Dell Technologies lowered its annual revenue forecast after component shortages from supplier Intel blunted growth prospects despite buoyant corporate demand for new PCs. Political and economic uncertainty is also weighing on sales of servers to big business clients.
Adjusted sales will be US$91.8-billion to $92.5-billion for fiscal year 2020, Dell chief financial officer Tom Sweet said pm Tuesday during a conference call with analysts. The company said in August that revenue would be $93-billion to $94.5-billion in the fiscal year ending in January.
Intel said last week it’s facing challenges delivering components to customers because of tight supply and limited chip inventories. Sweet said the development will affect Dell’s ability in the current period to produce some commercial computers for corporate clients, which is a key market. Business purchases of Dell’s PC often spur the sales of additional products and services, generating a higher profit margin.
The company also continues to contend with falling demand for servers amid geopolitical and trade tensions. Weaker sales in China and among large corporate clients led a 16% decline in third-quarter revenue from servers and networking gear.
“Obviously we’re not extraordinarily happy with them right now,” Sweet said about Intel in an interview. “I don’t have a pathway to mitigate the supply constraints that they’ve given me for Q4.”
Shares fell more than 3% in extended trading, after closing at $53.19 in New York. The stock has gained 8.8% this year.
This is the second time Dell has cut its annual sales forecast in the past three months. Sweet said he had always expected to narrow the range, as he did in August, because the initial revenue guidance was broad.
Commercial sales grow
Earlier, Dell said adjusted revenue increased 1.2% to $22.9-billion in the fiscal third quarter, just missing analysts’ average estimate of $23-billion.
Dell reported profit, excluding some items, of $1.75/share in the quarter ended 1 November. Analysts, on average, projected $1.59, according to data compiled by Bloomberg. During the conference call, Dell raised the low end of its 2020 earnings forecast to $7.25 to $7.40/share, from $6.95 to $7.40. Lower component prices have aided the profit margins of Dell and rival HP, which also reported earnings Tuesday.
Revenue in the PC division increased 4.6% to $11.4-billion in the quarter. Commercial sales rose 9.4% due to corporate clients upgrading their computers to adopt Microsoft’s Windows 10 operating system. Revenue from consumers, on the other hand, fell 6.4% in the period.
Sales from Dell’s data centre unit declined 6.1% to $8.39-billion, the Round Rock, Texas-based company said in a statement. Storage hardware sales increased 6.9%, but servers and networking gear pulled down the unit.
Dell’s revenue growth is helped by its majority interest in software maker VMware. VMware reported sales on Tuesday that exceeded analysts’ estimates, rising 12% to $2.46-billion. Profit, excluding some items, was $1.49/share, topping analysts’ average estimate of $1.42. VMware makes software that allows customers to combine multiple tasks on a single server, and is trying to shift to selling more programs that help companies run applications in the cloud and in their own data centres.
Dell repaid about $1.1-billion of gross debt in the most recent period and has paid down about $3.5-billion so far this year. The company said it repaid more than $18-billion in gross debt since its EMC acquisition, announced at $67-billion, closed three years ago and is on target to repay about $5-billion of gross debt in fiscal 2020. — Reported by Nico Grant, with assistance from Dina Bass, (c) 2019 Bloomberg LP
