Dell Technologies Beats Q2 FY2020 Expectations

Dell Technologies reported stronger-than-expected results for its second fiscal quarter of 2020 (ended 2 August 2019), with total revenue of US$23.37 billion — up 2 percent year over year from US$22.94 billion. The company beat analyst revenue estimates by US$180 million, and its non-GAAP earnings per share of US$2.15 exceeded expectations by 65 cents.

GAAP net income swung sharply positive, reaching US$4.51 billion for the quarter compared to a US$461 million loss in the same period the prior year. On a non-GAAP basis, net income rose to US$1.75 billion, up from US$1.26 billion a year earlier.

Speaking to financial analysts during the earnings conference call, Jeff Clarke, Vice Chairman of Products and Operations, credited the company’s broad technology portfolio — and in particular its deepening integration with VMware — as a key driver of the results.

VMware’s Growing Role in Dell’s Business

VMware revenue grew 12 percent year over year to US$2.47 billion, making it one of the brighter spots in Dell’s portfolio. Clarke described VMware as bringing “increasing benefits to Dell Technologies as a whole,” pointing to a strategy of cross-portfolio integration that he argued positions the company for long-term structural growth.

Key examples Clarke cited of VMware-powered initiatives include:

• Dell Technologies Cloud: Launched the previous quarter, this hybrid cloud platform combines VMware Cloud Foundation software with VMware VxRail hyper-converged infrastructure. At the VMworld conference that same week, Dell announced enhancements including new validated designs for storage arrays and servers, the first fully managed Data-Centre-as-a-Service offering, general availability of pay-per-use flexible consumption, and support for VMware Pivotal Container Service.
• Pivotal acquisition intent: Clarke noted that VMware’s announced intent to acquire Pivotal would further strengthen Dell’s solutions and speed to market.
• Unified Workspace: This offering combines Dell devices and services, VMware, SecureWorks, and Dell Pro Manage into a single end-user computing solution. VMware’s planned acquisition of Carbon Black was cited as a move that would add a comprehensive intrinsic security layer to this portfolio.

“As you can see, we are delivering on our promise to integrate across Dell Technologies to create the future of technology infrastructure from the cloud to the edge while dramatically simplifying the customer experience,” Clarke said.

Segment Performance: Infrastructure and Client Solutions

Infrastructure Solutions Group

The Infrastructure Solutions Group (ISG) reported revenue of US$8.62 billion, down 7 percent year over year. The decline was largely driven by the server business, which fell 12 percent — primarily due to weakness in Dell’s China market. Storage revenue was roughly flat year over year.

Clarke noted that excluding China, Dell’s server orders would have risen approximately 1 percent. He also stressed that the server revenue decline was partly intentional: Dell was selective about pursuing large, low-margin deals, and server margins actually rose as a result. Despite the revenue dip, ISG added approximately 21,000 new customers in the first half of the fiscal year — an 11 percent increase over the prior year — and more customers are now purchasing across multiple Dell technology lines.

On the storage side, new product introductions are gaining traction. Clarke highlighted strong early uptake of the Unity XT midrange storage platform and noted that the PowerProtect X400 and PowerProtect software data protection offerings are seeing solid market acceptance.

Client Solutions Group

The Client Solutions Group (CSG) delivered revenue of US$11.75 billion, up 6 percent year over year. Commercial client sales rose 12 percent, more than offsetting a 12 percent decline in consumer-focused sales. New product launches in the quarter included updated XPS 2-in-1 mobile PCs and the Latitude 7400.

Macro Headwinds: Tariffs and Enterprise Spending Softness

Clarke acknowledged that the enterprise IT spending environment is softer than Dell and the broader industry had anticipated, and that this softness is expected to continue through the remainder of the fiscal year. Despite this, he expressed confidence in the company’s structural positioning:

“We have built a business to be successful in any environment. We are differentiated by our broad portfolio in the industry with leading solutions, our direct model including services and financing, and our world-class supply chain with its size and scale. Whether the market expands or declines, we expect to outperform the industry.”

— Jeff Clarke, Vice Chairman of Products and Operations, Dell Technologies

On the topic of US tariffs on China, Clarke said Dell’s global supply chain — spanning 25 manufacturing sites worldwide — provides the agility needed to minimize the impact. He described the situation as ongoing, acknowledging the company is “working through the challenges” while maintaining focus on continuity of supply to customers.

Long-Term Strategy: Cloud, Edge, and Digital Transformation

Clarke outlined three structural tailwinds underpinning Dell’s long-term growth thesis:

1. A technology-led investment cycle accelerating customers’ digital transformation initiatives.
2. Exponential growth in data and data-centric workloads, driving demand for modern storage, compute, and data protection infrastructure.
3. Increasing complexity in customer operating environments, spanning public clouds, private clouds, and the edge — creating demand for unified management and simplified infrastructure.

“We are optimistic about IT spending because customers need a partner to help them address these challenges, one who is innovating and delivering a comprehensive, end-to-end IT strategy,” Clarke said.

Key Financial Figures at a Glance

Prior-year figures for ISG and CSG are approximate, derived from the percentage changes stated by Dell management. VMware prior-year figure is similarly derived.