Dell reported an unexpectedly strong earnings in its fiscal first quarter thanks to revenue that slightly beat expectations as well as some significant cost cuts to components that were in short supply before.
Dell (ticker: DELL) stock has been halted to the news after another media organization broke its ban on earnings release. Shares of Dell, which were up about 13% in the year through Wednesday, initially rose, but lost ground after the company gave guidance on its dividend call. The stock is down about 2% in late trading.
Dell’s business has been pressured in recent quarters from weak PC demand and tightening IT budgets amid widespread concerns about the overall economy. But this quarter’s results point to better times to come.
For the quarter ending May 5, Dell reported revenue of $20.9 billion, down 20% from a year ago, but about $600 million above the Wall Street consensus of $20.3 billion. What is interesting is that adjusted earnings were $1.31 per share, well above Wall Street’s forecast of 86 cents per share. Under generally accepted accounting principles, the company earned 79 cents a share.
The company’s profits have been distributed among the company’s two major operating segments.
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Customer Solutions Group, the company’s PC arm, had revenue of $12 billion, down 23%, but ahead of Wall Street’s forecast of $11.4 billion. The infrastructure solutions groups, which include servers, networking and storage products, had revenue of $7.6 billion, down 18%, but ahead of consensus estimates of $7.5 billion.
“We performed well against a difficult economic backdrop,” said Chuck Witten, Dell’s chief operating officer, in a statement. “We maintained pricing discipline, reduced operating expenses, and our supply chain continued to perform well after normalization ahead of competitors.”
The surprising component here is that margins are improving as component costs come down.
While HP competes
a company.
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(HPQ) said this week it was still working on the post-pandemic backlog of channel inventory, and Dell says it has fixed that issue, with normal production lead times now.
Meanwhile, like HP, Dell sees some opportunities in artificial intelligence. Last week the company announce New project with Nvidia (NVDA) to develop native AI hardware. Late last year the company announce New server running on Nvidia graphics processors.
Dell is optimistic that customer business has found a bottom; The company said it feels more optimistic about the outlook for the second half of 2023. But it also cautioned that gross margins will decline by about half a percentage point sequentially, giving what the company expects is “a more competitive pricing environment.”
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For the fiscal second quarter, Dell expects revenue of $20.2 billion to $21.2 billion ranging from a 3% sequential decline to a 1% increase, just below the old Street consensus of $21.8 billion. The company expects customer services revenue to remain flat sequentially, with Infrastructure Solutions Group revenue declining in low single digits sequentially. The company said it expects earnings per share for the quarter to be $1.10 a share, give or take 10 cents, which is just below the consensus of $1.16.
For the year ending January 2024, Dell continues to see revenue decline 15%, give or take 3 percentage points, with earnings of $5.50 per share, give or take 25 cents, above consensus of $5.31 per share.
Write to Eric J. Savitz at eric.savitz@barrons.com
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