Dell Technologies Shows Network Infrastructure Spending Is Strong

Hardware and infrastructure solutions provider Dell Technologies (NASDAQ: DELL) is a diversified technology company comprised of two primary segments: infrastructure and client solutions. The segment that manufactures and sells PCs, monitors, accessories and gaming hardware is the Client Solutions segment. The acquisition of storage solutions provider EMC more than a decade ago helped shape the storage and networking solutions segment known as the Infrastructure Solutions Group. While the Client Solutions Group (CSG) has seen its revenues plummet due to the normalization of 2021 comps caused by the pandemic, its Infrastructure Solutions Group (ISG) continues to set record revenues. The company also has Alienware gaming systems, SecureWorks cybersecurity and cloud management software company Virtustream. Dell also sold its 81% stake in virtualization company VMWare (NASDAQ: VMW). The company has continued to gain commercial PC market share in 35 of the past 39 quarters and has been able to cut quarterly operating expenses by more than $300 million since the first quarter of 2022. Despite the strength of the U.S. dollar impacting 500 basis points, Dell easily beat its Q3 2022 EPS estimates and, like rival HP Inc. (NYSE: HPQ), may indicate the bottom of the sales normalization process of PC may have been reached.

MarketBeat.com - MarketBeat

Pandemic bolsters APEX Solutions-as-a-Service model

The pandemic has also been a boon to Dell's infrastructure business as companies have cut back on significant infrastructure capital expenditures due to the unpredictability of the COVID pandemic and budget constraints related to lockdowns. This caused more companies to consider subscription-as-a-service plans (i.e.: software as a service, storage as a service, hardware as a service, etc.) that allowed reduce costs in the face of uncertainty while gaining flexibility, value and capacity. For Dell and other service-as-a-service (aaS) providers, this meant stable, predictable and consistent cash flow. Dell's APEX enabled businesses to procure hardware, storage, software, security and cloud in a single offering with complete end-to-end maintenance and management, making it scalable and affordable no overage charges under its hybrid subscription and consumption billing plans. This was particularly suited to businesses employing a growing remote workforce and suited for the "new normal" of hybrid working and the elastic office.

Loud beat but still...

On November 21, 2022, Dell released its third quarter fiscal 2022 results for the quarter ending October 2022. The company reported earnings per share (EPS) of $2.30 excluding one-time items compared to consensus analyst estimates for earnings of $1.61, a beat of $0.69 per share. Revenue fell (-6.4%) year-over-year (YoY) to $24.72 billion, beating analyst consensus estimates of $24.61 billion. Comparisons with 2021 have been difficult as it was a banner year for the customer services segment, with PC and consumer hardware sales hitting record highs due to the pandemic. Dell COO Jeff Clarke commented: “Taking a step back, the near-term market remains challenging and uncertain. On the one hand, we are seeing that some customers are delaying their IT purchases. Other customers continue to move forward with Dell given the importance of technology to their long-term competitiveness and a growing need to boost short-term productivity through IT. The world continues to digitally transform, data continues to grow exponentially, and customers continue to turn to technology to drive their business forward regardless of the economic climate. On November 16, 2022, Dell also announced a $1 billion settlement in a class action lawsuit regarding its return as a public company. His insurers may pay part of the settlement, but must still get final approval from a Delaware Chancery Court judge.