PC maker Dell reports record quarterly income, demand slump to shrink annual revenue

US-based personal computer (PC) and information technology (IT) major, Dell Technologies, reported record quarterly operating income of $1.8 billion for the September quarter — on the back of reducing server backlog, higher commercial PC market share, and a continued, sequential reduction in operating expenses.

While it did not allude specifically to the India and Asia markets, Dell projected weakened consumer demand rising out of inflation-linked market headwinds, coupled with reduced spends by enterprises in IT infrastructure, to project a 4% year-on-year (YoY) decline in revenue for calendar year (CY) 2022.

Shares of Dell Technologies initially rose 7% in aftermarket trading in the US after the company beat analyst estimates to post record operating income. However, it eventually closed 2.31% down at $41.07 per share after the extended trading session. The Nasdaq Composite Index fell 1.09% at the end of Monday.

Net revenue for Q3 CY22 reached $24.72 billion — down 6% YoY. However, operating income rose to a record $1.76 billion for the quarter — up 68% YoY. Dell’s Infrastructure Solutions Group (ISG) announced the seventh straight quarter of YoY growth, recording $9.6 billion in revenue for the quarter — up 12% YoY. The ISG division offers data center storage, servers and networking equipment to enterprises.

However, the growth in Dell’s ISG vertical was offset by a 17% YoY decline in Client Solutions Group (CSG) — which includes PC sales to companies and consumers. The CSG division announced revenue of $13.8 billion, and was pulled down by a sharp 29% YoY drop in revenue from consumer device sales.

Dell’s quarterly performance is in line with global market metrics. On October 25, market researcher Counterpoint pegged a 15.5% YoY decline in consumer and commercial PC shipments, citing inflation-driven weak demand among both personal device buyers, and businesses.

Jeff Clarke, vice-chairman and co-chief operating officer (COO) of Dell, said at the quarterly earnings announcement that the company “reduced backlog to meet customer needs, and delivered record business results, including record third quarter ISG revenue.”

At a subsequent earnings call, Chuck Whitten, co-COO of Dell, told analysts that the quarterly performance registered by Dell was in line with what the company forecasted in the previous quarter — “soft underlying PC demand and slowing infrastructure demand, though storage did hold up fairly well relative to servers with growth in multiple storage types.”

“We took actions to reduce costs, decreasing our operating expense 3% sequentially in Q2 (the June quarter) and another 6% sequentially in Q3. We have now reduced quarterly operating expenses by over $300 million since Q1 (the March quarter). We reduced server backlog consistent with our Q2 commentary and delivered strong profitability as our model allowed us to access component cost deflation faster,” Whitten added.

The executive further added that the company expects its worldwide market share in IT infrastructure, which includes storage, server and networking components, to increase in market researcher International Data Corporation’s (IDC’s) December report on the same.

However, despite the bullish segment-wise outlook, Dell’s overall revenue outlook missed analyst expectations. Thomas Sweet, chief financial officer, reported a revenue forecast of $23-24 billion for Q4 CY22 (the December quarter) — which is 3.5-7.5% lower than US analyst estimates of $24.87 billion for the period.