Dell reports green shoots in enterprise infrastructure biz after seven consecutive quarters of shrinkage

It is now seven straight quarters since Dell's infrastructure unit last grew but COO Jeff Clarke reckons he's spotted some green shoots of recovery that might bode well for server and storage spending next year.

"The very large businesses, the very large bids continue to be a challenged area for us," he said on a Q3 conference call with financial analysts, "but we did see signs where our small and medium businesses did grow. We saw sequential improvement in our server business, which we're encouraged by."

Servers and storage sales are forecast by analysts to shrink 6 and 7 per cent respectively in calendar 2020, the Dell exec said, betting that the product lines will be up mid-single digits in 2021.

"We think if the market responds, companies can no longer defer their investments in infrastructure and that's the rebound," claimed Clarke.

Dell last night reported Q3 revenue of $23.482bn, up 3 per cent year-on-year for the period ended 30 October. The value of products sales was flat at $17.352bn and services grew 10 per cent to $6.130bn.

The Infrastructure Solutions Group (ISG) was down 4 per cent to $8.024bn: servers and networking revenue fell 2 per cent to $4.164bn and storage was down 7 per cent to $3.860bn. The last time ISG expanded was in Q1 of Dell's fiscal '20, ended 1 February 2019.

CFO Tom Sweet said the company is "cautiously optimistic" about next calendar year: "Obviously, we'll have to see how the macro uncertainty plays out, but we do think that an investment cycle sets itself up next year, given some of the indications we're seeing."

The loss of the server industry was said to be to the gain of cloud services. The public infrastructure cloud, for example, has jumped by a third in Q1, Q2, and Q3 this year. Gartner said the public cloud will account for 9.1 per cent of all enterprise IT spending this year at $242.69bn. It is estimated to grow 18.4 per cent next year to $304.9bn.

Alastair Edwards, chief analyst at Canalys, told a collection of resellers and distributors at its EMEA Forum in October that hardware vendors had seen their share of the infrastructure market slide this year.

"But we also predict that many of your customers are going to hit some hard realities with their expanded cloud environments, in terms of cost, complexity and security. And customers are struggling to drive internal adoption and usage even for those services they have invested in.

"We don't believe the market has reached a tipping point for cloud adoption. In fact, the pendulum is already swinging back towards hybrid IT. Customer investments are open up once again for their on-premise data centre and infrastructure. But what we do see is that customer expectations of that infrastructure have changed. They want more automation, they want to support greater adoption of multi cloud services, they want to modernise their applications for the cloud."

Dell launched as-a-service models of its infrastructure kit last year and put more meat on the bones at the Dell Technologies World conference where it announced Project APEX – bringing together its as-a-service and cloud stuff.

The fortunes of Dell's PC business – the Client Solutions Group (CSG) – could not be more different to ISG and are linked to government-imposed lockdowns that forced businesses and students to work and learn from home respectively.

Revenue in CSG was up 8 per cent to $12.286bn: commercial PC was up 5 per cent to $8.753bn and consumer jumped 14 per cent to $3.503bn. As is the case across the sector, notebooks flew and desktops didn't.

"The PC is the essential device for this remote-everything environment we're living in today, as evidenced by the ongoing demand we are seeing for work and learn-from-home solutions along with double-digit growth in education, government," said Clarke.

VMware, majority owned by Dell Technologies, which merged with former parent EMC in 2015, grew 8 per cent in the quarter to $2.893bn.

Operating expenses were clipped by 3 per cent – following some redundancy action taken earlier this year, along with obvious benefits of reduced staff expenses. As such, operating profit was up 35 per cent to $1.129bn, and net profit bounced 60 per cent to $881m. ®