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Dell Misses Revenue Estimates, But Profitability Remains Strong

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Dell Misses Revenue Estimates, But Profitability Remains Strong

Dell Technologies (NYSE: DELL) posted its third quarter earnings on Tuesday after the bell. Expectations were strong considering that Dell has beaten EPS estimates 100% throughout the last year and even revenue estimates 75% of the time. But it seems that the 16-month US-China trade war hampered Dell's success quite a bit as the company struggled with increased costs and weaker demand in its quarter ended November 1.

Third Quarter FY 2020

Total revenue of $22.84 billion was close to Refinitiv estimates of $23.04 billion. Net income was $552 million is surely better than the loss of $895 million from a comparable quarter last year. Excluding items, the company earned $1.75 per share topping analysts' estimates of $1.62 per share. Dell's revenue growth is helped by its majority interest in software maker VMware Inc (NYSE: VMW) but it is the company's personal computers and storage hardware products that fire up its profit.

But this time, the 11.4% rise in sales in its software maker VMware was completely overshadowed with dropped revenue from its server and networking unit that decreased 16.1% to $4.24 billion. Dell has warned that trouble in the servers' segment will continue throughout the other half of the fiscal year.

Over the last three months, the company revised up its EPS estimates as many as 12 times, with only one downward revision. As for revenue there is almost a tie situation, with 5 upward and one extra for downward corrections.

Competitors

IBM Corporation (NYSE: IBM), often referred to as "Big Blue" is struggling with growing its revenues over the past few years. Actually, it's been more than five years now. But in October last year, the company acquired the leading provider of hybrid cloud solution, a very rapidly growing sector of the cloud industry. This $34 billion acquisition is IBM's largest acquisition in its 108-year history. And its strategy is showing signs of accelerating Red Hat's revenue which grew 20% year-over-year on a constant currency basis.

But, since it accounts for only about 6% of IBM, it isn't big enough to move the entire IBM kingdom, just yet. But new clients were signed, relationships started growing and expanding and the long-term potential is nothing shorter of exciting. Although the company added $32.6 billion in net debt with this acquisition, it may just be worth the gamble in the end and generate substantial benefits for IBM's investors.

Apple Inc (NASDAQ: AAPL) is pushing its services segment as it transitions to becoming a ‘services' company with Apple Music, Apple TV+, and Apple Arcade, possibly indicating a service bundle on the horizon. Apple is for the most part doing ok building its "services'"image, besides its Apple News that is definitely struggling to enter the conversation.

Hewlett Packard Enterprise Company (NYSE: HPE) has rejected Xerox Corp.'s (NYSE: XRX) offer saying it undervalues the company. But at the same time, it left the door open for negotiation. HP, being the much larger entity with a market cap exceeding $29 billion, while Xerox's market cap is just under $8.5 billion, was very clear that HP is not in need of a saviour or in other words, in a desperate need of a buyer. And it minds Xerox's aggressive approach, implying that maybe Xeros is the one in need of help as its financial position is raising certain concerns.

As for Lenovo Group Ltd. (OTC: LNVGY), the Chinese tech giant posted US$13.5 billion in revenue in the quarter ended in September, with company's pre-tax income growing 45% compared to the comparable quarter last year with a 20% year-on-year increase in net income. The company's profitability improved significantly and was driven by its personal computer business.
So, things are certainly not boring competition-wise!

Outlook

Despite weakening macroeconomic headwinds, Dell has set a clear path toward value creation. Its leadership and management are strong. And profitability remained strong as Dell again exceeded EPS estimates. It is in line with industry growth but it maintains its leadership position in its core areas, with the company aggressively expanding into new ones as well. And looking at the stock, it has gained 2% in extended trading after quarter results were announced.

The stock managed to increase 16% in the past three months and 8.8% this year despite heavy headwinds like the trade war who is benefiting no one. There are challenges ahead, and let's not forget the most trending one: how to balance invention with a more sustainable environmental impact! But Michael Dell is equally focused on building both his company's product portfolio as well as this social value.

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Image by Andrian Valeanu from Pixabay

Posted-In: Earnings News New ETFs Global Markets Tech ETFs General

 

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