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Dell shares plunged 13.51% on Aug 26, following disappointing fiscal second-quarter 2023 results and dim fiscal third-quarter prospects. The company’s shares have fallen 26.3% year to date compared with the Zacks Computer & Technology sector’s decline of 26.4%.
Dell followed a host of companies like Adobe, Airbnb, Apple, Bumble, EA, Google (Advertising business), IBM and Intel in suspending sales in Ukraine (Donetsk and Luhansk) and Russia in February, this year, following Russia’s invasion of Ukraine.
The United States, European Union and the United Kingdom have all imposed economic sanctions on Russia following the invasion.
Dell Technologies Inc. Price, Consensus and EPS Surprise
Dell’s operations in Russia and Ukraine accounted for less than 1% of net revenues in fiscal 2022.
Dell Beats Q2 Earnings Estimates, Prospects Weak
Dell reported second-quarter fiscal 2023 non-GAAP earnings of $1.68 per share, beating the Zacks Consensus Estimate by 3.07%. The bottom line increased 14% year over year.
Revenues, on a non-GAAP basis, improved 9% year over year to $26.43 billion but lagged the consensus mark by 0.27%.
Product revenues increased 10% year over year to $20.81 billion. Services revenues rose 6% year over year to $5.62 billion.
Recurring revenues were roughly $5.2 billion, up 8% year over year.
Quarter in Detail
Infrastructure Solutions Group (“ISG”) revenues were up 12% year over year to $9.54 billion.
The upside can be attributed to 16% growth in servers and networking revenues that totaled $5.21 billion. Storage revenues grew 6% year over year to $4.33 billion.
Dell now sees a more challenging ISG demand environment in the second half of 2022.
Dell witnessed a shortage of parts and embedded integrated circuits, including power supplies and NICs in the reported quarter. ISG backlog, particularly servers, remained elevated.
Client Solutions Group (“CSG”) revenues were $15.49 billion, up 9% year over year. This performance was driven by Commercial revenues, which surged 15% year over year to $12.14 billion. Consumer revenues were down 9% to $3.35 billion.
In the CSG segment, Dell saw demand weakness in both Consumer and Commercial.
The non-GAAP gross profit stayed at $5.65 billion on a year-over-year basis. The gross margin contracted 200 basis points (bps) year over year to 21.4% due to increased costs and forex headwinds.
Non-GAAP operating expenses decreased 3% year over year to $3.70 billion. Operating expenses, as a percentage of revenues, declined 170 bps on a year-over-year basis to 14%.
The non-GAAP operating income was $1.95 billion, up 4% from the year-ago quarter’s levels. The operating margin contracted 30 bps year over year to 7.4%.
The ISG operating income increased 9% year over year to $1.05 billion. Meanwhile, the CSG operating income was $978 million, down 1% year over year.
Balance Sheet
As of Jul 29, 2022, DELL had $5.51 billion in cash and long-term investments compared with $8.52 billion as of Apr 29, 2022.
Debt was $26.93 billion as of Jul 29, 2022 compared with $27.12 billion as of Apr 29, 2022.
Dell’s remaining performance obligations or RPO is approximately $41 billion, up 2% year over year at the end of the fiscal second quarter.
Dell returned $850 million to its shareholders through a combination of share repurchases and dividends.
Guidance
Dell expects fiscal third-quarter revenues between $23.8 billion and $25 billion, down 8% at the mid-point, with CSG declining in the high-teens and ISG growing in the low-teens.
Gross margin is expected to increase sequentially as the mix shifts to ISG. Operating expense is expected to decline sequentially.
Dell expects earnings between $1.53 per share and $1.79 per share, unchanged year over year at the mid-point.
For fiscal 2023, revenues are expected to be flat or up 2%. Earnings are expected between $6.60 per share and $7 per share, up 9% year over year at the mid-point.
Image: Bigstock
DELL Exits Russia, Shares Decline on Dismal Q3 Outlook
Dell Technologies (DELL - Free Report) has closed its Russian operations after closing offices in mid-August, per a Reuters report.
Dell shares plunged 13.51% on Aug 26, following disappointing fiscal second-quarter 2023 results and dim fiscal third-quarter prospects. The company’s shares have fallen 26.3% year to date compared with the Zacks Computer & Technology sector’s decline of 26.4%.
Dell followed a host of companies like Adobe, Airbnb, Apple, Bumble, EA, Google (Advertising business), IBM and Intel in suspending sales in Ukraine (Donetsk and Luhansk) and Russia in February, this year, following Russia’s invasion of Ukraine.
The United States, European Union and the United Kingdom have all imposed economic sanctions on Russia following the invasion.
Dell Technologies Inc. Price, Consensus and EPS Surprise
Dell Technologies Inc. price-consensus-eps-surprise-chart | Dell Technologies Inc. Quote
Dell’s operations in Russia and Ukraine accounted for less than 1% of net revenues in fiscal 2022.
Dell Beats Q2 Earnings Estimates, Prospects Weak
Dell reported second-quarter fiscal 2023 non-GAAP earnings of $1.68 per share, beating the Zacks Consensus Estimate by 3.07%. The bottom line increased 14% year over year.
Revenues, on a non-GAAP basis, improved 9% year over year to $26.43 billion but lagged the consensus mark by 0.27%.
Product revenues increased 10% year over year to $20.81 billion. Services revenues rose 6% year over year to $5.62 billion.
Recurring revenues were roughly $5.2 billion, up 8% year over year.
Quarter in Detail
Infrastructure Solutions Group (“ISG”) revenues were up 12% year over year to $9.54 billion.
The upside can be attributed to 16% growth in servers and networking revenues that totaled $5.21 billion. Storage revenues grew 6% year over year to $4.33 billion.
Dell now sees a more challenging ISG demand environment in the second half of 2022.
Dell witnessed a shortage of parts and embedded integrated circuits, including power supplies and NICs in the reported quarter. ISG backlog, particularly servers, remained elevated.
Client Solutions Group (“CSG”) revenues were $15.49 billion, up 9% year over year. This performance was driven by Commercial revenues, which surged 15% year over year to $12.14 billion. Consumer revenues were down 9% to $3.35 billion.
In the CSG segment, Dell saw demand weakness in both Consumer and Commercial.
The non-GAAP gross profit stayed at $5.65 billion on a year-over-year basis. The gross margin contracted 200 basis points (bps) year over year to 21.4% due to increased costs and forex headwinds.
Non-GAAP operating expenses decreased 3% year over year to $3.70 billion. Operating expenses, as a percentage of revenues, declined 170 bps on a year-over-year basis to 14%.
The non-GAAP operating income was $1.95 billion, up 4% from the year-ago quarter’s levels. The operating margin contracted 30 bps year over year to 7.4%.
The ISG operating income increased 9% year over year to $1.05 billion. Meanwhile, the CSG operating income was $978 million, down 1% year over year.
Balance Sheet
As of Jul 29, 2022, DELL had $5.51 billion in cash and long-term investments compared with $8.52 billion as of Apr 29, 2022.
Debt was $26.93 billion as of Jul 29, 2022 compared with $27.12 billion as of Apr 29, 2022.
Dell’s remaining performance obligations or RPO is approximately $41 billion, up 2% year over year at the end of the fiscal second quarter.
Dell returned $850 million to its shareholders through a combination of share repurchases and dividends.
Guidance
Dell expects fiscal third-quarter revenues between $23.8 billion and $25 billion, down 8% at the mid-point, with CSG declining in the high-teens and ISG growing in the low-teens.
Gross margin is expected to increase sequentially as the mix shifts to ISG. Operating expense is expected to decline sequentially.
Dell expects earnings between $1.53 per share and $1.79 per share, unchanged year over year at the mid-point.
For fiscal 2023, revenues are expected to be flat or up 2%. Earnings are expected between $6.60 per share and $7 per share, up 9% year over year at the mid-point.
Zacks Rank & Stocks to Consider
Dell carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Computer & Technology sector are Audioeye (AEYE - Free Report) , Airbnb (ABNB - Free Report) and Amphenol (APH - Free Report) . All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Audioeye, Airbnb and Amphenol are down 47.9%, 26.6% and 2.5%, respectively, on a year-to-date basis.