Dell Technologies Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months of Fiscal 2024, ended August 4, 2023. Comparisons are with the corresponding periods ended July 29, 2022, unless otherwise noted. Amounts are in U.S. dollars.
Financial performance
| Metric | Fiscal Q2 2024 | Year-over-year | First six months 2024 | Year-over-year |
|---|---|---|---|---|
| Revenue | $22.9 billion | Down 13% | $43.9 billion | Down 17% |
| Product revenue | $16.9 billion | Down 19% | $32.0 billion | Down 23% |
| Services revenue | $6.0 billion | Up 7% | $11.9 billion | Up 5% |
| Gross margin | $5.4 billion; 23.5% | Down 1%; margin up from 20.6% | $10.4 billion; 23.7% | Down 7%; margin up from 21.4% |
| Operating income | $1.2 billion; 5.1% margin | Down 8%; margin up from 4.8% | $2.2 billion; 5.1% margin | Down 21%; margin down from 5.4% |
| Net income | $455 million; diluted EPS $0.63 | Down 10%; EPS was $0.68 | $1.0 billion; diluted EPS $1.42 | Down 34%; EPS was $2.06 |
| Operating cash flow | Not provided for the quarter | — | $5.0 billion | Up from $455 million |
- Segments: Q2 Infrastructure Solutions Group (ISG) revenue was $8.5 billion, down 11%; servers and networking fell 18%, while storage fell 3%. Client Solutions Group (CSG) revenue was $12.9 billion, down 16%; commercial revenue declined 13% and consumer declined 29%. Services growth partly offset product weakness.
- Margins and adjusted results: Lower input costs and higher average selling prices supported gross-margin rates. Q2 non-GAAP operating income was $2.0 billion, up 1%, and non-GAAP net income was $1.3 billion, up 1%. These measures exclude items including amortization, stock compensation, severance and other corporate expenses; they are not GAAP results.
- Cash flow: First-half investing cash outflow was $1.3 billion and financing cash outflow was $3.8 billion. Operating cash flow benefited from inventory reduction, collections and vendor-payment timing, and included the $0.9 billion net payment for the Class V litigation settlement. Cash, cash equivalents and restricted cash totaled $8.7 billion at period-end.
Balance sheet and liquidity
- Cash and cash equivalents were $8.4 billion, compared with $8.6 billion at February 3, 2023. Cash plus approximately $6.0 billion of undrawn revolving-credit availability totaled $14.4 billion. No revolver or commercial-paper borrowings were outstanding.
- Total debt principal was $27.4 billion, down $2.5 billion from February 3, 2023, mainly following repayment of $2.0 billion of senior notes. Carrying value was $27.1 billion; management defines core debt as $15.6 billion. DFS debt was $10.0 billion and is primarily supported by financing receivables and related assets.
- Total assets were $85.7 billion and total liabilities $88.3 billion; stockholders’ equity remained in deficit at $2.7 billion. Management said available cash, future operating cash flow and borrowing capacity should be sufficient for material cash needs for at least the next 12 months.
- First-half capital expenditures and capitalized software costs were $1.3 billion. Fiscal 2024 capital expenditures are expected to be $3.2–$3.4 billion, including approximately $1.7 billion for revenue-generating assets. The quarterly dividend increased to $0.37 per share; first-half dividends and equivalents totaled $545 million. Share repurchases were $0.5 billion, versus $2.1 billion in the prior-year period.
Changes, outlook and risks
- Management attributed lower revenue to continued macroeconomic pressure: PC demand and units sold remained weak, while some infrastructure customers were cautious with IT spending. Q2 revenue declined, although Dell reported sequential demand improvement and signs of macroeconomic stabilization.
- Management anticipates second-half Fiscal 2024 revenue will decline versus the second half of Fiscal 2023, primarily due to ISG, continued macroeconomic effects and increased competitive pricing pressure. Cost discipline is expected to partly offset these pressures. Dell highlighted AI-related server and storage demand as a longer-term opportunity, not quantified guidance.
- Supply-chain lead times were standard and component and logistics costs declined; management expects component-cost deflation to moderate in the second half. Risks include demand and pricing uncertainty, competition, supplier concentration, foreign-exchange movements, and variable-rate debt exposure.
- Dell recorded $412 million of severance expense in the first half, including $364 million in Q2, and had a $457 million severance liability at period-end. The company said cost management continued alongside selective investment in R&D, marketing and technology.
- Dell agreed to sell its U.S. consumer revolving receivables portfolio to Bread Financial and establish a new Dell Preferred Account program operated by Bread. The transaction was expected to close in Fiscal Q3 2024, subject to customary conditions; $389 million of receivables, net of allowance, was classified as held for sale.
- The $1.0 billion Class V transaction settlement was paid in May 2023; Dell does not expect additional settlement expense. Dell is contesting proposed IRS adjustments for fiscal years 2018–2019. Unrecognized tax benefits were $1.3 billion; resolution of certain matters could reduce them by up to $0.4 billion and materially affect the tax rate. Management reported no reasonably possible material loss above amounts already accrued for other disclosed proceedings, while noting outcomes remain uncertain.
- Remaining performance obligations were approximately $39 billion, with about 58% expected to be recognized as revenue in the next 12 months; the estimate can change with cancellations, scope changes and other factors.
Key facts for investors to verify
- Whether PC and infrastructure demand stabilizes, and how the forecast second-half revenue decline compares with subsequent results—particularly in ISG.
- Whether improved gross-margin rates and cost controls can offset lower sales, competitive pricing and the $412 million first-half severance charge.
- Whether the Bread receivables sale closes as expected and how it affects DFS funding, credit exposure and reported financing balances.
- Cash-flow sustainability after the unusually strong first-half working-capital contribution, alongside debt maturities, capital spending, dividends and repurchases.
- Developments in the IRS appeals process and other tax matters, including any effect on the effective tax rate or cash requirements.