Dell's servers and storage sales take hit as market 'softens'

Tech giant buoyed by demand for PC products from commercial and consumer segments

Dell Technologies' servers and storage sales took a tumble in its third quarter as its overall revenues climbed three per cent to $23.5bn.

The vendor's Infrastructure Solutions Group - which houses its servers and storage units - reported a year-on-year decline of four per cent to $8bn for its quarter ending 30 October. Storage sales dropped seven per cent to $3.9bn, while servers and networking decreased two per cent to $4.2bn.

Dell COO Jeff Clarke attributed this decline to a "soft" market this year but was optimistic that both markets would improve.

"While the overall market for ISG has been soft this year, we are seeing improvement," he told investors on an earnings call.

"Server demand improved and PowerEdge orders were up single-digits sequentially. Large enterprise remains challenged, but we saw better velocity from our small business and medium business customers.

"Storage demand was mixed, we were pleased with our relative performance given current market dynamics. [Dell's midrange storage array line] PowerStore is gaining traction. We delivered nearly double the orders revenue achieved in the second quarter, albeit on a small base - we are still early in the ramp."

CFO Tom Sweet added that though the performance of the unit was "disappointing" it performed as well as it could due to external factors.

"Though disappointed in the decline, the overall server and storage market has been softer than we expected coming into this year," he said o the same call.

"Given the dynamics in the macro-environment, we executed against the growth opportunities within these markets while delivering solid profitability.

"We continue to look for balanced growth, being disciplined and selectively leaning into opportunities that make economic sense."

The tech giant's revenue growth was driven by consumer sales and demand for commercial PCs which led to "record" turnover in its Client Solutions Group (CSG).

CSG's revenue grew eight per cent to $12.3bn as a result of the demand for remote working and learning. Commercial revenue grew five per cent to $8.8bn due to strong demand for Dell's Latitude and Precision notebooks and its Chromebooks. However, commercial desktops continue to see reduced demand as workforces around the world continue to work remotely.

"This has been a great year for our client solutions business and it's clear that the PC is still the platform of choice," stated Sweet.

"The revenue stability of this business has been beneficial and it has consistently generated strong cash flow that has enabled us to weather different cycles and demand fluctuations."

The execs declined to forecast for next year but Sweet said they were "cautiously optimistic" about post-pandemic recovery.

Victorious VMware

Dell-owned virtualisation specialist VMware also saw a major first in its fiscal third quarter, as sales of its subscriptions and software-as-a-service (SaaS) outpaced revenue from on-prem licence revenue for the first time.

The vendor saw total turnover climb eight per cent to $2.86bn. Subscriptions and SaaS sales saw a whopping 44 per cent year-on-year increase to $676m, compared to the $639m on-prem licences took in.

Dell is still mulling over a potential spin-out or sale of VMware after its successful divestiture of security firm RSA earlier this year with head of investor relations Rob Williams telling those on the call that the earliest any potential deal could close would be September 2021.

"We believe a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility, while maintaining a strong commercial partnership between Dell and VMware," he reiterated.

"Both Dell and VMware have publicly highlighted mutual interest and the potential benefits of such a transaction and have engaged on key work streams including mutually beneficial commercial arrangements and Dell's expectation of a substantial cash dividend to VMware stockholders in connection with such a transaction."