Dell’s Jeff Clarke: ‘IT Demand Is Currently Healthy’

‘To date, the transition toward multi-cloud and a highly distributed architecture is playing out much like we thought,’ said Dell co-CEO Jeff Clarke.

Dell Technologies’ first fiscal quarter 2023 financial report shattered the company’s sales records across the board as one of the tech giant’s top executives said “IT demand is currently health” even as economic and supply chain challenges are slowly appearing.

Dell reported record revenue with strong growth across its Infrastructure Solutions Group and Client Solutions Group, with consumer PC sales showing the weakest growth at only 3 percent.

Jeff Clarke, Dell’s vice chairman and co-COO, told financial analysts Thursday during the Round Rock, Texas-based company’s fiscal first quarter 2023 analyst conference call that Dell continues to execute in a complex macroenvironment characterized by supply chain issues and shifting customer requirements.

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“We are focused on our long-term strategy while continuing to innovate, enhancing existing solutions and creating new ones for our customers. ... We are grateful to succeed alongside our customers,” Clarke said.

Clarke said the company used its recent Dell Technologies World conference to unveil technologies aimed at a multi-cloud future. These included the unveiling of Project Alpine to bring enterprise-class data services to public clouds, over 500 software enhancements to its storage portfolio, a partnership with Snowflake to provide direct access to Dell object storage on-premises, enhanced cybersecurity, and enhancements to its PowerMax, PowerStore and PowerFlex lines.

“To date, the transition toward multi-cloud and a highly distributed architecture is playing out much like we thought,” he said. “It’s clear our strategy is resonating across our customers and partner ecosystem.”

It’s all part of a shift in customer spending from consumer technologies and PCs to data center infrastructure, Clarke said.

“IT demand is currently healthy,” he said. “However, there are a number of uncertainties out in the broader macro that we continue to monitor: geopolitical issues, inflation, ongoing supply chain challenges, chip constraints and COVID shutdowns. What we’ve shown over the years is that, regardless of the environment, we are agile and built to outperform. We are able to quickly lean into opportunities and focus on what we can control.”

Clarke, when asked by an analyst for details on Dell’s shift from the consumer to the data center side of the IT business, said he has previously said Dell would see the growth rate in the Client Solutions Group temper. He said this is primarily from the impact on sales of lower-end PCs, especially on the Chrome side, and on consumer PCs in general, compared with growth in commercial or enterprise PCs.

Dell also saw its sixth consecutive quarter of server growth and the fourth consecutive quarter of orders growth for storage, he said.

“What’s fueling that?” he said. “Continued digital transformation, the fact that in this data economy and data world, you need more compute assets and storage assets to be able to accelerate that digital transformation. We continue to see that certainly the demand environment today indicates that continues.”

Chuck Whitten, Dell’s co-COO, said the Infrastructure Solutions Group had record first-quarter revenue and its fifth consecutive quarter of growth thanks to customers’ digital transformation moves, with server and networking revenue growing year over year and storage revenue growing 9 percent over last year.

“We were particularly pleased with the breadth of strength in storage,” Whitten said. “In Q1, we saw storage demand growth across our portfolio including data protection, HCI, unstructured, entry, high-end and PowerStore, our marquee midrange solution, [which is] still the fastest-growing storage architecture in company history.”

Dell’s Client Solutions Group side also delivered record revenue, including record PC sales as Dell grew unit share in 33 of the last 30 quarters, Whitten said.

However, he said, while Dell’s commercial Client Solutions Group business sales grew 22 percent over last year, sales from its consumer side grew only 3 percent.

Looking ahead, Dell is seeing a rotation in IT spending from the Client Solutions Group to the Infrastructure Solutions Group, Whitten said.

“Despite economic uncertainty, digital transformation and automation efforts are being used to solve the pressing challenges of the moment as technology and business strategies merge, benefiting our infrastructure business,” he said. “We expect [Infrastructure Solutions Group] growth for the full fiscal year. And PCs are now a C-suite issue in the world of hybrid work. And in a fiercely competitive talent market, the PC is the gateway to the employee experience and a visible symbol of a company’s commitment to technology. We do, however, expect [Client Solutions Group] growth to moderate over the course of the year as the consumer portion of the market slows.”

Tom Sweet, Dell’s executive vice president and CFO, said in his prepared remarks that the company’s recurring revenue is approximately $5.3 billion a quarter, up 15 percent over last year. Dell Financial Services originations were up 9 percent over last year to reach $2.1 billion, Sweet said.

Clarke in his prepared remarks also said supply chain issues were a drag on financials during the quarter.

Dell experienced a wide range of semiconductor shortages that impacted both its Infrastructure Solutions Group and Client Solutions Group, he said. Furthermore, he said, COVID-related lockdowns in China caused temporary supply chain interruptions in the quarter, pushing up backlog levels in both business groups.

“We expect backlog to remain elevated through at least Q2 due to current demand and industrywide supply chain challenges,” he said.

Component costs in the first quarter were deflationary across key commodities but logistics spending remained high. In the second quarter, however, Dell expects component costs to turn inflationary and logistics costs to remain at elevated levels, Clarke said.

“That all said, Dell Technologies is well positioned to navigate these supply chain challenges just as we have over the past three-plus years,” he said.

When asked by an analyst about supply chain issues, Clarke said Dell’s supply chain team did a very good job of positioning Dell with the available parts that are out there.

“There is a shortage of parts for servers, and we’ve been able to work our way through that and be able to deliver for our customers,” he said. “Ultimately, that’s the name of the game. And I think our supply chain continues to distinguish itself at being able to fulfill and meet the commitments we give to our customers.”

The IT industry as a whole still suffers from semiconductor storages across a wide range of components, and even the component manufacturers are suffering from delays in procuring the equipment they need to manufacture their components, Clarke said.

“Fortunately, or unfortunately, depending on your perspective, we’ve had three-plus years of practice of this,” he said. “We’re getting good at our game, and our team is nimble, it’s flexible, we’re able to move material, we’re able to use our vast network of 25 factories, 50 different fulfillment centers around the globe, that allow us essentially to move any order to any factory to be able to build it. Now, we can’t do that instantaneously overnight. You’ve got to get material, you’ve got to move orders.”

For its first fiscal quarter 2023, which ended April 29, Dell reported total revenue of $26.1 billion, up 16 percent over the $22.6 billion the company reported for its first fiscal quarter 2022.

That included product revenue of $20.5 billion, up 17 percent, and services revenue of $5.7 billion, up 11 percent.

When broken down by industry segment, Dell reported Infrastructure Solutions Group revenue of $9.3 billion, up 16 percent over last year. That included servers and networking revenue of $4.0 billion, up 22 percent, and storage revenue of $4.2 billion, up 9 percent. On the Client Solutions Group side, Dell reported total revenue of $15.6 billion, up 17 percent. This includes commercial revenue of $12.0 billion, up 22 percent, and consumer revenue of $3.6 billion, up 3 percent.

For the quarter, Dell reported GAAP net income of $1.1 billion or $1.37 per share, up from last year’s $660 million, or 84 cents per share. On a non-GAAP basis, Dell reported net income of $1.4 billion, or $1.84 per share, up from last year’s $1.1 billion or $1.35 per share.