenue will return to former glory, in spite of a fourth quarter 11 per cent year-on-year revenue decline to $8.8bn.
Storage revenue in Q4 amounted to $4.5bn, indicating a three per cent decrease, while servers and networking revenue was $4.3bn, a fall of 19 per cent.
"We are planning to grow FY21 storage revenue at a premium to the market with growth strongest in HCI, followed by core storage and data protection," COO Clarke told analysts on the call, transcribed by Seeking Alpha.
"Our team is tenured and ready to sell, the business is simplified and stabilised and the portfolio is the best it's ever been. FY21 is the year of ISG.
PC pick-up
Meanwhile, its Client Solution Group (CSG) saw full-year turnover grow six per cent and hit a "record" $45.8bn.
In Q4, commercial sales contributed $8.6bn to the CSG unit's overall $11.8bn revenue.
The tech giant also anticipated the first half of its fiscal 2021 to remain solid for its PC sales, as the Windows 10 refresh continues. However, it doesn't expect this wave to remain strong for the latter half of the year.
Clarke believes the company's wide-ranging portfolio of companies and services can cushion any blow from the H2 decline in PC sales.
"We expect the PC market to remain solid through the first part of the year before declining in the second half. This means we're facing a tougher compare as the windows 10 refresh wanes," Clarke noted.
"IDC forecasts PC units to be down 7.1 per cent this year. The result is a slowing CSG revenue, making growth in ISG that much more important but that's the advantage of our diversified business, including VMware."
Dell stated that a "record" 46.5 million units were shipped during the calendar year, taking advantage of the Windows 10 migration, despite the ongoing CPU shortage and a "dynamic tariff environment".
RSA and M&A
Dell recently offloaded security vendor RSA to a group of investors for $2bn. RSA was added to its portfolio through the acquisition of EMC in 2015.
CFO Sweet opened up on the rationale behind selling the security company, telling an analyst that it was a part of an ongoing evaluation of what companies and offerings Dell should keep and what it should divest as part of its EMC acquisition.
"As we continue to look at our security strategy, we are increasingly focused on intrinsic security: how do we build security into the core of the products?" stated Sweet.
"RSA is a nice asset. I think our perspective was that if it wasn't going to be core to our security platform and strategy, then it was probably better to do something different with that asset, and put it in the hands of an ownership structure that was going to optimise the platform and optimise the asset."
Sweet also cautioned investors that Dell could sell off more companies as it continues to consolidate its offerings.
"Our commitment to you is that we'll continue to think about what capabilities do we need to own? what capabilities do we partner for? what capabilities should not be part of the family?" he explained.
"We'll continue to simplify their corporate structure. We want to think our way through thoughtfully what capabilities belong in the family and what capabilities are better off outside of the family."
Coronavirus and other obstacles
Dell anticipates a number of challenges for its fiscal 2021, including the waning of the Windows 10 refresh cycle, CPU shortages to continue through H1 and an inflated component cost environment.
Overshadowing all this, though, is the coronavirus.
Dell saw a "softening" in the Chinese large enterprise market in the year - likely due to the ongoing trade war with the US.
However, China is also presenting a problem to businesses due to the slowdown in manufacturing caused by the coronavirus outbreak.
"This full year guidance does not factor in any potential COVID-19 impact," Sweet stated.
"We do anticipate a negative impact on our normal Q1 seasonality driven by softness in China, our second-largest market. We will manage the supply chain-related dynamics with extended lead times for certain products, particularly in client."
The CFO speculated two primary impacts the outbreak could have on its revenue: the Chinese business and the global supply chain.
"We do expect an impact in Q1 in the China business itself," he said.
"And then the question becomes [about] supply chain or lead time dynamics: how do you think about demand as a perishable, or does it defer?
"Our thinking right now - to the extent that it's the only demand that we see that is perishable at this point - is that consumer demand, where they want to buy a product now, and if you don't have the right product or the lead times don't work, perhaps they move elsewhere.
"We'll obviously continue to refine that as we move forward and learn more about impacts."