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Dell Technologies (DELL) Q1 Earnings, Revenues Increase Y/Y

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Dell Technologies (DELL - Free Report) reported first-quarter fiscal 2020 non-GAAP net income of $1.21 billion, up 2.5% year over year.

GAAP revenues increased 2.6% year over year to $21.91 billion. However, the figure came below the Zacks Consensus Estimate of $22.49 billion. The year-over-year increase was driven by double-digit growth in commercial and VMware revenues.

Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. Price, Consensus and EPS Surprise

Dell Technologies Inc. price-consensus-eps-surprise-chart | Dell Technologies Inc. Quote

Quarter Details

Product revenues (76.5% of GAAP revenues) increased 0.5% year over year to $16.75 million. Service revenues (23.5% of GAAP revenues) increased 10% year over year to $5.15 million.

Segment wise, Infrastructure Solutions Group (ISG) (37.4% of total net revenues) revenues were down 5.4% year over year to $8.2 billion. This was due to a 9% decline in servers and networking revenues and 1% decline in storage revenues year over year. Notably, server revenues declined due to soft demand environment.

However, the company’s new “software-defined data center solutions and hyper converged infrastructure” is witnessing increasing adoption. Additionally, Dell introduced data protection offering PowerProtect X400 in the current quarter.

Client Solutions Group (CSG) (49.8% of total net revenues) revenues were $10.91 billion, up 6.2% year over year. While Commercial revenues grew 13% year over year to $8.31 billion, Consumer revenues were down 10% year over year to $2.6 billion.

Dell is witnessing increasing adoption for its commercial PCs and increased its market share by 220 basis points (bps) in calendar first quarter. Moreover, the company witnessed year-over-year worldwide PC share growth for the 25th successive quarter and increased its market share by 80 bps in the reported quarter.

VMware (VMW - Free Report) revenues were $2.28 billion (10.4%) in the quarter, up 12.5% year over year due to strength from its diverse product portfolio. Notably, Dell has a majority stake in VMware. The company also owns stakes in Pivotal Software (PVTL - Free Report) and SecureWorks.

Notably, under Dell’s expanded partnership with Microsoft (MSFT - Free Report) , the company’s users can “extend their on-premise VMware Cloud environments to Azure.”

Revenues from other businesses, including Pivotal, Secureworks, RSA Security, Virtustream and Boomi increased 2.9% year over year to $596 million.

Dell noted that it is investing in innovating its solutions as IDC forecasts IT spend, excluding telecom, to be more than twice the GDP by 2022.

Operating Details

Non-GAAP gross profit increased 7.4% year over year to $7.43 billion. Gross margin increased 170 bps from the year-ago quarter to 33.8% due to decline in component costs.

Adjusted EBITDA increased 8% year over year to $2.57 billion and adjusted EBITDA margin increased 60 bps year over year to 11.7%.

Non-GAAP operating expenses increased 7.1% year over year to $5.24 billion due to continued investment in sales capacity. Moreover, operating expenses, as a percentage of revenues, increased 110 bps year over year to 23.8%.

CSG operating income increased 49% year over year to $793 million. VMware operating income almost remained flat year over year at $614 million. However, ISG operating income declined 10% year over year to $843 million.

Non-GAAP operating income was $2.19 billion, up 8.4% from the year-ago quarter. Operating margin increased 60 bps year over year to 10%.

Balance Sheet and Cash Flow

Dell had $9.1 billion in cash, cash equivalents at the end of the first quarter compared with $9.68 billion in the prior quarter.

Cash flow from operations was $682 million in the reported quarter compared with $1.6 billion in the year-ago quarter.

Dell currently carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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