Dell Shipped Record 59.3M PCs in 2021, Despite Supply Chain Woes

Dell Technologies’ "top priority" amid Russia’s Ukraine invasion “is supporting our Ukrainian team members as they attempt to relocate to a safe and secure environment,” said co-Chief Operating Officer Jeff Clarke on an earnings call Thursday for fiscal Q4 ended Jan. 28. Dell is “closely monitoring” developments in Ukraine and is “working with employees to address their personal and family situations,” said Clarke. “As for business operations in the region, the situation is rapidly evolving, and we will share more details as they become available.”

Though Dell’s “direct revenue exposure” in Ukraine and Russia “is minimal on a percentage basis,” said Chief Financial Officer Tom Sweet, “it is too early to determine any broader potential impact to our Q1 guidance and our initial thoughts on fiscal year '23.” Dell is forecasting revenue between $24.5 billion and $25.7 billion for fiscal Q1 ending late April, which would be up 11% year over year “at the midpoint” of the guidance, said Sweet.

The semiconductor shortage and “global logistics challenges for goods and components” continue to impact “just about every industry,” said Clarke. Dell nevertheless achieved record revenue of $101.2 billion for fiscal 2022, up 17% year over year, he said. Though Q4's operating profit of $1.6 billion was a quarterly record, it was slightly below the low end of Dell's Nov. 23 guidance range, “as we optimize our performance based on customer needs, parts availability and backlog dynamics,” he said. The stock closed 7.8% lower Friday at $51.46.

Dell is still experiencing shortages of integrated circuits “across a wide range of devices,” said Clarke. “Freight costs have continued to rise due to increased logistics rates” and a higher mix of air freight due to skirting “ocean network congestion,” he said. Expedited parts shipments “to meet customer needs” also contributed to the higher freight costs, he said.

The company reduced its PC backlog over the past two quarters, and backlog is now “nearing the high end of its normal range,” said Clarke. Dell expects its PC backlog to grow again in fiscal Q1, he said, though “we do expect component costs to improve with modest deflation, while freight costs remain elevated.”

Clarke said Dell is awaiting further information “to evaluate the impact” on the company from the Feb. 9 Western Digital announcement that contamination of materials used in its manufacturing processes is affecting flash-memory production at fabs in Yokkaichi and Kitakami, Japan, that it runs in a joint venture with Kioxia. Dell has “multiple partners” for NAND memory supply, he said. The Western Digital announcement “means product in the factories today is contaminated, and sometime in the future, there's going to be a gap” in supply, he said.

"Typically," whenever there's a supply gap “in a commodity that is in great demand, we see pricing pressure,” said Clarke. “So what we're trying to communicate is, there's an unknown of a reasonably large size.” Western Digital and Kioxia “represent a large percentage of output, and that output is at risk with the contaminated factories,” he said. There will be “a supply impact in the future, and we're just signaling that going forward,” he said. Western Digital didn’t comment Friday.

Fiscal 2022 revenue in Dell’s Client Solutions Group, which includes PCs, was up 27% year over year to $61.5 billion, said Clarke. Despite the supply chain woes and component shortages, Dell shipped a record 59.3 million PCs in calendar 2021, up 18% from 2020, “growing faster than any of the top 3,” he said. Dell shipped a record 17.2 million PCs in calendar Q4, up 9% year over year, he said.

Dell won 47 product awards at CES 2022, where it introduced the XPS 13, its “thinnest-ever” gaming notebook, said Clarke. “Hybrid work, learning, shopping, socializing, entertainment and travel is all here to stay, and we expect commercial PC and premium consumer growth in FY '23, albeit at moderating rates relative to a record year.”

Industry sales of "premium" consumer PCs are expected to grow by low-single digits in calendar 2022, said Clarke. “We obviously expect to take share on top of those numbers." The "pressure" will be in low-end and mid-priced consumer PCs and Chromebooks, he said. Having gone through three straight years of growth, the PC industry is “back to roughly 350 million units” in global yearly sales, he said. The total addressable market opportunity, “we believe, has been reset,” he said.

Thursday was the first time in recent memory that HP and Dell -- the world’s No. 2 and No. 3 PC brands behind Lenovo, according to IDC -- didn’t report quarterly results on the same afternoon. HP is scheduled to report results Monday for its fiscal Q1 ended Jan. 31.