Dell Technologies (NYSE:DELL)
Reuters reports that Dell Technologies (NYSE:DELL) shut down all of its activities in Russia by the middle of August.
On August 26, Dell stock dropped by 13.51% after the company reported poor financial results for its fiscal second quarter of 2023 and forecasts for its fiscal third quarter. The firm’s stock price is down 26.3%, which is lower than the 26.4% decrease in the Zacks Computer & Technology industry.
After Russia invaded Ukraine in February, many companies, including Adobe, Airbnb, Apple, Bumble, EA, Google (Advertising business), IBM, and Intel, temporarily halted sales in Russia and Ukraine (Donetsk and Luhansk).
Following the invasion, the United States, European Union, and the United Kingdom imposed economic penalties on Russia.
Market reaction to Dell Technologies (NYSE:DELL) exit from the Russian market has been harsh.
Less than one percent of net revenues in fiscal 2022 came from its businesses in Russia and Ukraine.
Despite a Strong Quarter, Future Looks Dim
Dell Technologies (NYSE:DELL) announced non-GAAP earnings per share for the second quarter of fiscal 2023 were $1.68, which was 3.07% higher than the Zacks Consensus Estimate. Year-over-year, profits rose by 14%.
In contrast to the average estimate of $26.44 billion, actual revenues increased by 9% year over year.
Over the past year, product sales have climbed by 10% to $20.81 billion. The 6% annual growth in services sales to $5.62 billion was the industry’s highest growth rate.
Consistent income was close to $5.2 billion, up 8% from the previous year.
Q3 Breakdown
Total revenue from the Infrastructure Solutions Group (“ISG”) increased by 12% year-over-year to $9.54 billion.
Servers and networking brought in $5.21 billion in extra cash, up 16% from the previous year. Sales from storage increased by 6% annually, reaching $4.33 billion.
In the second half of 2022, Dell Technologies anticipates a more difficult ISG demand situation.
In the reported quarter, Dell Technologies (NYSE:DELL) experienced a shortage of components and integrated circuits such as power supplies and NICs. The number of items in ISG’s queue, especially servers, remained high.
Sales from the Client Solutions Group (“CSG”) totaled $15.49 billion, an increase of 9% from the previous year. Commercial revenue, the primary contributor to the company’s success, grew by 15% year over year to $12.14 billion. Total sales to consumers dropped by 9% to $3.35 billion.
Dell’s CSG division saw demand dip across the board, from consumers to businesses.
The non-GAAP gross profit was unchanged from the prior year at $5.65 billion. As a direct result of rising input prices and foreign exchange headwinds, the gross margin shrank by 200 basis points (bps) year over year, landing at 21.4%.
To the tune of $3.70 billion, operating costs (as measured by non-GAAP metrics) are down 3% per year. Operating costs as a proportion of sales dropped from 16% to 14% over the previous year.
Non-GAAP operating income increased by 4% year over year to $1.95 billion. The operating margin shrank 30 basis points yearly to 7.4%.
There was a 9 percent annual growth in ISG’s operating income, which brought it to $1.05 billion. Contrarily, operating income from CSG was $978 million, down 1% year-on-year.
Balance Sheet
DELL had $5.51 billion in cash and long-term investments as of July 29, 2022, down from $8.52 billion on April 29 of that year.
As of July 29, 2022, the total amount of debt was $26.93 billion, down from $27.12 billion on April 29.
Approximately $41 billion in unfulfilled performance obligations (RPO) was reported at the end of the fiscal second quarter, an increase of 2% year over year.
For $850 million, DELL paid back its stockholders through dividends and share repurchases.
Guidance
Dell Technologies anticipates sales between $23.8 billion and $25 billion for the third quarter of its fiscal year, a decrease of 8% at the midpoint, with CSG dropping by the high single digits and ISG expanding by the low double digits.
As the proportion of ISG rises in the mix, the gross margin should grow sequentially. The cost of operations is predicted to drop in the next periods.
At the midpoint, Dell Technologies (NYSE:DELL) anticipates earnings between $1.53 and $1.79 per share, which is in line with last year’s projections.
Sales projections for the upcoming fiscal year 2023 range from flat to a 2 percent increase. The midpoint estimate of $7 per share represents a 9% increase in earnings compared to last year’s period.
Featured Image: Megapixl @Ifeelstock
Author Shariq Khan 