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DELL Beats Q3 Earnings, Revenues Up on Solid Consumer Demand

Aniruddha Ganguly
·4 min read

Dell Technologies DELL reported third-quarter fiscal 2020 non-GAAP earnings of $2.03 per share that beat the Zacks Consensus Estimate by 46%. The figure increased 16% year over year.

Revenues on a non-GAAP basis inched up 3% year over year to $23.52 billion. Moreover, the figure beat the consensus mark by 7.3%.

Product revenues stayed at $17.35 billion. However, services revenues increased 10% year over year to $6.13 billion.

Recurring revenues, which includes deferred revenue amortization, utility, and as-a-Service delivered as part of Dell on Demand service, was roughly $6 billion, up 13% year over year.

Quarter in Detail

Infrastructure Solutions Group (“ISG”) revenues were down 4% year over year to $8.02 billion.
 

Dell Technologies Inc. Price, Consensus and EPS Surprise

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

 

This year-over-year drop was due to 2% fall in servers and networking revenues that totaled $4.16 billion. Moreover, storage revenues slid 7% year over year to $3.86 billion.

Dell witnessed strong demand for VxRail and PowerMax solutions, with double-digit growth in orders for both. PowerEdge server orders were up single digits sequentially.

Client Solutions Group (“CSG”) revenues were $12.29 billion, up 8% year over year. The company witnessed continued demand for remote work, learning and gaming solutions.

Commercial revenues increased 5% year over year to $8.78 billion. Moreover, consumer revenues were up 14% to $3.50 billion.

Based on orders, consumer direct business was up 47% with consumer direct online business up 62% in the reported quarter.

In consumer business, Dell witnessed double-digit revenue growth in Latitude and Precision notebooks and triple-digit revenue growth in Commercial Chromebooks. This Zacks Rank #3 (Hold) company also witnessed robust growth in the XPS premium line and gaming systems including Alienware, with strong double-digit revenue growth for both notebooks and desktops. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Markedly, Dell was ranked third by both Gartner and IDC among all PC vendors, trailing Lenovo LNVGY and HP HPQ in their latest third-quarter report. (Read More:PC Sales Continue Benefiting From COVID-19 Pandemic-Led Demand)

VMware VMW revenues were $2.89 billion in the reported quarter, up 8% year over year, driven by portfolio strength. Notably, Dell has a majority stake in VMware.

Operating Details

Non-GAAP gross profit remained flat at $7.77 billion. Gross margin contracted 100 basis points (bps) year over year to 33%.

Adjusted EBITDA increased 13% year over year to $3.23 billion. Adjusted EBITDA margin expanded 200 bps year over year to 14%.

Non-GAAP operating income was $2.73 billion, up 12% from the year-ago quarter. Operating margin expanded 100 bps year over year to 12%.

ISG operating income fell 11% year over year to $882 million. However, CSG operating income jumped 36% year over year to $1 billion.

VMware’s operating income increased 18% year over year to $837 million.

Balance Sheet and Cash Flow

As of Oct 30, 2020, Dell had $11.30 billion in cash and cash equivalents compared with $11.22 billion as of Jul 31, 2020. The company had undrawn revolver capacity of $5.9 billion.

Debt was $49.86 billion as of Oct 30, 2020, compared with $54.5 billion as of Jul 31, 2020.

Cash flow from operations was $3 billion in the reported quarter, up 64% year over year.

Outlook

Dell expects fourth-quarter revenues to increase in the 3-4% range sequentially. The company expects strong CSG results, with revenues slightly above normal seasonality of 2-3% growth sequentially. ISG revenues are expected to be lower than last year’s 4% sequential growth based on the continued softness in data center spending.

Dell plans to reduce core debt by approximately $5.5 billion in fiscal 2021 of which $2.4 billion is expected to pay in the fourth quarter of 2020.

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