5 Reasons Why Dell’s Stock Is Up After Earnings

Dell Technologies stock is up more than 6 percent on Friday after the company reported flat revenue growth during its first fiscal quarter earnings Thursday night. Here’s why Dell’s stock is on the rise.

Why Dell’s Stock Jumped 6%

The worldwide market leader in storage, servers and hyperconverged infrastructure reported its fiscal first quarter results Thursday night which is driving Dell Technologies’ stock up more than 6 percent on Friday.

The Round Rock, Texas-based $91 billion company is navigating its way through the coronavirus pandemic, which is causing a drop in global IT hardware spending and forcing many IT companies, including Dell, to make cuts to operational expenses.

Dell Technologies reported flat year-over-year revenue growth of $21.9 billion for its first fiscal quarter 2021, which ended May 1. So why is Dell’s stock currently up 6 percent at $48.42 per share as of Friday morning? CRN breaks down the five reasons why Dell’s stock is on the rise.

Dell Bests Expectations; Solid Orders In Key COVID-19 Verticals

As many companies are pulling back or pausing their spending on IT hardware in favor or remote working technology, many thought Dell’s overall sales would be hit significantly during the quarter, which ran from February through April – overlapping with when the coronavirus pandemic struck markets globally.

However, Dell beat analysts’ estimates of $0.94 earnings per share (EPS) and Wall Street consensus of $1.01 EPS by reporting profit of $1.34 per share for the quarter.

Operating income was also up 28 percent year over year to $702 million. Additionally, Dell generated $27.6 billion in deferred revenue in its first quarter, up 14 percent compared to the same quarter one year ago.

Jeff Clarke, vice chairman and chief operating officer at Dell Technologies, said the firm saw high demand in the key industries that are playing a role in combating the coronavirus including healthcare and life sciences.

“Customers need essential technology now more than ever to put business continuity, remote working and learning plans into practice,” said Clarke, during Dell’s quarterly earnings conference call with analysts and media Thursday night. “In Q1, we saw orders with banking and financial services, government, healthcare and life sciences customers up 15 to 20 percent – all to meet immediate needs of their customers, communities and patients.”

Servers And Storage Fall, But Light Ahead

Dell’s bread and butter infrastructure segments, servers and storage, were hit hard by COVID-19. The company’s server and networking revenues fell 10 percent to $3.76 billion year over year, while Dell dominant storage segment dropped 5 percent to $3.81 billion. Overall, Dell’s Infrastructure Solutions Group revenue declined 8 percent year over year in its first quarter to $7.57 billion.

However, Clarke said Dell’s infrastructure sales drop will not affect its global market share position as it expects to gain share in serves and in specific storage segments.

“We saw demand in large business and in government for our server products, and that demand was all throughout the quarter,” Clarke said. “While down, we saw improved server performance, and expect to gain unit and revenue share for mainstream servers when [IT research firm] IDC x86 server results come out next month. … 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

Dell also reported bright spots in its flagship hyperconverged product VxRail and high-end PowerMax storage line. "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," said Tom Sweet, chief financial officer at Dell Technologies.

‘Strong Quarter’ From VMware

Dell Technologies owns the majority stake in VMware of approximately 81 percent. The two companies are integrating technologies at a rapid pace and engineers from Dell and VMware are working hand-in-hand on various projects and innovation.

VMware reported first fiscal quarter results on Thursday of $2.73 billion in total revenue, up 12 percent year over year – more than $100 million ahead of Wall Street estimates of $2.62 billion. Additionally, VMware reported profit of $1.52 per share besting consensus estimates by $0.34 cents.

“Our first quarter demonstrated our ability to drive a positive ROI and enhanced resilience for customers undergoing digital transformations,” said Zane Rowe, executive vice president and chief financial officer at VMware in a statement. “This quarter also highlighted VMware’s strengths and opportunities in a challenging economic environment.”

Dell’s Clarke said VMware had a “strong quarter,” highlighting VMware’s operating income of $773 million. “Based on VMware's stand-alone results, subscription and as a service revenue grew 39 percent, with the strongest revenue performance from end user computing, Carbon Black and VeloCloud offerings as well as VMware Cloud on AWS -- which had a triple-digit revenue growth rate,” he said. “Both NSX and vSAN product bookings grew over 20 percent.”

Client Solutions Growth During COVID-19

Dell Technologies, which has one of the largest IT product portfolios in the world, saw a shift in customer spending away from infrastructure and towards remote-work solutions during the quarter.

Dell’s Client Solutions Group, which includes PCs and notebooks, grew 2 percent year over year to $11.1 billion. 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.

“The strong demand for remote work and learning solutions drove the strong commercial client and notebook performance,” said Clarke. “The team did a nice job working through supply chain impacts.”

Clarke also said site visits to the company’s website in April skyrocketed 77 percent, “driven largely by interest in remote work offerings and learnings ranging from PC solutions and services, quick-start bundles for VDI and SD-WAN for home access to take the stress off corporate networks.”

Coronavirus Actions

Dell Technologies is navigating the uncertain financial waters stemming from the coronavirus pandemic on several fronts – from CEO and founder Michael Dell (pictured) forgoing his base salary to opening up cash flows and helping to drive sales for its channel partners.

Dell also provided one-time cash payouts for up to 50 percent of current partner Market Development Fund (MDF) and Business Development Fund balances for use toward marketing activities for channel partners, while also allowing MDF in advance to free up cash. The company also waived the fee for services deployment training for VxRail, Unity XT storage and data protection DP4400 infrastructure offerings to help partners sell more.

Through its popular Dell Financial Services arm, the company offered new deferred payment schedules and zero up-front costs to help partners preserve capital. Dell Financial Services provided 24-month financing at zero percent interest for servers and select storage products; a six-month term and rotation lease options for select laptops, thin clients and mobile workstations; and three-, six- and potentially nine-month deferrals for customers.

The company has also temporarily halted employee pay raises, contributions to 401(k) retirement plans and hiring on a company-wide basis to help keep the company financially stable during the crisis. During the coronavirus pandemic, Dell’s innovation is still on high, as the company launched a slew of new offerings including its new midrange storage product line: PowerStore.

“As the world pivots from response to recovery, we’ll continue to put our broad capabilities to work to deliver differentiated results for our customers and our company,” said Clarke.