PC and data-storage giant Dell Technologies (DELL) is set to release third quarter fiscal 2021 results after Tuesday’s closing bell. Among other noteworthy metrics, the market will be eager to see if Dell can duplicate its rivals in delivering better-than-expected results.
Meanwhile, Dell stock has been on a steady uptrend ever since the company completed its spinoff of VMWare (VMW). Dell announced plans in April to spin off its 81% stake in VMWare in a deal to create two standalone companies. Dell acquired its stake in VMWare in 2015 as part of its acquisition of EMC. But is now the right time to buy Dell, or will VMWare be the better purchase? The spinoff is part of Dell’s strategic shift to grow its capabilities in the realm of edge computing, cloud services, artificial intelligence, among other high-growth end markets.
While the company is benefiting from a diverse portfolio of software and hardware revenue streams, the PC market still remains a thriving revenue stream for the company. With the pandemic disrupting in-office and in-person activity across many industries, this has driven millions of consumers to work and learn from home. The need for better and faster computers have sent PC and electronic sales soaring, posting their strongest growth in more than a decade.
This increased demand bodes well not only for Dell’s PC market share, but also for its Infrastructure Solutions Group and Client Solutions Group which accounts for more than 80% of its total revenues. This group consists of revenues from datacenter and computing hardware/software sales. And this segment will be the company’s main growth drivers for the foreseeable future. On Tuesday, beyond a top- and bottom-line beat, investors will want strong guidance from these segments for the quarters and year ahead.
For the three months that ended October, Wall Street expects the Round Rock, TX.-based company to earn $2.17 per share on revenue of $26.82 billion. This compares to the year-ago quarter when earnings came to $2.03 per share on revenue of $23.52 billion. For the full year, ending in January, earnings are projected to decline 0.62% year over year to $7.95 per share, while full-year revenue of $102.67 billion would rise 8.8% year over year.
Owing to strong demand for its servers and network devices, Dell beat on both the top and bottom lines in the second quarter. Q2 revenue rose 15% year over year to $26.13 billion, beating consensus by $586 million. Adjusted earnings of $2.24 per share beat the consensus forecast of $2.04 per share. The revenue gains was driven by better-than-expected demand in the government sector and in education, with orders rising by strong double digit percentages.
Work-from-home and learn-from-home tailwinds were the key catalyst in the surge for PCs and other hardware that enable virtual learning. Accordingly, the client solutions revenue rose 27% to a record $14.3 billion. Consumer revenue growth came in at 17%, though there was a noticeable deceleration from the first quarter growth of 42%. Commercial revenue growth, however, improved to 32%, rising from 14% in the first quarter. Infrastructure Solutions revenue was up 3%, to $8.4 billion. The company saw a rise in servers and networking revenue of 6%, offsetting the 1% decline in storage revenue.
Can the company sustain these positive growth trends on Tuesday? Dell offers an attractive risk-reward trade when factoring the positive results that have arrived from both its Client Solutions Group and Infrastructure Solutions Group. On Tuesday a top- and bottom-line beat, along with strong guidance can affirm this belief.
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