5 Dell Earnings Takeaways: PC Cautions, ‘Limiting’ Hiring, Apex

From PC demand weakness to Dell Apex’s $1 billion annual run rate, CRN breaks down the five biggest takeaways from Dell Technologies’ second quarter 2023 results.

Dell Q2 Financial Earnings Takeaways

Dell Technologies reported its second fiscal quarter results with highlights including Dell’s Apex as-a-service business hitting the $1 billion threshold and the company seeing a slowdown in demand for its bread-and-butter PC business.

“We saw the weakening [PC] environment. We have instituted a number of cost measures as a result of that, including effectively limiting external hiring,” said Dell’s Chief Financial Officer Tom Sweet, during Dell’s second quarter financial earnings call with media and analysts.

Dell’s stock is currently down 8 percent on Friday, trading at $43.10 per share.

Although the Round Rock, Texas-based infrastructure and PC giant is cautious about customer demand right now, Dell reported solid second quarter 2023 revenue growth.

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Dell Q2 Earnings

Dell generated $26.4 billion in total sales during its second fiscal quarter 2023, representing a 9 percent growth rate year over year.

Both Dell’s Client Solution Group [CSG]—which includes PCs, laptops, notebooks and more—as well as Dell’s Infrastructure Solutions Group [ISG] that consists of storage, server, data protection, networking and hyperconverged infrastructure, witnessed good sales growth.

“We delivered strong CSG and ISG growth and profitability – with revenue up 12 percent and 9 percent respectively – although we observed more cautious customer behavior as the quarter progressed,” said Chuck Whitten, co-chief operating officer at Dell Technologies.

Dell’s client group generated $15.5 billion in revenue in its second quarter, up 9 percent year over year.

The company’s infrastructure group delivered $9.5 billion in sales during the quarter, representing an increase of 12 percent year over year. The quarter marked Dell’s sixth consecutive growth of year over year growth.

Whitten, who became Dell’s co-COO in 2021, said customers continue to prioritize advanced technology solutions to succeed in the years ahead, and “we are confident in our long-term opportunities.”

From PC demand weakness to Dell Apex’s $1 billion annual run rate, here are the five biggest takeaways from Dell Technologies’ financial results from second quarter 2023.

Higher Average PC Prices Offset Unit Decline

While Dell grew PC sales at a 9 percent year over year rate, Dell’s Jeff Clarke said that “the demand environment slowed” during the quarter for its PC business.

“We saw a decline in PC demand as we went through the quarter with higher ASPs [average selling price] partially offsetting a unit decline,” said Clarke, vice chairman and co-chief operating officer.

“Our supply chain execution was excellent throughout the quarter, and we were able to offset the CSG demand weakness with backlog reduction in CSG,” he said.

For Dell’s Client Solutions Group results, the company’s commercial revenue increased 15 percent year over year to $12.1 billion.

Its consumer CSG business generated sales of $3.3 billion, down 9 percent year over year.

Operating income for Dell CSG was $1 billion.

“While demand is slowing, we saw richer configurations consistently through the quarter, primarily from our premium products like our Latitude notebooks, our Precision class of workstations,” said Clarke.

Clarke said Dell’s ability to attach software, peripherals, services and financing options to its PCs “is a differentiated capability over anyone else in the marketplace.”

Dell’s ‘Limiting External Hiring’

Dell CFO Sweet said the company has taken some internal actions during a “weakening environment.”

“We have instituted a number of cost measures as a result of that, including effectively limiting external hiring,” said Sweet. “We’ve looked at discretionary spending and have pulled that back.”

From a PC pricing perspective, Sweet said Dell is “going to be very thoughtful” particularly in consumer as the company doesn’t “see a lot of elasticity.”

“We’re going to be very direct and directed in any promotional spend that we do, principally focused on how do you think about product in the channel and things of that sort,” said Sweet. “So I do think you’re going to see us continue to be disciplined in pricing.”

Apex Hits $1 Billion Market

One huge positive coming out of Dell’s second quarter earnings results is that the company’s bullish as-a-service business, Dell Apex, has officially surpassed the $1 billion annual recurring revenue (ARR) threshold.

Dell Apex, the company’s public cloud-like consumption-based subscription model for ISG products, grew 78 percent year over year in terms of Apex orders.

“We’re excited to share the milestone today [that] Apex ARR is now approximately $1 billion,” said Dell’s co-COO Whitten.

Dell added 200 new Apex customers during the quarter.

“We’ve seen a lot of strength in our [Apex] Custom Solutions. So our Apex Flex on Demand offer, that’s effectively customized infrastructure across storage, server, HCI, data protection with committed and then buffer capacity,” said Whitten. “Also our Apex Data Center utility offer, which is effectively customers that want to move all or part of their data center to a Dell-managed pay-per-use model.”

Whitten said Dell Apex is seeing “lots of interest” from customers who are looking to manage cash outlays by pivoting to a pay-as-they-go and on-demand type model. “So really good momentum in the business,” he said.

Storage And PowerStore Momentum

Dell generated storage revenue of $4.3 billion, representing a 6 percent sales growth year over year with demand strength in high-end storage and Dell’s flagship mid-range PowerStore solution.

“Our breadth of portfolio continues to be an advantage,” said Sweet.

However, Sweet added that the company does see “demand growth moderating as the caution that enters the environment sort of extends to storage.”

He said there’s more moderation in server buying than in storage. “We do expect storage demand growth again in quarter three,” Sweet added.

PowerStore is Dell’s all-flash midrange storage solution that provides customers with data-centric intelligence and adaptable infrastructure that supports both traditional and modern workloads.

As of the second quarter, PowerStore now represents nearly half of Dell’s midrange store mix, with 24 percent of PowerStore customers being new to Dell.

“PowerStore grew double digits and has grown every single quarter since launch,” said Whitten.

In terms of servers and networking sales, Dell generated $5.2 billion in revenue, up 16 percent year over year.

Dell Third Quarter Forecast: $24 Billion

Dell provided revenue guidance for its current third fiscal quarter of between $23.8 billion to $25 billion.

“Currency continues to be a headwind for us, roughly 500 basis points for Q3 and roughly 400 basis points for the full year,” said Clarke.

“Against that backdrop, we now expect Q3 revenue between $23.8 billion and $25 billion, down 8 percent at the midpoint, with CSG declining in the high teens and ISG growing in the low teens,” Clarke said. “We do expect gross margin rates to increase sequentially as mix shifts to ISG.”

Jeff Clarke said some good news ahead is that the three-year replacement cycle stemming from the COVID-19 pandemic is approaching.

“We’re approaching the three-year replacement cycle of what we put in to respond to COVID and triaging the work-from-home event from three years ago. And we’re still starting at a market that’s larger than it was pre-COVID, which we’re excited by,” said Clarke.

Overall, Clarke is bullish about Dell’s future.

“Data is being created at unprecedented levels. We had data gravity pulling the infrastructure resources out to the edge. The new digital highways being built with 5G. So we absolutely are very bullish and optimistic about the long-term characteristics of the marketplace,” said Clarke.