The News: Dell Technologies (NYSE: DELL) announced financial results for its fiscal 2024 second quarter (Q2 2024). Revenue was $22.9 billion, down 13% year-over-year (YoY) and up 10% sequentially. The company generated operating income of $1.2 billion and non-GAAP operating income of $2 billion, down 8% and up 1% YoY, respectively.
“Our Q2 performance underscores the power of our model to generate cash in a sequential growth environment,” said Yvonne McGill, chief financial officer, Dell Technologies. “Revenue grew 10% sequentially to $22.9 billion, with strong cash flow from operations of $3.2 billion in Q2 and $8.1 billion over the last 12 months. We continue to deliver value to shareholders and have flexibility to increase our return of capital going forward.”
Read the Dell Q2 2024 earnings press release for more information.
Dell Q2 2024 Earnings: Growth Points to End of Post-COVID Slump
Analyst Take: Dell’s Q2 2024 earnings reflect a trend across the tech industry, particularly among device (primarily PC and mobile) OEMs: Negative YoY revenue growth but positive sequential growth, suggesting that while post-COVID macroeconomic forces have not quite dissipated just yet, the bottom of the slump is behind us, and the market is showing signs of resurgence. Case in point, revenue for the quarter came in at $22.9 billion, down 13% YoY but up 10% sequentially. The company generated operating income of $1.2 billion and non-GAAP operating income of $2 billion, down 8% and up 1% year-over-year, respectively. Digging a little deeper into Dell’s Client and Infrastructure Solutions numbers and considering the impact that AI is already having on shifting demand priorities in the market can help us understand how the forces behind this recovery are already shaping Dell’s business.
Sequential Growth in Client Solutions Revenue Suggests that the PC Market is Finally Starting to Come Back
Dell’s Client Solutions Group delivered Q2 2024 revenues of $12.9 billion, down 16% YoY (up 8% sequentially, with strong attach rates). Unsurprisingly, the commercial client business, which generally delivers more than 75% of Dell’s PC revenue, came in at $10.6 billion for the quarter. Consumer-focused revenue made up the rest with $2.4 billion. Operating income was $969 million, or approximately 7.5% of Client Solutions Group revenue.
It is notable that sequential revenue growth in the consumer segment was up 13% while sequential revenue growth in the significantly larger commercial segment was only 7%. Two quick observations here: The first is that demand for workstations appears to be broadly on the rise again, suggesting that the post-COVID demand slump might be reaching its final months. The second is that while consumer demand for workstations outpacing the commercial side of the business might initially seem counterintuitive, our conversations with IT decision-makers (ITDMs) suggest that purchase orders may not start being greenlit until the end of calendar H2 2023 and/or the start of calendar H12024. We suspect that Dell’s commercial client numbers do not necessarily reflect pent-up demand for workstation upgrades in the enterprise, and that we could see that sequential growth outpace the consumer space sometime in the next two quarters.
We also feel that many ITDMs, conscious of the generative AI inflection point in the PC market, are waiting for the next wave of high-performance, generative AI-ready workstations to start making their way to the market before making any major decisions. Dell may find itself at an early advantage here, as a key driver of its consumer workstation success seems driven by its high-performance, AI-optimized computing solutions. If consumer-side growth is an indicator of an improving across-the-board demand environment for high-end, AI-ready workstations with rich configurations, Dell will have a good story to tell ITDMs going into their next round of budget discussions.
Infrastructure Solutions’ 11% Sequential Growth and $2 Billion PowerEdge XE9680 Server Backlog Is Driven by AI
Dell’s Infrastructure Solutions Group delivered Q2 2024 revenues of $8.5 billion, down 11% YoY (but up 11% sequentially). Storage revenue, propped up by continued demand growth in PowerStore (Dell’s leading midrange storage array) and PowerFlex (Dell’s software-defined storage, with 8 consecutive quarters of growth and 2x demand growth YoY), made up $4.2 billion of that total figure. Servers and networking revenue, uplifted by increasing demand for AI-optimized servers, came in just slightly higher with $4.3 billion. Operating income was $1 billion, approximately 12.4% of Infrastructure Solutions Group revenue.
Also noteworthy are three bits of insight shared during the earnings call: The first being that AI-optimized servers now make up about 20% of Dell’s server mix, the second being that Dell reports working through a roughly $2 billion PowerEdge XE9680 server backlog, and the third being that Dell’s sales pipeline is already looking significantly fuller than it has in the past few years. Taken together, these three footnotes highlight how increasing demand for AI-optimized server solutions is already helping Dell accelerate its recovery from the lingering post-COVID slump that most hardware OEMs have struggled to bounce back from this year.
AI’s impact on demand growth across Dell’s portfolio is not a particularly surprising theme at this juncture, but the pace with which it is already shaping Dell’s business barely two quarters since the start of the generative AI arms race speaks to the company’s ecosystem readiness and operational agility.
Client and Infrastructure Solutions Working Together Provide Color for Dell’s Strengthening Sales Pipeline
Dell expanded on its May announcement of Project Helix and introduced Dell Generative AI Solutions. The overall idea is to tie IT infrastructure, PCs, and professional services more holistically to simplify the adoption of full-stack generative AI with on-premise large language models.
The strategy is propped up on four core pillars: The Dell Validated Design for Generative AI with NVIDIA, an inferencing blueprint jointly engineered with NVIDIA that helps customers generate higher quality, faster time-to-value predictions and decisions with their own data; Dell PowerEdge XE9680 servers, optimized for generative AI applications; Dell Precision workstations, powered by NVIDIA RTX 6000 Ada Generation GPUs, run AI software frameworks 80% faster than the previous generation; and Dell Professional Services to help customers accelerate generative AI adoption and improve operational efficiency.
ESG Highlights
Dell’s continued commitment to ESG programs is as much of a part of its earnings report as the rest of its business, so here are some highlights: On the environmental side, Dell reports a roughly 32% reduction in market-based greenhouse gas (GHG) emissions since FY20, and about 95% sustainable materials being used in its packaging. On the social side, Dell is working toward 50% of its global workforce and 40% of its global people leaders identifying as women by 2030, and toward having 25% of its U.S. workforce and 15% of its U.S. people leaders identify as Black/African American or Hispanic/Latino by 2030. Broadly, Dell also reports that more than 288 million people have already benefited from its digital inclusion programs, partnerships, and innovation.
Dell Q2 2024 Earnings Highlights
- Q2 2024 revenue: $22.9 billion
- Q2 2024 operating income: $1.2 billion and non-GAAP operating income of $2 billion
- Q2 2024 diluted earnings per share (EPS): $0.63, non-GAAP diluted EPS: $1.74
- Q2 2024 cash flow from operations: $3.2 billion
Overall, we feel very positive about these earnings. On the one hand, the industry’s still disappointing YoY numbers speak to the stubborn, lingering headwinds that the tech sector has been wrestling with in the wake of the COVID pandemic. But the bigger story here for Dell is that despite tough macroeconomic conditions, sequential revenue growth numbers look consistently strong across all key business units, demand for client and infrastructure solutions is on the rise, server backlogs and pipeline indicators look encouraging, and Dell’s AI-ready market strategy already looks cohesive. While it remains unclear how quickly the market as a whole will return to positive YoY growth, Dell appears to have a head start on the road to that sector-wide recovery.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Dell’s latest earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies. Read Full Bio.
