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Yesterday, Dell Technologies (DELL) released its results for the second quarter of fiscal year 2020. The company recorded a turnover of $ 23.45 billion, an increase of 1.4% compared to the previous year. These revenues also exceeded the consensus estimate of $ 183.98 million.
Excluding the Chinese market, the company recorded a 4% GA increase in sales of major orders. Dell also reported a non-GAAP earnings per share of $ 2.15, up $ 0.65 from the consensus estimate.
The company also announced a 17% increase in its deferred revenue, which reached $ 25.3 billion in the second quarter. Deferred revenue represents orders received but not yet processed, which is an indicator of the future evolution of the company's products. The company also achieves between 20% and 25% of its quarterly revenue from recurring sources.
After this news, the Dell stock has risen 8.98% to $ 50.97 during the trading session preceding the sale today. The 17 analysts who follow Dell technologies have an average target price of 64.96 USD, which indicates a potential upside of 38.89% over the next 12 months.
Dell guides robust financial figures
In the second quarter, Dell achieved GAAP revenue of $ 92.7 to $ 94.2 billion and GAAP operating profit of $ 2.9 billion to $ 3.3 billion in fiscal year 2020. In addition, the Company has recommended a GAAP diluted EPS of $ 5.45 to $ 5.90 for fiscal year 2020.
Dell reported non-GAAP revenue of $ 93.0 billion – $ 94.5 billion and non-GAAP earnings from $ 9.8 billion to $ 10.2 billion for fiscal year 2020. The Company also reported non-GAAP diluted EPS of $ 6.95 to $ 7.40 for fiscal year 2020. The Company expects a non-GAAP tax rate. 16% plus or minus 100 basis points. Dell also expects the average number of its shares to be between $ 750 and $ 755 million during the 2020 fiscal year.
Dell's long-term growth opportunity
According to the Black Book IDC WW of August 2019, global IT spending is expected to grow at an annual compound growth rate of 4.3%, from $ 2.7 trillion in 2018 to $ 3.3 trillion in 2023. This growth is almost twice as fast as expected growth. real world GDP over the same period.
Based on the call of its second quarter results, Dell can take advantage of the multitude of growth opportunities offered by the increasingly data-driven business environment. The company is optimistic about increased spending in the IT space, thanks to the digital transformation underway around the world. Dell intends to position itself as a customer partner for the implementation of an end-to-end IT strategy.
Infrastructure Solutions Group Performance
In the second quarter, Dell's Infrastructure Solutions Group (ISG) generated revenue of $ 8.6 billion. This represents a drop of 7% year-on-year, but a sequential increase of 5%. ISG reports sales of traditional data storage solutions and next-generation servers and servers sold by Dell.
In the second quarter, the Company's Storage business reported revenue of $ 4.2 billion, representing flat performance year-over-year. However, its Servers and Networks business was a drag, as revenue fell 12% year-over-year to $ 4.4 billion.
The company attributes this trend to excessive capex investments made by server-sector customers during the 2019 fiscal year. However, Dell has pointed to its tendency to increase server-based server sales as it has become more selective while opting for low margin trades. Group operating income of $ 1.1 billion in the second quarter reflects this trend. Its operating income for the second quarter was 4% higher year-on-year and 25% sequentially.
Performance of the customer solutions group
In the second quarter, Dell's Client Solutions Group (CSG) reported revenue of $ 11.7 billion, up 6 percent year-over-year and 8 percent sequentially. CSG reports sales of branded hardware and third-party software sold by Dell.
During its second-quarter earnings call, Dell awarded CSG's record revenues for robust commercialization, reduced component costs, and the migration to Windows 10. The company announced double-digit growth in its revenues. sales of desktop computers, consumer notebooks and workstations in the second quarter.
CSG also announced operating profit of $ 982 million, an increase of 131% year-over-year and 24% sequentially.
VMware Performance
Dell's VMware Group generated $ 2.5 billion in revenue in the second quarter, up 12 percent year-over-year and 8 percent sequentially. The segment also reported operating income of $ 762 million, up 4% year-over-year and 24% sequentially. To learn more about VMware, see VMware Taking Advantage of the Dell Property?
Balance sheet strength
Since the beginning of the year, Dell has repaid its gross debt of $ 2.4 billion. The company announced a basic debt balance of $ 36.4 billion at the end of the second quarter. The company also reported cash and investments of $ 10.0 billion at the end of the second quarter.
Since finalizing the acquisition of EMC, Dell has reduced its gross debt by $ 17.0 billion and its principal debt by $ 12.4 billion. Dell has deployed $ 10.5 billion in free cash flow and $ 6.5 billion in divestment of assets for the repayment of gross debt. The company expects to repay a total gross debt of $ 5.0 billion in fiscal year 2020. For more information on the Dell – EMC merger, read Approving the Dell-EMC merger by shareholders.
Based on its second quarter results, Dell is focused on optimizing its capital structure and improving its debt maturity profile through repayments and refinancings. The company is facing a $ 2.3 billion debt that will be due in the next 18 months.
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