Nearly D-day, Dell tells shareholders: Come December 11, we expect you to say yes

Not just the gang at No 10 Downing St who'll be sweating

politician dabs away sweat at podium

Dell has reported results for Q3 of fiscal '19, ended 2 November, ahead of its December 11 shareholder vote on going public – now likely to be a shoo-in, if you go by what execs said on the call.

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Revenues were $22.5bn, up 15 per cent on the year ago's $19.6bn, with a whopping net loss of $876m, even worse than the year ago's $851m loss.

Gross and operating margins were 31 per cent and 19 per cent respectively. The debt number went down to $48.7bn from the prior quarter's $50.3bn. Operating cash flow was $833m; it was twice that – $1.64bn – a year ago. The drop was attributed to inventory costs, seasonality and supply chain features.

In the earnings call chief financial officer Tom Sweet said: "We delivered another strong quarter of top line velocity as all three of our reportable segments delivered double digit revenue growth for the third consecutive quarter."

And as for that stockholder vote, we have a date and time and an expected outcome. Rob Williams, senior veep of investor relations told analysts:

We are scheduled to hold the special meeting and stockholder vote on Tuesday, December 11 at 8 AM Central Time. We expect to announce stockholder approval of the transaction on December 11... We look forward to an expected close of the transaction in December and expected trading as a Class C common on [28 December] under the current scenario.

Infrastructure Solutions Group's (ISG) revenue for the third quarter was $8.9bn, a 19 per cent increase. This was driven by revenue of $3.9bn in storage, a 6 per cent increase, and $5.1bn in servers and networking, a 30 per cent increase.

Storage looking flabby in the middle(range)

In storage there was triple-digit growth for the HCI VxRail product on a demand basis. Dell said it also saw strong demand for its high-end (PowerMAX) file-based (Isilon) and all-flash arrays, and attributed the low storage segment growth to weak mid-range sales (SC and Unity).

Jeff Clarke, Dell's vice chairman of products and operations, said it is "working towards a new mid-range product that is expected to be available by the end of next year".

In the meantime, both SC and Unity have been refreshed and, overall Dell is ramping up its storage sales channel capacity and coverage. It believed it has stabilised the storage business after almost four years of decline, from 2013 to 2017 – and faces a good opportunity for improved growth and share recapture.

In servers, Dell saw double digit growth in both units and the average selling prices. It said it wants to continue that by moving up to higher workloads where there are higher margins.

ISG operating income for the third quarter was $935m, a 7 per cent increase driven primarily by server and storage mix dynamics.

PC power

Client Solutions Group (CSG) revenue for the third quarter was $10.9bn, up 11 per cent, with growth across both Commercial and Consumer. Commercial revenue grew 12 per cent to $7.6bn, and Consumer revenue was up 8 per cent to $3.3bn. Operating income for the third quarter was $447m, or 4.1 per cent of revenue.

CSG operating income was down 29 per cent against a strong prior period, and foreign exchange and supply chain headwinds.

In the quarter, Dell outperformed the PC industry for total worldwide units, and reported above-market growth in desktops and notebooks and in total commercial units. It had the number 1 share position worldwide for displays, gaining unit share year-over-year for the 22nd consecutive quarter.

Dell said PC industry consolidation is ongoing and that PC/notebook sales are helped by the Windows 10 refresh cycle.

VMware revenue for the third quarter was $2.2bn, up 15 percent, with operating income of $768 million and 34.5 percent of revenue.

Third quarter revenue from Other businesses, including Pivotal, Secureworks, RSA Security, Virtustream and Boomi, was $583m, up 5 per cent. There was a $190m goodwill impairment related to Virtustream due to a reset of the long-term business model, as Dell streamlined the product portfolio.

Repelling Outpost

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The recent Amazon Outpost announcement, with Amazon servers and storage systems on-premises running Amazon's (and some VMware) software, makes Amazon a direct server and storage competitor for Dell. However Dell can expect to pick up improved VMware revenues as an offsetting result.

Clarke said about the Amazon Outpost move: "It really is a validation of what we've been saying is the world is really a multi-cloud hybrid world, not everything's going to go to a handful of public clouds. … We are seeing workloads repatriate to on-prem for cost reasons, security reasons and performance reasons and we think Dell Technologies is positioned quite nicely in this world."

Sweet, meanwhile, spoke of noise in the [global] environment, noting that there were "a few concentrated spots where perhaps there's been a slight investment pause in certain classes of customers – and a good example of that is UK public, given the Brexit dynamic."

Roll on December 11. ®




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