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‘Mixed Signals’ Near Term

Dell Gained FY Q2 PC Share on Lenovo, HP, Despite Lower Unit Sales

Dell’s "demand environment" slowed since its May 26 financial results, especially in the Client Solutions Group (CSG), where its consumer and enterprise PC businesses reside, said Vice Chairman Jeff Clarke on an earnings call Thursday for Dell’s fiscal Q2 ended July 29. Total net revenue increased 9% year over year to $26.43 billion, but consumer revenue in the CSG segment fell 9% to $3.3 billion.

PC demand declined as fiscal Q2 progressed, though higher average selling prices partially offset the decline in unit sales, said Clarke. “We were able to offset the CSG demand weakness with backlog reduction in CSG,” he said. IDC reported that No. 3 vendor Dell gained share in calendar Q2 because its PC unit shipment decline was modest compared with those of No. 2 HP and market leader Lenovo.

An “important measure” of Dell’s success in any market environment is “relative performance, and we again drove differentiated share results” in fiscal Q2, said co-Chief Operating Officer Chuck Whitten. Dell gained more than 200 basis points of worldwide PC unit share in calendar Q2 and more than 100 basis points of PC monitor share, he said, citing the same IDC statistics. “We have now gained PC unit share in 34 of the last 38 quarters,” he said. In commercial PCs, “our focus and the most profitable segment of the market, we gained over 300 basis points of unit share in calendar Q2 to claim the number one spot worldwide,” he said.

Mixed signals” mark the “near-term market outlook” for Dell’s businesses, said Whitten. “We remain confident in the long-term health of our markets and in our competitive position. There has been a clear and significant increase in the size of the PC market from pre-pandemic levels, as hybrid work has become the default approach for companies worldwide.”

As in the previous quarter, Dell is “still seeing shortages of parts and embedded integrated circuits,” including power supplies and network interface controllers, said Clarke. “PC backlog is now at normal levels, as Q2 PC shipments significantly outpaced demand and the portfolio is on standard lead time across the board.”

Dell expects “modest deflation” in total component costs in fiscal Q3 ending late October, and logistics rates also are “beginning to decline,” said Clarke. “As we think about the second half of the year” ending late January, he said, “we remain focused on what we can control -- execution, relative performance, prudent cost management and delivering for our customers.”

Dell is seeing enterprise customers “become more cautious, given the current macroeconomic environment,” said Chief Financial Officer Tom Sweet. The “softening” in consumer PC and Chromebook demand that began in fiscal Q1 extended in Q2 to slower “demand velocity” in some of Dell’s commercial segments, he said. It now expects fiscal Q3 revenue between $23.8 billion and $25 billion, which would be down 8% year over year at the midpoint of the guidance, with CSG revenue declining in the “high-teens,” he said. The stock plunged 13.5% Friday, closing at $41.43.

On the newfound customer cautiousness, “they’re sorting through spend, as they’re thinking through projects,” said Sweet. Enterprise customer deals are “taking longer to close,” he said, “and the size of the projects are somewhat reduced from what we’ve seen in the past.”

Dell doesn’t compete in “the very low end” of the consumer PC marketplace, where the channel has “ample inventory” on hand, said Clarke. “The competitiveness in consumer has grown because of the ample inventory,” he said. In the high-end PC gaming and in the premium consumer PC business, “certainly, we’re impacted,” he said. “You can’t have a consumer business that has exposure to those two subcategories to not be impacted.”