Post-VMware Outlook Sparks S&P to Upgrade Dell

S&P Global upgraded Dell Technologies to a BBB from BB+ on its “improved financial profile” after the expected November VMware spinoff, said the ratings service Wednesday. “The stable rating outlook on Dell reflects our expectation it will maintain a conservative financial policy through shareholder returns and potential acquisitions” after the spinoff, said S&P, though it thinks the PC industry “is nearing the peak of the cycle and could turn into a headwind” in Dell’s fiscal year ending late January 2023. Profitability and cash flow in Dell’s core PC segment “could be pressured should PC sales decline more than we currently forecast,” though Dell’s financial performance over the past two quarters “has been better than we had anticipated due mostly to continued PC strength,” it said. S&P thinks Dell will have a sufficient cash “cushion” to weather any “near-term industry downturns,” it said. A further ratings upgrade “is unlikely over the next two years based on our expectation that PC demand may be volatile,” it said. Dell risks a ratings downgrade if its operating performance “is meaningfully worse than expected due to a significant downturn in the PC market,” said S&P. Late August quarterly earnings calls showed Dell faring significantly better than HP in navigating industry supply chain woes and component shortages (see 2108270003).