Sagging server market demand, protracted chip shortages and the US’ tariff shenanigans with China are among the things Dell Tech is watching with interest after lowering fiscal ’20 revenue targets.
Michael Dell’s plaything issued the guidance last night along with its financials for Q1 ended 3 May showing a 3 per cent rise in revenues to $21.9bn - short of analyst estimates of $22.5bn.
The Infrastructure Solutions Group dropped 5 per cent to $8.2bn, including a 1 per cent dip in storage to $4bn and a 9 per cent dive in servers and networking to $4.2bn.
Client Solutions edged up 6 per cent to $10.9bn, with commercial up 13 per cent to $8.3bn and consumer down 10 per cent to $2.6bn. VMware jumped 13 per cent to $2.3bn and and Financial Services. Financial Services made up the rest of the revenue.
On a conference call, Dell execs said 41 pr cent growth in servers a year ago made for tough comparisons this time around, but admitted demand has become “softer” than anticipated.
Vice chairman of products and operation, Jeffrey Clarke, said it walked away from some high volume but lower margin deals, “particularly in China”, as well as some larger enterprises where “the profitability profile didn’t make sense”.
Windows 10 refreshes fuelled PC sales, the company said.
A $200m plus leap in operating expenses left Dell with an operating profit of $550m, compared to an operating loss of $153m in the prior year quarter, and a net profit of $293m versus a loss of $538m.
Dell is betting on achieving revenues growth of 2 to 5 per cent for fiscal ’20, compared to growth projections of 14 per cent for fiscal ’19 and 27 per cent for fiscal ’18.
Shaping this outlook, CFO Thomas Sweet said there is “some uncertainty around the mix and the dynamics of the industry chip shortage that we’re going to have to continue to work through [in the PC portfolio]”. And Clarke said Dell is mindful of the “possibility of a list four in tariffs”.
US President Donald Trump has enacted tariff hikes three times since last autumn on certain goods imported to the US from China. He is threatening to strike for a fourth time.
Sweet added that server demand was weaker in the first half of Q1 but started to improve in the second part. “I do think that we’ll have to continue to watch it in the sense of some of the weaknesses… I think China continues to be a headwind given the dynamics we are seeing over there”.
Dell repaid around $400m of debt in the quarter - taking the total paid back to $15bn. Long term debt now stands at $48.640bn. Now there’s something that would keep most of us normies up at night. ®