DELL Q3 Earnings Beat Estimates, Lower PC Sales Hurt Revenues – November 22, 2022

Dell Technologies (DELL Free Report) reported third-quarter fiscal 2023 non-GAAP earnings of $2.30 per share, beating the Zacks Consensus Estimate by 43.75%. The bottom line jumped 39% year over year.

Revenues, on a non-GAAP basis, decreased 6% year over year to $24.72 billion but beat the consensus mark by 0.99%.

Product revenues decreased 10% year over year to $18.4 billion. Services revenues rose 6% year over year to $5.78 billion.

Dell shares were down 2.07% in after-hours trading following the results. Shares have fallen 26.9% year to date compared with the Zacks Computer & Technology sector’s decline of 32.2%.

The company suffered from lower PC shipments in the reported quarter. It witnessed weak PC demand and slowing infrastructure demand, which was partially offset by strong growth in storage.

Dell’s fiscal 2024 view is also not encouraging. The company expects top-line growth to suffer from lower IT spending, which is expected to remain weak due to slowing economic growth, inflation, rising interest rates and currency pressure.

Top Line Detail

Infrastructure Solutions Group (“ISG”) revenues were up 12% year over year to $9.63 billion.

The upside can be attributed to a 14% increase in servers and networking revenues that totaled $5.2 billion. Storage revenues grew 11% year over year to $4.43 billion.

Client Solutions Group (“CSG”) revenues were $13.78 billion, down 17% year over year. Commercial revenues declined 13% year over year to $10.75 billion. Consumer revenues were down 29% to $3.03 billion.

CSG revenues were hurt by lower PC shipments. As per IDC Worldwide Quarterly Personal Computing Device Tracker for the third quarter of 2022, Dell’s market share declined to 16.1% from 17.4% in the year-ago quarter. Per IDC data, Lenovo (LNVGY Free Continued Report) to dominate in terms of market share and PC shipment, trailed by HP (HPQ Free Report) and DELL.

However, Lenovo and HP both lost market share. Apple (AAPL Free Report) and Asus both gained market share. While Lenovo’s market share came down to 22.7% from 23.1% in the year-ago quarter, HP was 17.1% compared with the year-ago quarter’s 20.2%.

Meanwhile, Apple’s share increased from the year-ago quarter’s 8.2% to 13.5%. In terms of PC shipments, Apple gained 40.2% year over year, while Lenovo, HP and Dell were down 16.1%, 27.8% and 21.2%, respectively.

Operating Details

Dell’s fiscal third-quarter non-GAAP gross profit increased 2% year over year to $5.87 billion. The gross margin expanded 200 basis points (bps) year over year to 23.7%.

SG&A expenses declined 15% year over year to $3.27 billion. Research and development expenses were up 4% year over year to $677 million in the reported quarter.

Non-GAAP operating expenses decreased 8% year over year to $3.49 billion. Operating expenses, as a percentage of revenues, declined 20 bps on a year-over-year basis to 14.1%.

The non-GAAP operating income was $2.38 billion, up 22% year over year. The operating margin expanded 220 bps year over year to 9.6%.

The ISG segment’s operating income increased 54% year over year to $1.37 billion. Meanwhile, the CSG segment’s operating income was $1.06 billion, down 7% year over year.

balance sheet

As of Oct 28, 2022, DELL had $6.44 billion in cash and long-term investments. Debt was $27.33 billion as of Oct 28, 2022.

This Zacks Rank #4 (Sell) company returned $847 million to its shareholders through a combination of share repurchases and dividends.

guidance

For the fourth quarter of fiscal 2023, Dell expects revenues between $23 billion and $24 billion, down 16% at the mid-point, with ISG roughly flat. The company expects roughly 500 bps negative impact on revenues.

Moreover, operating expenses are expected to increase $150 million sequentially in the fiscal fourth quarter.

Dell expects earnings in the range of $1.50 to $1.80 per share, down 4% at the midpoint for the fiscal fourth quarter.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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