Dell Client Commercial Device Sales Soar to ‘Unprecedented’ High
The big commercial client device revenue gains came even with Dell navigating ‘industry-wide supply constraints’ and soaring logistics costs, said Dell Vice Chairman and Co-COO Jeff Clarke. ‘We just went through our largest quarter over quarter cost increase that we have seen,’ he said. ‘The wild card for us is the costs that we are continuing to work on is logistics.’
Dell Technologies reported an “unprecedented” 40 percent increase in commercial client device sales for its third fiscal quarter as it looks to close out an “historic year,” said Dell Vice Chairman and Co-COO Jeff Clarke.
The commercial client revenue for the quarter ended October 29 was $12.3 billion compared with $8.78 billion in the year ago quarter as Dell continued to benefit from a work-at-home boom sparked by the global pandemic.
“We have reached record commercial revenue for each of the last three fiscal years and are on track for another strong year,” said Clarke.
The big commercial revenue gains came even with Dell navigating “industry-wide supply constraints” and soaring logistics costs.
“We just went through our largest quarter-over-quarter cost increase that we have seen,” Clarke told analysts. “The wild card for us is the costs that we are continuing to work on is logistics. The logistics cost environment today is pretty challenging.” He said Dell has shifted to more air freight rather than ocean liners and is focused on making sure it puts those costs into its pricing model in the fourth fiscal quarter.
Clarke credited Dell’s multi-decade supply chain prowess, product design flexibility and the Dell “direct” model’s “high-quality demand signal” and “ability to shape demand” as distinct differentiators for Dell’s client systems success.
Dell’s ability to “understand the pure demand signals” from customers and then translate that quickly into its demand plan and supply chain is a key differentiator, said Clarke.
“We are able to shape demand,” he said. “We built an R&D engine that is really optimized to be able to aligned toward our direct way of selling. Translation: we have fewer SKUs and less complexity. We have a design methodology that has interchangability and leverage and reuse. That gives us tremendous flexibility where components are.”
Dell has a “responsive supply chain that is pretty darn quick,” said Clarke. “What I like about our supply chain is we have digitized it over the years. We are now able to do scenario planning and simulations. That simulation allows us to make quicker decisions. In this time and day, quick decisions equal execution.”
Consumer client device revenue was up 21 percent to $4.3 billion, compared with $3.5 billion in the year ago period.
The Dell commercial client device success comes in the midst of what some partners are calling increased channel conflict, with the company gunning for a larger share of PCs in North America.
Dell, for its part, has said it is determined to grow both its direct sales and channel sales in the client PC business.
The total client device business, which accounts for about 60 percent of Dell Technologies’ sales, was up 35 percent in the quarter to $16.5 billion, compared with $12.28 billion in the year ago quarter.
Dell’s ability to successfully deal with rising component and logistics costs in the client business resulted in record operating income in the client business of $1.1 billion, up 14 percent from $1.0 billion in the year ago period.
“Our long-term focus on higher value and stable segments of the client market is what helps drive our consistent results,” said Clarke. “Approximately 80 percent of the industry’s revenue and nearly all of the industry’s revenue growth has come from commercial PCs and premium consumer PCs, and that is where we are focused.”
Clarke said Dell has gained nearly 400 basis points of market share in the commercial client business in the third calendar quarter. “For total client, we gained more than 300 basis points of share in calendar Q3, outgrowing the next four PC vendors combined,” he said.
Overall, Dell posted earnings and sales above Wall Street expections, with non-GAAP diluted earnings per share of $2.37 on a 21 percent increase in sales to $28.4 billion. That compares with the Zack consensus earnings estimate of $2.33 on sales of $27.36 billion.
In after hours trading, Dell shares were up 81 cents or one percent to $55.48.
“We now have delivered our best third quarter ever,” said Clarke. “We are on track for a historic year.”
Dell’s focus on commercial PCs, premium consumer systems and professional workstations is paying off for the company, said Clarke. “That’s where the demand is,” he said. “That’s our strength. That has been our focus.”
The “do from anywhere, work from home, learn from home, buy from home, game from home, entertain from home” paradigm is benefitting Dell, said Clarke.
What’s more, he said, the introduction of Microsoft Windows 11 and the ability for workers to move to more mobile platforms and replace an aging PC installed base set up for a robust demand environment that continues into next year. “We’re encouraged by where the growth is in the marketplace,” he said.
Dell Co-COO Chuck Whitten in prepared remarks told analysts that Dell client systems group “differentiation” comes from the company’s “unique direct sales motion” and its “strategic channel program.”
Bob Venero, CEO of Future Tech, No. 100 on the 2021 CRN Solution Provider 500, one of Dell’s top partners, said his Dell business is off the charts, with double-digit growth across the board, including in commercial client systems.
Over the last six months, Venero said, Future Tech has driven in excess of $200 million in client systems business working hand in hand with Dell.
“Market demand for client systems has increased exponentially over the last 18 to 24 months based on the shift to a hybrid remote workforce because of the pandemic,” said Venero. “We are struggling because we have more orders than we can fill based on the current supply challenges. That’s tied to both demand and the shift to mobile systems.” He said Future Tech’s laptop sales are outpacing desktop sales by a three to one margin.
Venero credited Dell with delivering robust high-end mobile workstations with NVIDIA graphics that are a big hit with customers.
Venero said he sees Dell’s client systems stronghold continuing into 2022, benefitting the company and its channel partners. “We are extremely optimistic about 2022,” he said. “Our Dell business across the full-breadth of the Dell portfolio is growing at double digits. Dell, by far, has the largest breadth of offerings from the desktop to the data center to security and multicloud. They touch all facets of enterprise global organizations. Dell allows us to have the most tools in our toolbox to deliver the most compelling solutions to our customers.”
Clarke, for his part, said the constant throughout the past 18 months is “the unprecedented demand” for technology. “It is clear technology is more essential today than ever before,” he said. “We are clearly winning in the core, and this keeps us in the center of our customers’ IT and digital agendas.”
In the last nine months, Dell Technologies has delivered “record” operating income growth of 12 percent to $8.4 billion on a record 16 percent increase in sales to $79 billion, said Clarke. “Demand remains ahead of revenue growth as we continue to navigate industry-wide supply constraints driven primarily by integrated circuits,” he said. “We shipped a record number of products globally in Q3.”