Dell PC backlog woes strike again amid component shortfall

Servers, storage parts challenges too, according to Q4 earnings call

Just when Dell thought it was getting on top of the knotty PC supply chain, the outlook is deteriorating again with the backlog swelling and no relief from pressure due to freight charges – the same dynamics that are at play in its server and storage division.

The industry-wide shortfall of semiconductors and "global logistics challenges" for good and services is continuing to be felt in "just about every industry," said Jeff Clarke, vice chairman at Dell and co-chief operating officer.

"We are still experiencing shortages of integrated circuits across a wide range of devices, including network controllers and micro controllers that go into our products and solutions. The result we are seeing an impact across client systems, servers and storage," he added.

Dell has reduced its PC backlog in the past two quarters and was nearing the high-end of normal range. "However, we expect PC backlog to grow in Q1… a plethora of parts that go across all our devices continue to be in short supply," said Clarke.

"The output of that supply is nonlinear, meaning that sometimes it comes and sometimes it doesn't, sometimes it shows up on time, sometimes it's delayed. Working through that and taking advantage of our assembly capacity is ultimately the challenge."

"So what we're signaling is that semiconductor shortage continues to hit our CSG product, most notably in our high-end display business and desktops," the co-COO added.

On the server side, network and micro controllers and power ICs were causing the most pain in terms of missing parts. These continue to be in short supply and demand is "ahead of that" said the Dell exec. Storage is fighting for FPGAs and CPLDs for high speed programmable logic devices. This is expected to continue "through the first half of this year."

Add to this increased freight charges – in November 2020 Dell and HP warned all vendors would be competing with vaccine deliveries for space on airplanes – and the complexities of the supply chain aren't going to be untangled anytime soon.

"[F]reight costs have continued to rise due to increased logistics rates, a higher mix of air due to ocean network congestion and increase in part expedites to meet customer needs," said Clarke.

Despite all these hurdles, Dell still benefited from pandemic-driven demand for computers as parts of the world continue to work, learn and play at home. It also saw a bump in order for infrastructure gear.

For its Q4 ended 28 January, Dell reported revenue of $27.99bn, up 16 per cent year-on-year. This was comprised of a 3 per cent rise in Infrastructure Solution Group sales to $9.2bn and a 26 per cent bounce in the Client Solutions Group to $17.32bn.

Operating profit for the quarter was up 11 per cent to $1.157bn, and adjusted earning per share of $1.72 but this was below estimates of $1.94 and Dell's shares fell 12 per cent, with lower-than-forecast guidance for the next quarter also contributing to the stock drop.

For the year, Dell reported operating profit of $4.659bn, up 26 per cent on turnover of $101.19bn, itself up 17 per cent. CSG grew 27 per cent to $61.464bn and ISG was up 4 per cent to $34.46bn.

And so the PC division continues to bring home the bacon. ®