Dell's Server And Storage Businesses Drop Amid Shift To Remote Work

But Dell's PC segment saw growth in its fiscal Q1, driven by commercial demand for work-from-home solutions.

Dell Technologies saw a broad shift in customer spending away from infrastructure and toward remote-work solutions such as commercial notebooks during its latest quarter, the company reported Thursday.

A result of the COVID-19 pandemic, the spending shift hurt Dell's sales of server and storage infrastructure, but benefited the company's commercial PC segment. Dell's Client Solutions Group revenue rose 2 percent during the first quarter of its fiscal 2021, ended May 1, from the same period a year ago--while the company's Infrastructure Solutions Group (ISG) revenue fell 8 percent during the quarter.

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"As customers shifted spend to remote solutions and [business continuity], they did so at the expense of infrastructure spending -- resulting in lower ISG demand," said Jeff Clarke, vice chairman and chief operating officer at Dell Technologies, on Thursday during the company's quarterly conference call with analysts.

Dell was neck and neck with Hewlett Packard Enterprise for having the world's largest server business during the final quarter of 2019, with the two companies then in a statistical tie for having the biggest market share by revenue, according to research firm IDC.

For its fiscal first quarter, Dell reported that revenue in its servers and networking segment fell 10 percent to $3.76 billion, from the same period a year earlier.

"While down, we saw improved server performance, and expect to gain unit and revenue share for mainstream servers when IDC x86 server results come out next month," Clarke said.

The Round Rock, Texas-based company easily remained the world's largest provider of enterprise external storage systems during the final quarter of 2019, according to IDC.

In its fiscal Q1, Dell reported storage revenue of $3.81 billion, down 5 percent year-over-year.

"Though we expect our external storage share to be roughly flat in calendar Q1, we expect share growth in high-end, purpose-built backup appliances and unstructured arrays," Clarke said.

Dell's flagship hyperconverged infrastructure solution, VxRail, and flagship storage line, PowerMax, were bright spots during the company's first quarter, said Tom Sweet, chief financial officer at Dell Technologies.

"We saw double-digit demand growth in VxRail and in our high-end PowerMax solution, and solid demand in unstructured storage, offset by softness in other areas of core storage," Sweet said during the call with analysts on Thursday.

The results in storage, servers and networking led Dell's Infrastructure Solutions Group revenue to drop 8 percent to $7.57 billion in its fiscal Q1 from the year before.

The company's Client Solutions Group, on the other hand, rose 2 percent year-over-year to $11.1 billion during its fiscal first quarter.

The quarterly growth in the segment came thanks to strong sales of commercial client solutions, with revenue rising 4 percent to $8.63 billion. A double-digit revenue increase for commercial notebooks during the quarter was buoyed by 37-percent growth in orders for Latitude notebooks, Clarke said.

Meanwhile, quarterly revenue for Dell’s consumer client solutions fell 5 percent to $2.47 billion.

Total revenue for Dell Technologies during the quarter was flat year-over-year at $21.9 billion.

"From a customer standpoint, we saw orders strength in banking and financial services, government and healthcare and life sciences -- each up 15 to 20 percent in Q1," Clarke said. "For small and medium business, however, demand did soften as the quarter progressed given the shelter-in-place orders of various governments. We saw demand drop over the quarter in the most impacted sectors, including retail, manufacturing, energy and transportation."

Dell's quarterly GAAP net income was $182 million, down from $329 million in the same quarter last year.

The company reported gross margin of $6.85 billion, up 1 percent from $6.8 billion year-over-year.

Dell, which withdrew its fiscal 2021 guidance in March, did not provide additional specifics around guidance--though Sweet did say the company is projecting its fiscal Q2 revenue to be "seasonally lower than prior years."

"We do expect it to be a little bit softer than historical norms," he said.

Later during the call with analysts, Sweet added that the uncertain economic environment means "we don't have great visibility into what the demand profile looks like as we go through the quarter and into the back half of the year."

Ultimately though, "we still see digital transformation occurring--in fact accelerating--through and after this crisis," Clarke said.

Dell's stock price rose 8 percent to $49.24 a share in after-hours trading Thursday.