8 Biggest Partner Takeaways From Dell's Q1 Earnings Report
Dell's $21.4 Billion Q1
Dell Technologies beat analysts sales forecasts of $19.4 billion by generating a total of $21.4 billion in revenues for its first fiscal quarter.
"We had a strong first quarter," said Jeff Clarke, vice chairman, products and operations for Dell, during the company's earnings call on Monday morning.
Here are the 8 biggest takeaways from the Round Rock, Texas-based infrastructure giant's first fiscal quarter, which ended May 4, that partners need to know.
Storage Sales Rise
Dell reported storage sales of $4.08 billion for its first fiscal quarter, representing a 10 percent increase year over year. The sales gain was a complete turnaround from the company's previous fourth fiscal quarter when Dell reported a storage sales drop of 11 percent year over year.
"We expect to gain share year over year in storage when the first-quarter industry-shared numbers are final," said Clarke. "We have taken several steps over the past few months to improve storage, which include launching our new PowerMax storage solution, aligning our software-defined storage strategy to vSAN, and releasing product updates for Unity, SC, and XtremIO X2. We also launched our Future-Proof Storage Loyalty Program. This quarter's results are an indicator that our actions are having a positive impact."
'100%' Agree With Storage Portfolio Simplification
CRN was first to report in May that Dell EMC is establishing a new simplified storage product lineup aimed at accelerating product innovation. Dell engineering teams will now squarely focus on a single product line for each storage market segment from low end to midrange to high end and a separate product for the unstructured file and object storage market.
"When I talked to customers and said, 'Would you rather buy four midrange products or one, and the right one, with all of our best IP?' The answer is overwhelmingly positive to the degree of 100 percent that, 'We'd prefer to buy one product that's the right product with all of the Dell EMC technology and IP in it,'" said Clarke. "We have started simplifying the portfolio into a roadmap squarely directed at meeting customer needs and winning in the market."
Transition For Storage Customers
Hewlett Packard Enterprise Chief Sales Office Phil Davis last week slammed Dell EMC's new storage product roadmap, claiming it raises questions about which products will survive. Although not directly naming HPE, Clarke said, "despite what may be being said by others, our products on the roadmap today are supported throughout their lifetime, period. And we will provide a non-disruptive migration from the old product to the new product."
Clarke said he doesn't "spend time thinking about how my competitors are responding to" the new storage roadmap. He said partners and customers are asking, "Jeff, we can buy what we're buying today, and when Dell has the new thing ready, we can seamlessly migrate to the new thing?' [My answer is,] 'Yes sir, that's correct."
Deferred Revenue Up $3.3 Billion
Dell reported that deferred revenue hit $21 billion, up $3.3 billion year over year. Tom Sweet, chief financial officer at Dell, said deferred revenue was being driven by an increase in software and hardware maintenance across the business as well as growth in its flexible consumption models.
"We believe this growth is a positive indication that our business model is evolving as we offer more software and services solutions across the family of businesses," said Sweet.
'Extraordinary Demand' For PowerEdge Servers
Dell's server and networking revenue hit $4.58 billion in the first quarter, up a whopping 41 percent year over year. The company is the current worldwide server market leader, according to first quarter 2018 data from research firm IDC. Dell owns 19.1 percent of the global server market, followed by HPE at 18.6 percent and Lenovo at 5.8 percent.
"We continue to see extraordinary demand for PowerEdge servers coupled with ongoing expansion of our average selling prices, both of which drove our sixth consecutive quarter of server revenue growth with double-digit growth from both PowerEdge and cloud servers," said Sweet. "We have the strongest compute platform in the industry, so we continue to turbocharge that business. The 14G capabilities that we rolled out are quite strong."
Channel partners have been cheering Dell Technologies' multi-year initiative to make it easier for solution providers to engage, buy and sell across the company's seven brands: Dell, Dell EMC, VMware, SecureWorks, Pivotal, RSA and Virtustream. Dell recently unveiled the Dell Technologies Advantage program that provides a framework for new vendor engagement, tools and incentives to help partners cross sell.
"If you think about our 40,000 sellers, our ability to cross-sell across the platform, our ability to introduce some of these interesting technologies and capabilities to a broader set of customers -- it's a huge advantage for us from a leverage perspective," said Sweet. "The cross-selling between our families of companies continues to be strong."
Sweet said Dell is focused on nurturing the relatively smaller brands such as RSA, Pivotal, SecureWorks and Virtustream. "We're focused, generally, on nurturing those businesses, growing those businesses, or investing in those businesses. So our strategy is going to continue to put capital toward them where appropriate to help drive velocity," he said.
During the first quarter, Dell paid down approximately $600 million of debt. The company's core debt balance currently stands at $39.8 billion. Dell said it has paid down a total of $13 billion in core debt, excluding Dell Financial Services and subsidiary debt, since closing its $58 billion blockbuster acquisition of EMC in 2016.
"I am pleased with the progress we've made on debt repayment while continuing to invest in the business," said Sweet. "We're financially strong and comfortable with our ability to pay down $5 billion in total debt this year."
No Talk Of VMware Merger
Potentially the biggest Dell Technologies news of 2018 was not addressed or spoken about by any executives during the earnings call: a potential deal with VMware. In February, Dell Technologies CEO Michael Dell confirmed that his company is currently evaluating a IPO or a "business combination" with VMware.
In May, Dell filed a public disclosure to federal regulators saying the company is evaluating an additional potential route to a VMware deal. Dell said it was soliciting input from investors in a Dell tracking stock linked to the VMware business to gauge interest in an arrangement that would allow holders of the tracking stock, DVMT, to retain complete shares of Dell. Partners have been anxiously awaiting a decision of a potential VMware merger for months.