Dell Technologies Inc. (NYSE:DELL), a leading provider of information technology solutions, released its fiscal third-quarter 2022 earnings on Nov. 24, reporting earnings of $2.37 per share compared to the consensus analyst estimate of $2.30 per share.
Outstanding performance in both of Dell’s core segments, infrastructure solutions and client solutions, aided the company’s strong performance in the third quarter. The infrastructure solutions group, which is commonly known as ISG, facilitates customers digital transformation requirements by running cloud-native workloads in both public and private clouds as well as on-premises applications using multi-cloud and big data solutions. The client solutions group, commonly referred to as CSG, provides hardware and peripherals, third-party software and support services.
Earnings recap
The company reported revenue of $28.39 billion for the third quarter, up 21% year-over-year, with product revenue of $21.50 billion up 24% and services revenue of $6.85 billion up 12%. ISG segment revenue increased 5% year-over-year to $8.43 billion, thanks to a 9% increase in servers and networking revenue to $4.53 billion and a 1% increase in storage revenue to $3.86 billion. The storage demand was driven by a 47% increase in orders for hyper-converged infrastructure, and the company was able to successfully monetize its market leadership in many technology solutions categories to boost its financial performance in the third quarter.
Dell released the industry’s first end-to-end NVMe/TCP solution in the third quarter, which included SmartFabric Storage Software, which delivers the intelligence for automated storage connectivity at scale. On Oct. 5, the company also announced APEX Cloud Services with VMware Cloud, which allows enterprises to develop application-ready infrastructure and migrate workloads across numerous cloud environments while also providing built-in cyber resiliency to defend them from malicious attacks. Dell released new telecom software, solutions and services on Oct. 13 to help communications service providers effectively manage and deploy their network infrastructure as well. Overall, the company seems to be making the most of the favorable macroeconomic conditions facing the technology industry by introducing new solutions to attract and retain new customers.
CSG segment revenue increased by 35% year-over-year to $16.55 billion, with commercial revenue up 40% to $12.29 billion and consumer revenue up 21% to $4.25 billion. Dell had the largest year-over-year PC share gain in the third quarter, with shipments up 26.6% and worldwide PC share up three full percentage points to 17.4%. The company also unveiled a new line of Latitude Rugged notebooks, including the world’s smallest 5G-capable 13″ completely rugged laptop.
VMware’s (NYSE:VMW) third-quarter revenue came to $3.2 billion, up 10% year-over-year. On Nov. 1, the company completed the spin-off of its 81% equity stake in VMware and received $9.3 billion in special cash dividends, which Dell expects to use to pay down debt. T
he company also received investment-grade corporate ratings from all three major credit rating agencies, which is a promising sign as many tech companies are struggling to maintain balance sheet health amid expansionary efforts.
Operating conditions will remain favorable
Demand for IT solutions is increasing as a result of the global economic shift and major changes in the way companies operate globally. As the importance of data continues to grow and infrastructure becomes more distributed, hybrid and software-driven, Dell is well-positioned in the premium areas of the PC market, as well as capable of providing effective IT solutions. The boost in enterprise IT spending is likely to continue in the foreseeable future, with clients in all regions investing in IT infrastructure geared toward multi-cloud solutions and rapid digital transformation. Furthermore, the release of Windows 11 is projected to to boost the demand for new computers as well, which will be a positive development for the company.
Valuation
Despite supply chain troubles, Dell delivered strong numbers for the third quarter, reporting positive year-over-year growth in all three business divisions, all regions and across its broad portfolio of IT solutions. Dell continues to be cash flow positive, and the company aims to deliver handsome returns to long-term investors via dividends and share buybacks.
At a forward price-earnings ratio of just 6.35 in comparison to the sector average of 23.88, Dell appears to be one of the most cheaply valued tech companies in the market today.
This article first appeared on GuruFocus.
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