Dell shares rise after earnings beat expectations. Demand is improving

Dell shares rose 8.3% to $60.88 in late trading.

For the second fiscal quarter ending August 4, Dell reported revenue of $22.9 billion, down 13% from a year ago, but up 10% sequentially, and $2 billion above Street expectations of $20.9 billion. The company had forecast revenues ranging between $20.2 billion and $21.2 billion.

Dell earned $1.74 a share on an adjusted basis in the quarter, beating its own forecast of $1.10 and Wall Street’s forecast of $1.14. Under generally accepted accounting principles, the company earned 63 cents a share.

Cash flow from operations was $3.2 billion, while Street estimated a loss of $465 million on that basis. Adjusted EBITDA was $2.6 billion, well above the consensus forecast of $2 billion.

Client Solutions Group, Dell’s PC maker, had revenue for the quarter of $12.9 billion, down 16% from a year ago, but up 8% sequentially and well above the street consensus of $12.1 billion. Consumer and business PC revenue was above Street estimates.

The Infrastructure Solutions Group, which includes servers and storage systems, had revenue of $8.5 billion, down 11% from a year ago, but up 11% from the prior quarter, and well above the street consensus of $7.4 billion. The company delivered better-than-expected results in both storage and servers this quarter.

The company said about 20% of server requests in the first half of the fiscal year were related to machine and artificial intelligence applications.

Dell said the demand environment improved as the company moved through the quarter. The company also benefited from improved profitability as a result of lower component costs and fewer spare parts shortages.

Dell repurchased nearly $250 million in shares this quarter.

“With a better demand environment and strong execution, we delivered exceptional results for the second quarter,” said Jeff Clark, Vice Chairman and Chief Operating Officer, Dell. “We continue to focus on the most profitable segments of the market where we have a leading position.”

In an interview with Barron’s, Clark said Dell expects to return to low single-digit PC unit growth in calendar 2024, with slightly stronger revenue growth as more capable PCs boost average selling prices.

Clark believes that a year from now, new PCs will have the ability to process artificial intelligence, for applications such as sorting personal information and drafting documents. He believes this trend will lead to a new focus on on-premises computing power, a shift away from the recent trend in which most processing is done in the cloud.

“The killer application of AI is that you will love your computer again,” says Clark. He says Dell will begin releasing AI-focused PCs next year, which will likely include more memory, storage, and processing power than current models to handle AI workloads.

On a call with investors, the company projected fiscal third-quarter revenue to be in the range of $22.5 billion to $23.5 billion, higher than the agreed-upon forecast of $21.7 billion, and roughly flat compared to the second quarter. Adjusted earnings are expected at $1.45 per share, higher than the $1.37 expected on Wall Street. The company expects revenue from both business segments to be flat compared to the previous quarter.

For the full year, the company expects revenue of $89.5 billion to $91.5 billion, with earnings of $6.30 per share. That’s well above Street’s previous consensus of $86.9 billion in revenue and earnings of $5.56 per share.

Write to Eric J. Savitz at eric.savitz@barrons.com