Dell Technologies raised its annual profit forecast after reporting quarterly sales and earnings that topped Wall Street estimates on strong corporate demand for computers and software. Shares gained in extended trading.
Profit, excluding some items, will be US$6.95 to $7.40/share in the current fiscal year, executives of the Round Rock, Texas-based company said on Thursday during a conference call. In February, Dell projected $6.05 to $6.70/share for fiscal 2020. Analysts on average estimated $6.42/share, according to data compiled by Bloomberg.
CEO Michael Dell has diversified his technology empire to make it a one-stop shop for large companies upgrading their hardware and software. That broad product line-up helped the company in the most recent period, when growth in corporate sales of desktops and laptops overcame weakness in Dell’s server and storage business. Competitors Hewlett Packard Enterprise and NetApp both reported disappointing sales because of falling demand for data centre hardware.
“We’ve tried to position the company to be successful in any economic environment,” Tom Sweet, Dell’s chief financial officer, said in an interview. “While we think long technology-spending cycles hold up, what we have seen this year is a softening of demand in the server space.”
Dell reported revenue gained 2% to $23.4-billion in the fiscal second quarter. Earnings, excluding some items, were $2.15/share in the period ended 2 August, the company said in a statement. Analysts, on average, projected profit of $1.50/share on sales of $23.3-billion.
Shares jumped about 9% in extended trading after closing at $46.77 in New York. Dell’s stock has declined 4.3% this year.
Companies have been upgrading their PCs to get Microsoft’s Windows 10 software, bolstering demand for Dell’s PCs. The company’s PC division grew 5.8% in the quarter, with commercial sales rising 12%.
Revenue from Dell’s data centre hardware fell 6.6% to $8.6-billion. While sales of storage hardware were little changed from the period a year earlier, server and networking gear revenue declined 12% — a turnaround from last year, when the company saw unprecedented demand for the products.
VMware, Dell’s largest software investment, helped the company with quarterly revenue growth of 12% year over year, bolstered by its partnerships with public-cloud providers, including Amazon Web Services and Microsoft Azure.
Dell executives said on the call they expected IT spending to be “soft” throughout the rest of the fiscal year, particularly in China. And the company narrowed its annual revenue projection to $92.7-billion to $94.2-billion, from the February forecast of $93-billion to $96-billion.
“There is more macro uncertainty, whether it’s the trade environment, the Brexit environment, GDP growth in Europe, yield curves inverting,” Sweet said. “As a result of that, I think you do have some customers more cautious on capital spending.”
Dell said it repaid about $2-billion of gross debt in the most recent period. The company has paid off $17-billion of debt since the 2016 close of its acquisition of EMC — the largest deal in tech industry history when it was announced at $67-billion. Dell said it expects to repay $5-billion of gross debt this fiscal year.
The quarter’s strong results “continue to support management’s ability and desire to reduce debt and improve Dell’s credit profile”, Bloomberg Intelligence analyst Robert Schiffman wrote in a note. — Reported by Nico Grant, (c) 2019 Bloomberg LP