Dell Technologies Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended January 29, 2021 (52 weeks). The filing is an annual report, not a standalone calendar fourth-quarter report; quarterly Q4 results are not clearly provided in the supplied text. Amounts below are in U.S. dollars.
Business context
Dell operates globally across Infrastructure Solutions Group (ISG: servers, storage and networking), Client Solutions Group (CSG: commercial and consumer PCs and related offerings), and VMware (cloud, virtualization, networking, security and digital workspace software). VMware is consolidated; Dell owned approximately 80.6% of VMware at year-end.
Financial performance and liquidity
| Metric | FY2021 | Prior year / change |
|---|---|---|
| Revenue | $94.224 billion | $92.154 billion; up 2% |
| Gross profit / margin | $29.417 billion / 31.2% | $28.933 billion / 31.4% |
| Operating income / margin | $5.144 billion / 5.5% | $2.622 billion / 2.8%; up 96% |
| Net income | $3.505 billion | $5.529 billion; down 37% |
| Net income attributable to Dell Technologies | $3.250 billion | $4.616 billion |
| Operating cash flow | $11.407 billion | $9.291 billion |
| Cash and cash equivalents | $14.201 billion | $9.302 billion |
| Total debt, principal amount | $48.480 billion | $52.665 billion |
| Core debt | $29.163 billion | $33.821 billion |
Non-GAAP measures also improved: non-GAAP operating income was $10.798 billion, up 6%; non-GAAP net income was $6.763 billion, up 11%; and adjusted EBITDA was $12.747 billion, up 8%. These are supplemental measures and exclude significant items; they should be considered alongside GAAP results.
Cash, cash equivalents and available revolving borrowings totaled $19.668 billion, including $5.467 billion of available facilities. Cash included $4.7 billion held by VMware. Current assets were $43.567 billion versus current liabilities of $54.132 billion. FY2021 capital expenditures were $1.8 billion; management forecast $2.4–$2.6 billion for FY2022, including about $0.8 billion for DFS operating leases. Dell reported $1.5 billion of scheduled core-debt maturities in FY2022 and subsequently repaid $1.0 billion of notes due in 2021.
Segments and changes versus prior year
- CSG: Revenue increased 5% to $48.355 billion and operating income rose 7% to $3.352 billion. Remote-work and learning demand supported notebooks and consumer products; commercial desktop sales declined.
- ISG: Revenue decreased 4% to $32.588 billion and operating income fell 6% to $3.776 billion. Weaker server and storage demand, higher server configuration and freight costs, and less component-cost deflation pressured results.
- VMware: Revenue rose 9% to $11.873 billion and operating income increased 16% to $3.571 billion, driven by subscriptions, SaaS, hybrid cloud, digital workspace and maintenance growth.
- Services revenue grew 9% to $24.313 billion, while product revenue was essentially flat at $69.911 billion. The gross-margin percentage declined 20 basis points, partly reflecting product mix.
- Operating income benefited from lower SG&A, cost actions, lower intangible amortization, and the absence of a $619 million Virtustream impairment recorded in FY2020. FY2021 GAAP net income was lower largely because FY2020 included much larger discrete tax benefits.
Outlook, risks and unusual items
- Management saw opportunities for growth in FY2022 but provided no specific consolidated revenue or earnings guidance. It expected strong CSG demand, particularly in the first half, and anticipated ISG could benefit from improving macroeconomic conditions.
- Management expected component-cost deflation to taper and turn inflationary during the first half of FY2022; elevated freight costs were expected to pressure results through that period. Reinstated employee compensation benefits were also expected to increase operating expenses.
- COVID-19 created demand shifts, supply constraints, higher freight rates and operating uncertainty. Other key risks include intense competition, reliance on limited-source suppliers and outsourced manufacturing, cybersecurity threats, foreign-exchange and interest-rate exposure, and substantial indebtedness.
- Dell was exploring alternatives for its VMware ownership, including a potential spin-off; no transaction was decided, and a spin-off would not occur before September 2021. Dell stated that maintaining the status quo remained an option.
- Dell sold RSA Security in September 2020 for approximately $2.082 billion cash. The sale generated a $338 million pre-tax gain but a $21 million after-tax loss, including $359 million of tax expense. A separate $396 million unrealized investment gain contributed to FY2021 results.
- A VMware patent-litigation jury award and $237 million accrual were set aside by the court, and the accrual was reversed in FY2021. The consolidated patent matters remained unresolved; Dell disclosed a proposed 2023 trial date. Class V transaction shareholder litigation was in discovery.
- Management and the auditor concluded that internal control over financial reporting was effective; the auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Whether GAAP earnings and margins can improve as temporary cost reductions unwind and component and freight costs change.
- Whether CSG demand remains durable and ISG server and storage demand recovers, given the different segment trends in FY2021.
- Debt repayment progress, upcoming maturities, interest-rate sensitivity, and the availability of cash held by VMware versus Dell.
- The status, terms and potential financial effects of any VMware ownership separation, and the related strategic and capital-structure consequences.
- Potential changes in credit-loss reserves, legal exposures and tax positions; FY2021 earnings included significant discrete tax items and unusual gains.