Partners: Dell Is On Target To Compete With HPE, Cisco In The Enterprise Despite Q1 Sales Weakness

Despite weak sales numbers, solution providers said Dell's first quarter financial performance shows the company is on the right track toward becoming an enterprise-focused IT powerhouse ready to compete with Hewlett Packard Enterprise and Cisco.

The Round Rock, Texas-based company's first quarter results show that while its massive PC business remains the company's bread and butter, it is focusing spending on strengthening its Enterprise Solutions Group's sales force, said Mark McKeever, principal at Tempe, Ariz.-based Dell solution provider Microage.

"They've got a really high mix of client products, which is paying the bills today, but it's not hard to see why they would want to grow the mix of software and enterprise products," McKeever said. "You can't be the market leader if you're primarily dependent on growth in client products."

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Dell's Enterprise Solutions Group posted $192 million in operating income, a 20 percent year-over-year decline, on $3.6 billion in revenue, a 2 percent decline, for the first quarter of Dell's 2017 fiscal year, which ended April 29. The company explained that the income decline came as it made investments in its enterprise sales force and products.

During a conference call to discuss the earnings Friday, Dell CFO Tom Sweet wouldn't discuss exactly how much Dell had invested in its sales force, but said the 1,500 salespeople the company began hiring late last year are expected to begin improving the company's sales productivity.

Sweet said Dell has been marking converged and hyper-converged infrastructure, its modular server business and the Internet of Things for increased R&D investment.

"As a private company, we have the discipline and the opportunity to make the investments that are right for [the] long term, but may not pay off in one or two quarters," Sweet said. "We'll continue to be patient around the sales force productivity. We have high expectations for them as we move forward."

That strategy is in line with what Chairman and CEO Michael Dell laid out when he took the company private in 2013, and emphasizing its enterprise business and acquiring EMC will go a long way toward putting Dell on equal footing with enterprise powerhouses HPE and Cisco, McKeever said.

HPE's split from PC-focused HP Inc. late last year, and the merger of the company's services business with CSC earlier this month help focus it on the enterprise. Cisco has a dominating presence in networking, as well as a powerful roster of server offerings.

"Dell is headed in the right direction if their ambition is to lead the market with enterprise products," McKeever said. "Since Cisco and HPE have similar ambitions, the next few years are going to be really interesting. It's a good time to be a solution provider."

Michael Pearson, president of DSA Technologies, an Elk Grove, Calif.-based Dell solution provider, said Dell's efforts in the channel, at least in DSA's region, have improved greatly. "We've seen very strong Dell channel engagement over the last two quarters, and we've closed a couple of deals in the $500,000 to $750,000 range," Pearson said. "The four quarters prior to that, we had very little Dell engagement."

Denali Holding Inc., Dell's parent company, is filing financial results with the U.S. Securities and Exchange Commission as a requirement of its pending more-than $62 billion acquisition of EMC.

Client Solutions, Dell's name for its PC business, reported revenue of $8.6 billion for the quarter, a 3 percent year-over-year decline. Operating income was $385 million, a 76 percent increase driven by growth in notebooks, attached software, peripherals and services, the company said.

Dell's Software Group posted revenue of $334 million for the quarter, flat with the same period the year before.

Overall, the company posted revenue of $12.6 billion, a 3 percent decline, and operating income of $565 million, a 37 percent year-over-year increase. When purchase accounting related to the 2013 buyout that took buyout is factored in, the company's net loss from continuing operations was $426 million.

The company also reported an operating loss of $161 million, compared with a $335 million operating loss a year before. The first quarter loss includes about $90 million in corporate spending, some of which is related to the pending acquisition of EMC, which is expected to close before the end of October.