Dell: Fiscal 3Q18 Financial Results

(in $ million)	3Q17	3Q18	9 mo. 17	9 mo. 18
Revenue	16,247	19,610	41,568	56,725
*Growth*		21%		*36%*
Net income (loss)	(1,637)	(941)	(1,488)	(3,302)

Dell Technologies, Inc. announces its fiscal 2018 third quarter results ended November 3, 2017.

For the third quarter, consolidated revenue was $19.6 billion and non-GAAP revenue was $19.9 billion.

During the quarter, the company generated an operating loss of $533 million, with non-GAAP operating income of $2.0 billion. The company generated cash flow from operations of $1.6 billion.

“In the third fiscal quarter, we delivered solid performance across the business,” said Tom Sweet, CFO. “Moving forward, we’ll maintain our focus on profitable growth, generating strong cash flow and delivering a comprehensive and seamless solutions portfolio, incorporating the capabilities of all of the companies under Dell Technologies.”

“Our strategy to be the essential infrastructure provider is resonating with our customers, who turn to Dell Technologies to transform and digitize their environments,” said Jeff Clarke, vice-chairman, products and operations. “We deliver a more holistic view and set of solutions, offering a higher level of innovation and integration across the edge, core and cloud that is unmatched in the industry.“

Operating segments summary
Client Solutions Group continued to outperform the market worldwide as the overall PC market moved back to positive year-over-year growth during the calendar quarter. Revenue for the third fiscal quarter was $10.0 billion, up 8% from the same quarter of fiscal 2017. Operating income was $672 million, a 6% increase.

Key highlights:
• Double-digit revenue growth in notebooks for both commercial and consumer
• Delivered 19th consecutive quarter of year-over-year PC unit share growth2
• No. 1 workstation vendor worldwide, outperforming the industry and positive growth in every major region3
• No. 1 displays provider worldwide for the 17th consecutive quarter

Infrastructure Solutions Group (Dell EMC) experienced growth of 2% quarter over quarter, with third quarter revenue of $7.5 billion and operating income of $678 million. Servers and networking revenue was $3.9 billion, which was an increase of 32% year over year and 3% quarter over quarter. Storage revenue remained flat at $3.7 billion quarter over quarter.

Key highlights:
• Record revenue and double-digit growth for servers for 2nd consecutive quarter
• Worldwide leader in servers, outgrowing the market in units and revenue for both mainstream and hyperscale
• Triple-digit growth in hyperconverged portfolio, led by VxRail
• Double-digit demand growth for Isilon scale-out NAS and all-flash arrays

VMware segment revenue for the third quarter was $2.0 billion, with operating income of $639 million, or 32.7% of revenue.

Additional highlights
During the third quarter, Dell Technologies paid down $1.7 billion in debt, and since the close of the EMC transaction, it has paid down $9.7 billion of gross debt, excluding DFS-related debt. Also since closing the EMC transaction, the company has repurchased a total of 23.4 million shares of Class V common stock under the previously announced repurchase programs.

The company ended the quarter with a cash and investments balance of $18.0 billion.

During the quarter, the company launched a dedicated IoT division aimed at coordinating development of IoT products and services across all of our businesses. This comprehensive approach includes specific products, labs, partner program and consumption models to help customers speed the implementation of their IoT solutions.

Comments

Storage revenue of Dell

(in $ million)

2FQ17

3FQ18

9mo 17

9mo 18

Revenue

3,079

3,667

4,159

11,018

Growth

1% Y/Y

0% Q/Q
19% Y/Y

165% Y/Y

(results prior 3FQ17 do not include EMC/VMware)

It's the first anniversary of the historic merger between Dell and EMC. But EMC was a better integrator of acquisitions - more than 80 in storage only - than Dell - 18 in storage only. Together they have a very large portfolio of hardware and software covering about all the needs of storage users but the final results are not convincing and the portfolio is too large.

Even if storage, representing 49% of infrastructure solutions group, was up 19% Y/Y, it was totally flat Q/Q as growth in all-flash and newer solution like hyperconverged infrastructure was offset by softness in traditional products.

Jeff Clarke, vice chairman, products and operations, confirms: "As discussed on last quarter's earnings call we have implemented actions to improve storage growth particularly in the mid-range and expect benefits of these actions to materialize through the next year."

As well as CFO Tom Sweet: "We also recognize that there is still work to do to improve our storage and data protection business and to improve the overall profitability of the ISG business. (...) As we've highlighted over the last few quarters we are working to improve our storage business velocity and while we have begun to see some progress we believe this will be a gradual recovery over the coming quarters as we ramp go to market resources and introduce new and innovative product features. Gross margin was 6.4 billion or 32.2% of revenue which was a 110 basis point improvement over the second quarter driven by pricing discipline and improved overall cost of goods sold. (...) It's not clear to me the 180th country in the world needs all of the entire storage breadth of our portfolio and we can make that less complex, easier for our sales and marketing teams to communicate and much easier for our customers to buy. So you'll see us work on that over the next handful of quarters."

But added: "So it's really about Q4, if you look at seasonally historically this would be an extraordinarily strong storage quarter."

On the positive side, Dell continued triple-digit demand growth in hyperconverged portfolio with strength in VxRail and demand for Isilon NAS and flash arrays continue to grow double-digits, usual trends since several quarters.