The Six Five team discusses Dell Technologies Q1 Earnings.
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Transcript:
Pat Moorhead: So I think the Investor Business Daily headline says it all, “Dell Technologies crushes the first quarter earnings and sales targets.” Which I think was great. Didn’t necessarily get a lot of credit out there for that though, which is fine, but kind of sucks if you’re Dell. They beat big on EPS and they beat slightly on revenue. And who wouldn’t have expected revenue declines in PCs and data center services and storage? I mean pretty much everybody’s down. Even Pure was down, who they’re never down. But that’s just the way it goes. We saw compute light at HPE and it’s light here at Dell. The only company who crushed it there was Lenovo who just continues to take share and, unlike HPE and Dell, participate in the hyperscale market.
I thought the recurring revenue from a size standpoint, $5.6 billion, and think of recurring revenue as services plus as a service, so APEX plus managed services plus break/fix, I thought was a really good look for them. And Dell is a cash generation machine. Very well run company 1.8 billion in cash, which I just think is exceptional. Final comment that I’m going to make is I really do appreciate their slides that they bring in, that they really answer a lot of those deep questions that everybody wants to know. If ISG is down, well how are they doing in market share and server, right? Well they showed 10 years of server market share out there, nine points of share gain over the past 10 years. Number one in external storage with share greater than two, three, and four combined. Sometimes it’s like, “Oh my gosh, Dell, why didn’t you knock it out of the park on storage revenue growth?” Well they’re in everything. They’re price band one into Isilon that attaches itself to an IBM Z, right? And everything in between. It’s just a huge business.
So as we saw, law of large numbers, hard to get meaningful growth percentage wise when you’ve got such a big business. And then on the PC front, okay PCs are down, but hey, guess what? Most profitable segment, commercial PCs. They showed over 10 years of market share gains in commercial PCs. 10 points of share gain over the past 10 years. So kudos to Dell. Just an extremely well managed business. The precision is pretty awesome.
Daniel Newman: Yeah, I think you hit it on the head, Pat. And when I sat down with the executive team yesterday and we did the run through, basically my takeaway was exactly what I would’ve expected from Dell. Operationally really well run. The slowing of the PC market inevitably is going to impact the company’s top line, but they beat revenue expectations. They well outperformed, almost double I think, about 50% above what was expected on an earnings basis. So they run the company really well. They’re very humble. They don’t overstate themselves. I thought they did announce at Dell Tech World a lot of innovation that I think the market can be encouraged about. The APEX portfolio is starting to come to life. And this is something that you and I both said for some time is it’s light. It was light.
So what they’ve been able to announce in over the last weeks, adding compute, adding AI with Project Helix, Fort Zero on security, some of the Native Edge capabilities that were announced, they did add a really nice set of portfolio that’s going to start to provide more opportunity to grow that. I mean look, this is a company that has billions of dollars of recurring revenue, but it’s treated like a commodity company. I think there’s like a negative 20 billion valuation on VMware. I mean the company did 102 billion in revenue last year and got a $37 billion value. Just work with me there. And not only does it do that, but it makes money, it returns to shareholders. It is the ultimate value play.
Now the question is, again, with things like AI, can they convince the market that they’re a picks and shovels company that’s going to be critical to the global deployment. And the big thing they’re going to have to prove is that it’s not about the hyperscalers only. Because right now the perception is AI is all about the hyperscaler. So the question is, do you think in regulated industries that AI data centers are going to get built out? Do you think that edge underneath the telco clouds are going to have AI data centers? Do you think there’s going to be options for smaller companies to build out technology around AI? That’s just a for instance, because I think the market’s kind of looking at as it’s a bit of a zero-sum game and it’s not. So I think that’s a big option. Of course, they’ve made the right partnerships. They’ve announced their partnership with NVIDIA, they’ve got access to all the different silicon, and then of course they have a massive PC portfolio that will benefit from the next wave of PC purchasing.
So Pat, as I said, and you said pretty well, the company’s done a good job of presenting its positioning, it’s number one share in so many different categories. They’re starting to really show that they have a bigger, broader serviceable market. They showed at one of their slides, Pat, that their TAM is almost doubling because of their service software portfolio. So it went from about a three-quarter of a trillion dollar TAM in their traditional hardware market to now with all the services they have almost a $1.6 trillion market to go after. And so they’re well positioned, they’re well run, they’re well led. There’s a lot to like here. It’s not always the most exciting. But you know what, Pat, there’s something about stability, well run companies that put off cash that have great customer bases and global presence, and that’s really what Dell is.
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.
