Dell's first Q1 back as a publicly traded entity heralded mixed reports for the tech giant.
Revenue for the first quarter of its fiscal 2020 - which ended 3 May - was up three per cent year on year to $21.9bn (£17.4bn), while non-GAAP operating income rose eight per cent to $2.2bn.
However, its strong servers and storage divisions took a hit, as external factors slowed down growth.
Much like arch rival HPE, Dell's servers and storage business took a hit in this quarter.
Revenue for its infrastructure solutions group (ISG) declined five per cent on Q1 2019 to $8.2bn, with storage revenue down one per cent to $4bn.
On an earnings call with analysts, transcribed by Seeking Alpha, CFO Thomas Sweet attributed this dip to a "backlog given the timing of when state orders were received".
Jeffrey Clarke, VP of products and operations at Dell, expanded on Sweet's comments, stating that the storage demand peaking at the end of Q1 was part of a pattern with the vendor.
"You saw in our storage business…a build-up towards the end of the quarter, which is historically what we see in our largest accounts," he explained on the call.
"We saw a nice steady state through the commercial business of our storage demand. And VxRail continues to do well as a hyperconverged software-defined storage offer in the marketplace."
The tech titan reported its first decline in its servers and networking business in 10 quarters, with a year-on-year decrease of nine per cent to $4.1bn.
Clarke told analysts that demand for servers and networks last year was "unprecedented" and that the vendor had anticipated a slowdown in demand this year, but not quite as slow as has played out so far.
"We planned for slower growth this year, but the demand environment was softer than we and the industry expected," he acknowledged.
"We were consciously more selective on larger server deals during the quarter, particularly in China, and we focused on acquiring new customers and balancing top-line and bottom-line results across the entire server business. The result [was] a decline in revenue, but with higher profitability."
CFO Sweet added that the reduced demand for servers in China and in large enterprise played into the decline in this business.
Tyler Johnson, treasurer at Dell, explained on the call:
"In the large enterprise space, [there were] a handful of deals where quite frankly the profitability profile just didn't make sense to us. So we didn't participate in that.
"And so we've balanced as we made our way through the quarter from a revenue profitability perspective and I think we're pretty disciplined in how we did it.
"Given where the market was and given what we saw, I feel pretty good about how we navigated the quarter there. And again, there is demand out there if you want to take it, but sometimes the profitability framework doesn't make sense."
Windows refresh cycling uphill
The vendor's client solutions group (CSG) saw a six per cent year-on-year climb to $10.9bn, with revenue in its commercial subset growing 13 per cent to $8.3bn.
This profitability was attributed to component cost declines, commercial consumer mix and pricing discipline.
"We are seeing continued strength in commercial PCs, driven in part by increased coverage and SMBs and the Windows 10 refresh," stated Clarke.
"We gained worldwide PC share for the 25th consecutive quarter according to IDC, with share up 80 basis points.
"Longer term, we remain optimistic about IT spending as organisations continue to invest in software-defined datacentre, as well as IT infrastructure, to support their edge and cloud strategies, and no one is better positioned than Dell Technologies to help our customers with these needs."
When asked by one analyst how much longer it expects to take advantage of lower memory prices, CFO Sweet acknowledged that he expects to see deflation in the component cost environment in the next couple of quarters.
He added that the company is well positioned to navigate that, touching on Donald Trump's recent tariff hikes in the US-China trade war.
"The unknown is around the impact of trade and tariffs if they worked or come to fruition, and how that would potentially have an impact on demand," he said.
"I think we feel good about the work that the supply chain team has done in terms of potentially mitigating the impacts…but that is a bit of an unknown."
When questioned by another analyst about the softening demand in Europe and the US, Sweet stated that Dell is remaining positive about external changes that might affect growth.
"There are clearly dynamics in the macroenvironment," he explained.
"Besides the trade and tariff conversation we've been having, you've got Brexit overhang, you've got political dynamics going on, but step back and think about the underlying IT technology investment trends…there is an investment cycle happening.
"So obviously we'll keep our eye on this and adjust as appropriate as we go through the year, but we remain optimistic about the opportunities that we have and our positioning in the market.
"We repaid approximately $400m of gross debt in the quarter and we have now paid down $15bn of gross debt since the EMC merger. We remain on track to repay approximately $4.8bn of gross debt this year."
Dell's virtualisation subsidiary looks set to be on course to be a $10bn entity with a successful Q1 revenue of $2.3bn, a 13 per cent year-on-year increase on last year's figure.
"Q1 was a good start to fiscal 2020 with strength across our comprehensive solutions portfolio," said VMware CEO Pat Gelsinger on a separate earnings call.
"We were especially pleased to announce a number of agreements during the quarter with key partners Amazon Web Services, Dell and Microsoft, as customers continue to turn to VMware's cloud infrastructure technology to enable their digital transformations."
Dell's other subsidiaries SecureWorks, RSA Security, Virtustream and Boomi - clubbed together as ‘other businesses' - reported a three per cent revenue rise to $596m in Q1.
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