Dell Earnings: 5 Things To Watch Around VMware, Storage, PCs

From its big bet on PowerStore to record PC sales, here are the five most important things to know about Dell Technologies upcoming fourth quarter financial earnings report.


Dell Technologies Q4 Financial Earnings Preview

Dell Technologies will report its fourth fiscal quarter earnings results tomorrow that will answer many questions such as if Dell’s roaring PC business can offset potential losses in its bread-and-butter storage and server business as the COVID-19 pandemic continues to disrupt IT hardware spending.

The $92 billion infrastructure giant has yet to post any serious drops in total revenue since the COVID-19 pandemic first hit the U.S. nearly a year ago. During Dell Technologies’ previous third fiscal quarter, the company generated $23.48 billion in revenue, up 3 percent year over year, while net income was up 60 percent to $881 million.

Round Rock, Texas-based Dell is set to report its fourth fiscal quarter results to media and analysts at 5:30 p.m. ET on Feb. 25.

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CRN breaks down the five most important things investors and Dell channel partners should watch for.

Zacks Consensus Estimate: $24 Billion; Dell Predicts More

Zacks Consensus Estimate is predicting Dell’s fourth quarter revenue to reach approximately $24 billion, representing flat year over year growth. Zacks is expecting the company to post quarterly earnings of $2.17 per share, an increase of 8 percent year over year. Dell has beat Zacks Consensus Estimate in three of the past four quarters.

Tom Sweet, executive vice president and chief financial officer of Dell Technologies, said in November that Dell is expecting to grow revenue 3 percent to 4 percent sequentially in the fourth quarter compared to $23.48 billion sales in the third quarter.

This means Dell predicted it would generate between roughly $700 million to $940 million more in sales during its fourth quarter, bringing Dell’s total revenue for fourth quarter between $24.18 billion to $24.42 billion.

“Given the macro backdrop and the trends that we‘ve seen in our business, we expect Q4 revenue to be up 3 percent to 4 percent sequentially, which is slightly below typical seasonality of 5 percent to 6 percent sequentially,” said Sweet in November.

With many businesses already having implemented a remote workforce IT strategy, it will be interesting to see if PC growth can continue to drive momentum for the company as well as if Dell has seen any positive trends in infrastructure sales.

Can Roaring PC Sales Overcome Soft IT Infrastructure Spending?

Dell’s PC business is coming off a record third-quarter sales momentum.

Dell’s Client Solution Group (CSG) -- which includes PCs, notebooks and tablets -- generated record revenue of $12.3 billion in its third quarter, up 8 percent year over year. CSG consumer revenue jumped 14 percent year over year to $3.5 billion in sales, while Dell’s commercial client sales increased 5 percent to $8.8 billion.

The global COVID-19 has expanded Dell’s consumer use of online purchasing as Dell has been enabling work and learn from home initiatives for businesses across the world. Dell has benefitted greatly from its PC innovation during the past 12 months.

“We expect strong Client Solution Group results [in Q4] with revenue expected to be slightly above normal seasonality of plus- 2 percent to 3 percent sequentially,” said Dell’s Sweet in November.

According to Sweet’s guidance, this means that Dell is poised to break its CSG all-time revenue record again in the fourth quarter.

The big question is if Dell’s growing CSG business can keep fourth quarter total revenue from dramatically dropping if there’s potentially weak infrastructure sales results.

Dell’s Storage Business Is Top Of Mind

As Dell executives said themselves, third quarter storage sales were disappointing. The dominant global storage leader saw storage sales drop 7 percent year over year in its third quarter to $3.86 billion.

“Our storage business was down 7 percent for the quarter, we were disappointed with that result,” said Jeff Clarke, chief operating officer and vice chairman of Dell Technologies during the company’s third quarter earnings call.

Dell’s storage sales have been in a slump for over a year as the company hasn’t reported storage revenue growth since its third fiscal quarter 2020, which ended Nov. 1, 2019. However, Dell is hopeful that fourth quarter storage sales will turn its slump around.

“Typically, Q4 is a larger storage quarter,” said Dell’s Sweet in November. “So we do expect some uplift in storage, although we are slightly cautious about how does data center spending play its way out through Q4.”

It will be a major win for Dell if the company can shift its storage momentum in a positive direction in the new year. Dell is betting heavily its new PowerStore storage platform is the answer.

Will PowerStore Pull Through For Dell?

Dell is placing its storage bets all on PowerStore, the company’s new and highly innovative all-flash storage platform that was launched last year.

“Our midrange [market] is shrinking. It’s why PowerStore is so important. PowerStore is the catalyst to change our share trajectory in the midrange,” said Dell’s Clarke in November.

Dell has been banking on PowerStore to boost storage sales and momentum. “We’re encouraged by the first two quarters of PowerStore. It was up nearly twice the revenue in Q2 and Q3, and 15 percent of the customers are new storage buyers to the company. That makes us feel very good that we’re on the right trajectory with PowerStore,” said Clarke.

Clarke was expecting PowerStore sales to “ramp up” in the fourth quarter and through 2021. “That ramp is the key to our success in growing our storage business,” he said.

Dell’s storage results will show if customers are now willing to open up their budgets for large storage upgrades even as the global pandemic rages on. It will be interesting to see if Dell unveils specific PowerStore sales gains or customers wins during its financial earning call on Thursday.

VMware Earnings, VMware Spinoff

Another significant vendor will report their quarterly earnings on Thursday in VMware, which is majority owned by Dell Technologies. The $12 billion virtualization superstar is set to provide fourth fiscal quarter financial earnings on Thursday at 4:30 p.m. ET, just one hour before Dell.

Dell and VMware have an extremely tight co-engineered and go-to-market partnership together such as with VxRail, the world’s No.1 hyperconverged infrastructure solution, as well as around Dell’s flagship hybrid cloud platform, the Dell Technologies Cloud.

Additionally, Dell Technologies is planning to spin off its 81 percent stake in VMWare to current Dell and VMware shareholders later this year.

Aiming for a tax-free spin-off, Dell says the move will drive significant shareholder value while at the same time maintaining the strong partnership between Dell and VMware. The earliest time the transaction would close would be in September.

Dell channel partners and investors should keep a keen eye out for VMware’s quarterly results on Tuesday. It will also be interesting to hear if Dell executives on Thursday provide has any updates regarding its spin-off of VMware.