From Pricing To Programs: 5 Things To Watch For In Dell Technologies' Q2 Results

Earnings Call

The deepening relationship with VMware, the stubborn challenges of the global PC market, and progress toward a fully functioning partner portal are likely to be topics of discussion for Dell Technologies executives when the company reports its second-quarter financial results Thursday.

Thursday's report marks the third full quarter since Dell's $58 billion acquisition of EMC last September, and the Round Rock, Texas-based company is trying to maintain its momentum.

In recent quarters, Dell EMC has been the only major server manufacturer to book worldwide share gains, and the company is also riding an almost unbroken string of share gains in the PC market. Still, being the largest privately held IT firm in the world means Dell Technologies has a target on its back, and the company is contending with a contracting PC market as well as an all-out data center assault by competitors including Hewlett Packard Enterprise and Cisco Systems as demand for high-end gear softens.

Recently, the company has taken steps to tighten its relationship with VMware and improve the way they engage channel partners.

Click through to see five things solution providers should watch for in Dell Technologies' second-quarter results.

The VMware Relationship

Dell EMC Channel Chief John Byrne and his team have vowed to end VMware channel conflict with a new engagement model that allows partners to receive full VMware incentives for selling VMware enterprise license agreements in tandem with Dell EMC hardware. The move, which essentially makes Dell EMC a distributor of VMware ELAs, is another example of the tightening ties between the two companies. Solution providers should listen for any indication for how tight executives like Dell Technologies CFO Tom Sweet and Dell EMC infrastructure chief David Goulden think that relationship can become, especially given VMware's newfound traction in the hybrid and multi-cloud market and the high hopes for Dell EMC's VxRack and VxRail hyper-convergence solutions, which both include VMware.

Memory, SSD Price Impacts

Dell Technologies confirmed over the summer that it was raising PC and server prices as memory and SSD costs continued their yearlong rise. At the time, Goulden said the company was trying to carefully raise prices without impacting customer demand. Goulden and Sweet said they expect rising costs as a result of memory and SSD shortages to persist for the rest of the year. Memory prices have doubled, and SSD prices have increased about 20 percent, Sweet said. Solution providers should keep an eye out for any change in strategy around the situation. So far, the company has tried to get the pricing levels it needs while offsetting the impact of those increases by limiting salespeople's pricing authority and shaving discounts with channel partners. Look for Sweet and Goulden to share more about the evolving pricing strategy and what it could mean for the channel.

Program Integration

Almost as soon as Dell's $58 billion acquisition of EMC was complete, Sweet warned that there could be disruption for partners as the companies integrated their respective channel programs. The newly constructed partner portal, in fact, was plagued with problems and left partners without a way to complete the training courses necessary to advance through program ranks. More recently, the previously suspended training requirements for federal partners were reinstated, while requirements for other partners had been waived for the second half because solution providers are still having problems accessing the portal. Solution providers should listen for Sweet to give an update on program integration and a time frame on when the company's partner portal will be fully operational.

PC Sales

Dell is locked in a three-way battle for global PC supremacy with rivals HP Inc. and Lenovo, and it is a perennial share gainer in that important market. Still, the PC market continues to contract. The Client Solutions Group is Dell Technologies' largest unit, and it did $9.1 billion in sales in the first quarter, a 6 percent increase over the same period a year prior. It'll be interesting to see whether that number has increased, and if Dell Technologies executives claim that an increase is due in any part to data center solution providers heeding the call to sell PCs as part of an effort to push the vendor's entire portfolio.

Data Center Sales

For another couple of quarters, Dell Technologies' Infrastructure Services Group's numbers are still being compared with year-ago results from before Dell's acquisition of EMC. As a result, the group's numbers show huge year-over-year increases. It's worthwhile to pay attention to how the quarter's results stack up against the periods since the acquisition, though. The group's first-quarter sales hit $6.9 billion, and operating income was $323 million. Since then, Dell EMC has launched a slew of new products, perhaps most significantly the new 14G server line.