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“The cycle time on opportunities is clearly longer”

Dell shares fell today after the PC and server specialist reported essentially flat earnings, with a 35 percent fall in server sales in China for the quarter softened by robust PC and other peripheral shipments.

Full year revenue was $92.2 billion, up two percent. Net income was $5.5 billion, up sharply from a $2.1 billion loss in fiscal 2019.

The positive profitability came despite a chunky 19 percent decline in servers and networking revenue for the quarter, to $4.3 billion.

The company attributed the server slump – part of an overall 11 quarterly percent decline across its ISG (infrastructure) group – which accounts for just over a third of annual revenues at Dell – to “price aggressiveness” on many bid opportunities that has left it “selective in where we have chosen to participate” in the US. The company did not drill down into the sharp fall in China.

“I think the trends that we’ve talked about have essentially continued in Q4, in terms of the aggressiveness of the pricing, and the cycle time on opportunities is clearly longer. And so that’s been a dynamic that we just had to work our way through”, Dell’s CFO Thomas Sweet told investors on an earnings call.

The company declined to factor COVID-19 impact into its full year guidance, but COO Jeffrey Clarke said: “We do anticipate a negative impact on our normal Q1 seasonality driven by softness in China, our second largest market.”

He added: “We will manage the supply chain-related dynamics with extended lead times for certain products, particularly in client.” (PCs, etc.)

Dell sees more cross-selling opportunities, more asset sales. Credit: Dell, Q4 earnings deck.

Dell Earnings: More Asset Sales on the Horizon?

Dell has disposed of over $9 billion’s worth of assets since 2016 (including this month’s agreement to sell security business RSA for $2 billion cash), and the company suggested further consolidation was likely.

The RSA Security disposal was explained by CFO Thomas Sweet, who said: “We are increasingly focused on intrinsic security: how do we build security into the core of the products? Our perspective was that if [RSA] wasn’t going to be core to our security platform and strategy, that was probably better to… put it in the hands of [an owner that would] optimise the platform.”

A perhaps unexpected sweet spot, meanwhile? PC sales, which Dell expects to remain solid throughout the first half of the coming year, then soften.

Its Client Solutions Group (which spans desktop PCs, notebooks, peripherals
such as monitors, printers and projectors) saw record revenue of $45.8 billion over the past 12 months, up six percent.

COO Clarke said: “We shipped a record 46.5 million units during the calendar year. We executed well, taking advantage of tailwinds from the Windows 10 refresh cycle, declining component cost while navigating through CPU shortages and a dynamic tariff environment.”

The company is in the “early innings” of reshaping its go-to-market strategy, meanwhile, with the aim of boosting cross-sell opportunities.

Clarke noted: “For example, we have approximately 30,000 server customers every quarter, and only half of them buy storage from Dell Technologies.”

Dell also announced a share repurchase program of up to $1 billion over the next 24 months. CFO Tom Sweet said: “I’m pleased with our profitability and remain committed to maximizing Dell Technologies’ equity value.”

See also: Microsoft Downgrades Revenue Guidance on Coronavirus Impact



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