Dell Outnavigating HP Through Supply-Chain Woes, Earnings Calls Show

Dell is faring significantly better than HP in navigating industry supply chain woes and component shortages, as evidenced in senior executives’ comments on back-to-back earnings calls Thursday for their respective July fiscal quarters. Dell shipped a “record number” of PCs in its fiscal Q2 ended July 30, “despite industry supply shortages,” said co-Chief Operating Officer Jeff Clarke. But HP is rethinking its outsourcing model through original design manufacturers after PC unit growth was flat in its fiscal Q3 ended July 31, said CEO Enrique Lores.

Dell, in contrast, gained about 100 basis points of share by delivering record revenue and profit performance in the quarter, said Clarke. “Whether we are reopening or reclosing, eating in restaurants or ordering out, returning to the office or staying at home, the one constant has been an unprecedented demand for technology,” he said. Dell is exploiting its “scale and differentiated supply chain to successfully navigate through the operational challenges caused by the unprecedented demand that is way ahead of supply right now,” he said. Consumer revenue was a second-quarter record at $3.7 billion, up 17% from a year earlier, “as digital entertainment and e-commerce are still driving strong demand for upgraded experiences,” said Chief Financial Officer Tim Sweet.

With the “semiconductor challenge” persisting “broadly” into 2022 across multiple industries, “the path out of this is ultimately more capacity,” said Clarke. “It takes a long time to build these different fabs anywhere,” plus “lots of capital is required to do that,” he said. Dell has “longstanding relationships and partnerships” in the supply chain, he said. “We continue to let people know what our long-term demand is. It’s how we plan this company.”

HP, meanwhile, is struggling to ship as many products as it can “while navigating a complex operational environment,” said Lores. “We are managing through component shortages” and COVID-related “factory lockdowns” in Southeast Asia, plus “congested ports and transportation disruptions,” he said.

Lores said HP needs to “improve operationally to be able to optimize our performance, given the delta between supply and demand.” HP is working on the problem, “and we need to do some more work,” he said. The majority of HP’s production is outsourced to ODMs, which “until now,” were managing “the relationships with the providers of the components that we are missing,” he said. “We have been thinking” about signing “direct supply agreements” with components suppliers to address the demand/supply “gap,” he said.

Consumer demand for HP PCs “continued to be strong” in fiscal Q3, said Lores. “PC penetration rates are growing across our markets, as devices become increasingly essential in today's hybrid world.” But revenue in the quarter “was less than we expected, primarily because of our supply chain constraints,” he said. “We expect industry-wide supply shortages, particularly in ICs, to continue into 2022.”

Total PC unit growth at HP was flat year over year, said Chief Financial Officer Marie Myers. Q3 order backlogs increased again sequentially from Q2, despite “substantially clearing” the backlog in Chromebook orders, she said.

That’s because HP experienced “some weakness” in the Chromebook space for the first time during the pandemic, said Lores. Many U.S. school districts “decided to stop their purchase activities until they had clarity on what type of new funds they were going to be getting from the federal government and the timing of those funds,” he said. With the situation now “clarified,” HP expects Chromebook demand in the education space “will pick up at the end of this quarter or at the beginning of next quarter.”