‘Big Picture’ at Dell Is ‘Shift’ Away From Consumer PCs, Says Co-COO

Dell Technologies endured a “wide range” of semiconductor shortages that affected results in its fiscal Q1 ended April 29, said co-Chief Operating Officer Jeff Clarke on an earnings call Thursday. Dell nevertheless generated 16% year-over-year revenue growth in the quarter to a record $26.12 billion, he said.

The COVID-19 lockdowns in China “caused temporary supply chain interruptions” in Q1 that caused “elevated” backlogs as the quarter ended, said Clarke. “We expect backlog to remain elevated through at least Q2 due to current demand and industry-wide supply chain challenges.” Though Q1 component costs were “deflationary across key commodities,” Dell’s “logistics spend” remained high due to inflationary freight costs and a “mix of expedited parts,” he said.

Dell expects component costs to “turn inflationary” in fiscal Q2 ending late July, as logistics costs “remain at elevated levels,” said Clarke. “That all said, Dell Technologies is well positioned to navigate these supply chain challenges just as we have over the past three-plus years,” he said.

The most “stressed networks” in the semiconductor supply chain “tend to be the trailing nodes,” including 40-, 55- and 60-nanometer, said Clarke. “What's increasingly interesting is now the new factories are being delayed in their deployment because they can't get the equipment needed,” he said. “That's for everybody.”

The China lockdowns started in mid-March in Shenzhen, then made their way into Shanghai with “various stages” of disruption, said Clarke. “We had our own challenges here in the state of Texas with some border-crossing issues,” he said, referring to when Gov. Greg Abbott (R) ordered increased safety inspections of commercial traffic arriving from Mexico.

Dell continues to “adapt and improvise along the journey,” said Clarke. “We've had three-plus years of practice at this, getting good at our game,” he said. The Dell supply chain team is “nimble” and “flexible,” he said. “We're able to move material. We're able to use our vast network of 25 factories, 50 different fulfillment centers around the globe, that allow us essentially to move any order to any factory to be able to build it.”

The “big picture” at Dell is dominated by a “shift in spend” from consumer PCs to data center infrastructure, where demand is “currently healthy,” said Clarke. But there’s “a number of uncertainties out in the broader macro that we continue to monitor,” including the war in Ukraine, inflation, ongoing supply chain challenges, chip constraints and COVID shutdowns, he said.

Dell’s Client Solutions Group, where its PC business resides, finished fiscal Q1 with revenue of $15.6 billion, up 17%, “on top of a strong prior-year comp of 20% growth,” said co-COO Chuck Whitten. Dell gained 190 basis points of PC unit share in calendar Q1, “the most among the top four industry vendors,” he said, citing IDC data. “We have now gained unit share in 33 of the last 37 quarters,” he said.

But not all PCs are “created equal,” said Whitten. Dell’s focus on the commercial PC segment “paid off in Q1 as commercial demand was solid, and we saw softness in consumer and Chrome, as expected,” he said. Commercial CSG revenue grew 22%, while the consumer segment grew only 3%, he said. “We also saw continued strength in software and peripherals as customers continue to seek exceptional PC experiences in the do-anything-from-anywhere world.” PCs have become a “C-suite issue,” he said.