Demand Outpacing Revenue Growth at Dell, HP Amid Supply Woes

Two of the world’s top five PC vendors sounded the common refrain Tuesday of elevated order backlogs and inability to meet surging demand due to component shortages and supply chain bottlenecks. Dell Technologies and HP both reported significant swings toward commercial PC demand as workplace customers strive to refresh legacy notebooks, desktops and workstations that predate the COVID-19 pandemic.

Dell reported 21% year-over-year revenue growth to $28.4 billion in its fiscal Q3 ended Oct. 29 from “broad-based” demand across all its business segments, said co-Chief Operating Officer Jeff Clarke on an analysts call. “Demand remains ahead of revenue growth as we continue to navigate industry-wide supply constraints,” especially chip shortages, he said. Dell nevertheless shipped “a record number of products globally in Q3,” he said. “We believe the introduction of Windows 11 will continue to drive demand in PCs.”

Q3 revenue in Dell’s consumer segment was a record at $4.3 billion, up 21%, driven by strong growth in notebooks, plus premium and gaming desktops, said Clarke. Commercial revenue was a record at $12.3 billion in Q3, up an “unprecedented” 40%, he said. Roughly 80% of the industry's revenue and “nearly all” of its revenue growth “has come from commercial PCs and premium consumer PCs, and that is where we are focused,” he said. The “do-from-anywhere” work and entertainment rituals, plus the addition of Windows 11 and the ability to replace an “aged” installed base, “all set up for the demand environment we're seeing today,” he said.

Components costs were a third-quarter “headwind,” as Dell previously predicted, “particularly impacting our elevated units in backlog,” said Chief Financial Officer Tom Sweet. Dell has “long-standing relationships” within its supply chain, “but it is a pretty dynamic environment and semiconductors continue to be a challenge,” he said. It’s “one of the things that we're going to have to work our way through as we go through the quarter,” he said.

HP’s personal systems revenue climbed 13% year on year in fiscal Q4 ended Oct. 31 to $11.8 billion, but units were down 9%, “given the expected supply chain challenges” and lower Chromebook mix, said CFO Marie Myers on a Tuesday analysts call. “The fact we still grew revenue double digits in this environment reflected the strength of demand” and the “positive impact” of HP’s “big shift” toward mainstream and “premium commercial” PCs, she said.

Q4 consumer revenue was down 3% from tough comparisons with the year-earlier quarter, but revenue in the commercial business was up 25%, said Myers. Revenue was up 13% for notebooks, 11% for desktops and 39% for workstations, she said. “We expect the component shortages, as well as manufacturing, port and transit disruptions, will continue to constrain revenue due to the ongoing pandemic in many parts of the world.”

HP’s PC order backlog “remains at a very elevated level,” said CEO Enrique Lores, “very similar to where we were a quarter ago” when the company cited 13 weeks of backlog. “This is really something that we pay a lot of attention to,” he said. “We constantly monitor all the orders that we get” to be sure that they reflect real demand and not “double booking,” he said. The percentage of cancellations is “very, very small,” he said. “The majority of the backlog now is coming from commercial customers, given that this is where we continue to see the stronger demand.”