Dell EMC Still Reeling from Merger Costs After Year One

For Q2 2018, revenue came in at $19.3 billion, down about $800 million from two quarters ago, but profitability is still proving elusive.

Dell.EMC.puzzle

Exactly 12 months into the consolidation of Dell EMC, the headache-inducing reality of the costs of such a mega-merger continue to send executives at the Round Rock, Texas-based conglomerate to the medicine cabinet for more Advil.

Dell Technologies announced its second quarter fiscal results Sept. 7, and they weren’t exemplary. For Q2 2018, consolidated revenue came in at $19.3 billion, down about $800 million from two quarters ago; profitability is still proving elusive.

During the quarter, the company generated an operating loss of an even $1 billion, which is an improvement over six months ago, when the company lost $1.7 billion in the winter quarter. However, the company did generate cash flow from operations totaling $1.8 billion.

Dell EMC, whose mission in life is to supply as much hardware to the world's IT systems as possible, stands in contrast to the fact that the world is moving more and more to subscription cloud services and away from building data centers that use such hardware. Still, no cloud can exist without hardware; it’s just that less hardware is being needed as time goes on.

The good news was that PC shipments went up nearly 4 percent and that both storage and hyperconverged data center equipment improved their market share standing. The company is counting the days until the fallout from the very expensive merger has finally subsided.

Since the merger closed on Sept. 7, 2016, Dell Technologies reminded analysts and investors that it has accomplished significant goals, including:

  • combining two companies, creating an essential IT infrastructure for a company with more than 140,000 employees;
  • combining two sales forces into one go-to-market motion and creating an integrated channel program;
  • expanding the Dell Financial Services (DFS) portfolio, now the exclusive originator of Dell EMC business and the VMware preferred finance partner; and
  • showing industry leadership in new and fast-growing categories, including all-flash and hyperconverged infrastructure.

Operating Segments Summary

Dell’s Client Solutions Group continued to take share globally while growing profitably. Dell outperformed the market worldwide, experiencing 3.7 percent unit growth during the calendar quarter. Revenue for the second fiscal quarter was $9.9 billion, up 7 percent year over year and the highest since the same quarter of fiscal 2015. Operating income was $566 million for the quarter, a 17 percent increase or 5.7 percent of revenue.

Key data points:

  • increased PC shipments by 3.7 percent, with 18 consecutive quarters of year-over-year PC unit share growth and the highest market share since 2006;
  • strong notebook momentum and double-digit revenue growth across all high-end commercial and consumer product lines;
  • ranked No. 1 workstation vendor worldwide; and
  • No. 1 displays provider worldwide for the 16th consecutive quarter and double-digit revenue growth.

Dell EMC’s Infrastructure Solutions Group generated $7.4 billion in revenue, up 7 percent quarter over quarter. Server and networking revenue was $3.7 billion, a quarter-over-quarter and year-over-year increase of 16 percent, and storage revenue was $3.7 billion. Operating income for the quarter was $430 million.

Key data points:

  • There is continued triple-digit demand growth for the hyperconverged portfolio, including VxRail, which has more than 2,000 customers and 14,000 nodes deployed to date;
  • Launched and shipped new 14G servers; strong overall server demand growth in each of the major regions;
  • Strong all-flash growth at scale, more than twice the nearest competitor;
  • Double-digit demand growth in next-generation Isilon scale-out NAS with new Infinity architecture; and
  • Strong demand for flexible consumption and utility models, signing several large, multi-year strategic deals.

VMware segment revenue for the second quarter was $1.9 billion, with operating income of $561 million, or 29.4 percent of revenue.

Chris Preimesberger

Chris Preimesberger

Chris Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he has...