Dell Technologies’ solid Q2 results and reduced outlook for the balance of 2023 reflected shifting customer buying dynamics, the macro environment, and uncertainty about what customers will do next.
There were at least a couple of notable bright spots, including strength in the company’s APEX Infrastructure-as-a-Service offerings, for which orders grew 78% year over year.
“The Q2 and second-half macro dynamics have become more challenging as customers are taking a more cautious view of their needs given the uncertainty,” Vice Chairman and co-COO Jeff Clarke said. “We have responded swiftly by managing inventories down and reducing our expenditures.” He added that the company’s view of the demand environment had changed since its last quarterly report in May.
With an expansive product line spanning cloud, infrastructure, and desktop products for commercial and consumer customers — and $100 billion in annual revenue — Dell’s results, as well as the commentary from its top executives, has broad-reaching applicability across multiple sectors of the economy.
For its fiscal Q2 2023, Round Rock, Texas-based Dell reported:
- Record second quarter revenue of $26.4 billion, up 9%, driven by continued growth across client and infrastructure business units.
- Operating income rose 25% to $1.3 billion and non-GAAP operating income rose 4% to $2 billion.
- Diluted earnings per share were $0.68 and non-GAAP diluted earnings per share were $1.68.
In the company’s Client Solutions Group which includes desktops and notebooks, revenue grew 9% to a record $15.5 billion on the strength of commercial customer purchases (up 15%) while consumer revenue declined 9%. In the Infrastructure Solutions Group, which includes networking, storage, multi-cloud data control, cybersecurity, and the aforementioned APEX, revenue was up 12% to $9.5 billion. Servers and networking grew 16% and storage grew 6%.
APEX was a particular strength: Annual Recurring revenue is now $1 billion, orders grew 78%, and Dell added 200 new customers. The unit has an APEX Flex on Demand offer that includes customized infrastructure with storage, servers, hyperconverged infrastructure, data protection and more.
“In the current macro environment, we’re naturally seeing lots of interest from customers who are looking to manage cash outlays by pivoting to a pay-as-they-go scale on-demand type model.”Chuck Witten, co-COO of Dell
Overall for the Infrastructure group, however, “we now see a more challenging ISG demand environment as we head toward the back half of the year,” CFO Tom Sweet said
Welcome Development: Deflation
As a manufacturer of products with a diverse set of components sourced globally, the company’s supply chain and component pricing directly impact current and future results.
Officials said they continued to see shortages of parts and embedded integrated circuits including power supplies and microphones. Backlogs are particularly pronounced for servers, they said. But there was better news as well: they expect modest cost deflation in aggregate component costs in Q3 and noted that logistics rates are beginning to decline.
Currency continues to be a headwind and Q3 revenue is now expected to be between $23.8 billion and $25 billion, with CSG declining in the high teens and ISG growing the low teens.
Other executive comments that are pertinent to the Acceleration Economy audience included:
- “Automation and digital transformation remain the backbone of our customers’ strategies necessary for productivity and growth.” – Witten
- “Our supply chain execution was excellent throughout the quarter.” – Clarke
- “We are seeing projects come to fruition. They’re taking longer to close. And the size of the projects are somewhat reduced from what we’ve seen in the past.” – Sweet
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