Dell Q1 Sales Slip 3%, Operating Income Rises 37%

Dell parent company Denali Holding Inc. reports its first-quarter financials ahead of the closely watched merger between Dell and EMC.

Dell earnings

As the historic Dell-EMC deal inches closer to completion, Dell's parent company Denali Holding Inc. announced the financial results for its fiscal 2017 first quarter ending April 29.

Addressing the impending merger, company officials reiterated that the deal, first announced in October 2015, is on track. The multibillion-dollar transaction is awaiting regulatory approval from China and an upcoming EMC shareholder vote slated to take place July 19.

For its first quarter, the company reported revenue of $12.6 billion, down 3 percent from the same quarter last year, and operating income of $565 million, a 37 percent year-over-year increase.

Despite reporting under the Denali name, Dell's finances and those of its parent company are practically one and the same, explained a company official during a June 6 earnings conference call. Denali serves as the holding company that operates Dell, which went private in 2013.

Dell's Enterprise Solutions Group rang up sales of $3.6 billion, a 2 percent drop from the same year-ago quarter. Operating income dipped 20 percent to $192 million, reflecting some slackening in demand for the company's servers, networking and data storage offerings.

"Storage revenue declined by 2 percent in the quarter and was primarily impacted by a weaker traditional storage market," Tom Sweet, Denali's chief financial officer, said during the earnings call June 10. "Similar to the rest of the industry, we are responding to a shift in trends as customers transition from traditional direct-attached disk drives to next-gen storage technologies, such as all-flash, software-defined, converged and hyperconverged solutions."

Sweet reported that Dell is gaining ground in these emerging categories, citing a 20 percent increase in sales of its hybrid and all-flash SC Series arrays (formerly Compellent) in the first quarter. Dell acquired Compellent in early 2011. The flash-enabled storage systems now account for approximately 18 percent of Dell's total storage revenue, he said. Dell's storage sales totaled $538 million in the quarter.

Server and networking revenue dropped 2 percent, from $3.1 billion a year ago to $3.07 billion in the first quarter. The company's hyperscale server business took a hit, said Sweet, calling the category "lumpy and high-volume" but low-margin.

These setbacks aside, Dell still maintains a firm grasp on the enterprise, according to John Dinsdale, chief analyst at Synergy Research Group. "Dell is holding pretty steady in its market share for data center infrastructure—actually, it has been nudging up slightly—and for the cloud infrastructure segment of the market, its market share has also been relatively stable. Despite increased levels of competition, Dell is doing OK," Dinsdale told eWEEK.

Dell's Client Solutions, which include its commercial and consumer PC divisions, generated first-quarter revenue of $8.6 billion, a 3 percent year-over-year decline, and profits of $385 million, a 76 percent gain. Sales at Dell Software, which includes the KACE device-management software and SonicWALL network security platform, were essentially flat, at $334 million, but the segment's profits surged to $28 million from a loss of $27 million during the same quarter last year.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...