Four key takeaways from Dell's latest results

Despite successful first quarter, vendor sounds caution to investors for weaker Q2

Dell Technologies released its financial results yesterday evening for the three-month period ending 1 May.

Revenues were flat on a year-on-year basis at $21.95bn, while operating income fell by 22 per cent to $2.16bn.

CRN's sister title Channel Partner Insight has combed through the figures and listened in on Dell's earnings call with investors to pick out the top four talking points.

Steep drop in datacentre sales

The results were a tale of two halves for Dell. It's Infrastructure Solutions Group (ISG), which lumps in servers, networking and storage, saw revenues fall by eight per cent to $7.6bn.

Servers and networking suffered a nine per cent drop in sales to $4.2bn, while storage sales fell by one per cent to $4bn.

Dell claims that the shift to home working came to the detriment of its ISG segment , with customer spending on infrastructure falling sharply over the three-month period.

But dwindling demand for servers and storage was offset by a strong performance for its Client Solutions Group (CSG), which includes desktops, laptops, tablets and peripherals.

This segment grew revenues by two per cent during the quarter to $11.1bn. Commercial sales surged by 13 per cent year on year to $8.3bn, while consumer sales fell by 10 per cent to $2.6bn.

On an earnings call to analysts, transcribed by Seeking Alpha, COO Jeff Clarke said Dell's worldwide PC market share position reached an all-time high during the quarter at 19.4 per cent. The gains pushed it into the number two spot in worldwide commercial PCs at 26.2 per cent, according to IDC figures quoted by Dell.

But operating profits for the CSG segment fell by 25 per cent, which Dell claims is a result of a higher portion of sales coming from larger bids, compounded by higher component costs and other costs related to COVID-19.

VMware outshines the rest of Dell's business

The star performer in Dell's Q1 was VMware, which enjoyed a 12 per cent jump in revenues in Q1 to $2.8bn and a 30 per cent jump in operating profits to $773m.

Dell claims that its Carbon Black business, which it acquired last year for $2.1bn, and its VeloCloud business, put in a strong revenue performance along with its end-user computing segment.

VMware's subscription and SaaS revenues grew by 39 per cent year on year according to Dell.

Dell expects weaker performance over the next three months

Despite beating analyst estimates in its latest quarter, Dell's execs warned that its next quarter, until the end of July, will be more challenging.

CFO Tom Sweet pointed to an incoming global recession, with global GDP expected to contract between three and five per cent this year. He said the economic slump will cause global IT spending to shrink by five to 10 per cent, which will undoubtedly affect Dell's financial performance for the remainder of the year.

Q2 is traditionally a strong quarter for Dell, with revenues usually growing in the region of six to eight per cent sequentially when compared to its Q1. But Sweet told investors that he expects Dell's revenues to be "seasonally lower" than usual.

"We saw strong demand in February and March, but we did see demand soften in the last month of the quarter given our direct model and end-user relationships. As a result, we expect Q2 revenue to be seasonally lower than prior years, which has typically been up to six to eight per cent sequentially from the first quarter," he said.

While it's difficult to predict the shape of the slowdown and the recovery and the resultant impact on IT spending, our job is to prudently manage our business so that we are in a strong position on the other side of this crisis."

Full effect of cost saving measures won't be felt until next quarter

Like other tech giants including HPE, IBM and Nutanix, Dell has imposed cost cutting measures which it claims will help it emerge from the COVID-19 crisis unscathed.

Earlier this week, Dell announced it will cut some staff benefits including pay rises, promotions and 401(k) retirement plan contributions.

The firm also implemented an external hiring freeze, a reduction in contractor and consulting spending and the cancellation of its $1bn share repurchase programme announced in February.

The measures helped Dell to reduce operating expenses by one per cent year on year during the quarter, and eight per cent sequentially, to $5.2bn.

But according to CFO Sweet, since these measures were only recently implemented, Dell won't begin to feel the full benefit of these changes until its next quarter.

He also didn't rule out implementing more cost saving measures if necessary.

"These are hard decisions, but I think we've made the appropriate decisions with what we know today. And we'll continue to look at the business, and we have other available levers if we need it."