As Dell expands into servers and storage, PC business is boosting revenue

Posted December 8th, 2016

Dell Technologies has been trying to distance itself from its "legacy" hardware business of making PCs for years, focusing more on the fast-growing area of offering IT products and services to large corporate and government customers. 

Buying data storage company EMC Corp. for $58 billion in September was a key part of this strategy. 

But when Round Rock-based Dell reported its third quarter results on Thursday, its first since closing the EMC transaction, the company said it was the PC part of its business that helped boost revenue to nearly $16.3 billion for the quarter. 

Dell Chief Financial Officer Tom Sweet said the company's "Client Solutions Group," the business unit that sells its computer products, grew 3 percent year over year to revenue of $9.2 billion.

This is particularly noteworthy because PC shipments worldwide have been on the decline.

And it indicates that Dell's PC business still has a big impact on sales because in the third quarter its legacy business unit made up about 56 percent of their total revenue. 

Dell executives said notebooks and high-end products such as its Alienware gaming computers contributed to the sales increase. 

But Dell's efforts to sell servers, storage and networking products didn't perform as well. 

The IT company said it had "mixed results," with its server and networking revenue, down 8 percent. Total revenue for this business unit was nearly $6 billion, a 61 percent increase from the year before, but that's because it includes EMC revenue. 

Sweet noted that the company is still working towards integrating Dell and EMC into one company. For instance, their sales forces are still being run separately. He said the company expects to integrate its sales groups some time in fiscal year 2018. 

The company reported that its loss widened to $2 billion in the third quarter. But its results were impacted by one-time costs associated with the EMC transaction. After adjusting for one-time gains and costs, the company reported a profit of $970 million.

Sweet said for the next several years its results will be impacted by costs related to the EMC transaction and the costs of taking Dell private in 2013. 

It's difficult to compare Dell's results to this same time a year ago because this quarter's results include 52 days of revenue and expenses related to buying EMC. Dell said the EMC deal increased revenue by 28 percent. 

The company also reported making a $500 million payment on its $57 billion debt service. The company took on this debt to help pay for the EMC deal. Dell's debt load is being watched closely by financial analysts. 

Dell is privately-controlled but is reporting its quarterly financial results like a public company because of its tracking stock, DVMT. 

This stock was created this year as part of the EMC transaction. It is designed to track the economic performance of VMware, a data virtualization company in which Dell owns an 80 percent stake.  This stock is not expected to reflect  investor sentiment about Dell's revenue and profit.