The News: Dell Technologies (NYSE: DELL) announces financial results for its fiscal 2021 fourth quarter and full year.
• Record full-year revenue of $94.2 billion
• Record full-year operating income of $5.1 billion and record non-GAAP operating income of $10.8 billion
• Record cash flow from operations of $11.4 billion
• Record Client Solutions Group shipments, revenue and operating income Full story
Read the full earnings release from Dell.
Analyst Take: Dell finished its year announcing records in revenue, operating income, cash flow from operations and client solutions revenue. A great finish to what has been a tumultuous year for much of the world.
Dell’s revenue came in above expectations and saw a small but notable 2% bump from the same period last year. Where the company really showed well was in its operational excellence, contributing to record bottom line performance. Operating income ($5.1B) was up 96% for this period YoY. This was a huge contributing factor to the significant EPS beat ($2.70 vs. $1.37 EST) for Dell this quarter. For the full year, Dell Technologies delivered $26.1 billion in revenue and an impressive $8.00 EPS (non-GAAP)
I was encouraged to see the year finish with an overall beat on revenue. Growth was tougher to come by for OEMs that have large revenues tied to on-premise infrastructure. Dell Tech’s diversification served the company and its shareholders well.
The global pandemic had an impact on supply chain as well as on capital expenditures for many companies, this made it harder for Dell Tech, in particular ISG to see growth. Most of the declines in the constrained areas landed in the single digits. Dell shareholders should see these full year results as a strong overall performance. As strong demand for on-prem technologies that support the enterprise, ISG should bounce back. Client solutions had an outstanding year that should continue to carry into 2021 based upon the demand for semiconductors.
Dell’s ISG and Client Businesses Hold Strong – Client Outperforms
When it comes to the big infrastructure investments for enterprise, I feel the need to stay consistent in saying that keeping revenue close to the year before in the current economic situation is solid. ISG came in flat from this time last year delivering $8.8 Billion for the quarter. The lack of growth is largely a byproduct of the economic slow down from the global pandemic. I believe we will see this continue to improve in the coming quarters and that this showed solid demand that likely faced significant headwinds due to Covid-19.
The key revenue areas were all single digit growth or declines with storage down 2% and servers and networking up 3%. Steady given the outlined headwinds that OEMs faced in 2020
Client is a bit different as PC demand saw a massive spike in the 4th quarter, which Dell was a beneficiary. The company shipped a record 50.3 million units in calendar 2020, which represents an 8% growth from the previous year. Commercial PC was a noteworthy performer this year. Despite the overall growth of PC, only Dell gained share in commercial showing its strength in B2B.
To provide a bit more context on commercial client. Dell’s strong numbers for commercial client was tied to corporations putting more PCs in the hands of remote workers–this was especially true for notebooks. For the most recent quarter commercial client saw a 16% increase.
Year over year, the client segment grew a total of 5% to $48.4 billion. I may have expected client to be up even further given the circumstances, but these results are solid, and Dell showed strong operational capacity here by increasing operating income for the client group by 7% to $3.4 billion for the full year.
VMware Solid as Always – New Leadership a Question Mark
VMware continues to be the bright spot for dell, once again delivering growth of 6% for the quarter and 9% YoY. As companies are making sizable investments in public and hybrid cloud, VMware is a staple and this has been a driver of growth for this business unit.
I’m still waiting to hear more about the 13D that Dell filed around VMware as it looks at possible divestitures or spin-offs of VMware. This has proven to be an exciting prospect for investors as VMware has performed admirably under Dell Technologies AND with Red Hat going for a hefty $34 Billion to IBM, VMware could see a number significantly larger. Hybrid cloud’s continued momentum has only brought more value to VMWare, however, it will be interesting to see the longer term horizon as the company is now operating without the leadership of its long time CEO Pat Gelsinger, which left VMware to take the helm at Intel in February. This will be a situation to pay close attention to.
Overall Impressions on Dell Q4 Earnings
This quarter and the over all year represents a solid overall performance for Dell. With the continued circumstances that we are facing around the globe, I think YoY growth was a great result for OEMs with large premise based infrastructure revenues. As we are now more than a year since the onset of Covid-19, we are coping with the changes to business, work, and the implications that has on technology investments.
Broadly speaking, Dell’s strong operating income and revenue growth from the year before, shows a resilient and diverse business model. The continued generation of free cash flow keeps the company in a good position to move on opportunities and the significant debt ($2.4 Billion) in debt paid off this quarter is also a good sign.
I’ve been anxious to see growth in CapEx since the onset of the pandemic. YoY growth should be achievable in the next fiscal year so long as there are no major setbacks in the fight against Covid-19 and that the economic re-opening continues. It will be important to watch the continued semiconductor shortage as well, as this impacts large parts of Dell’s business. The company has seemingly been coping well with the current situation.
Finally, Dell still has the lingering 13D filing regarding VMware, which analysts and shareholders will be watching closely. This has the makings of a big spinoff that will deliver a large return to shareholders, but that won’t happen before the tax situation is optimal.
Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice.