Dell Technologies continues to sift through the pros and cons of a VMware spinoff.
Dell Technologies on Tuesday reported quarterly revenue of $23.5 billion – up 3% year over year – and better than expected. But it was the Client Solutions Group (CSG) revenue of $12.3 billion, up 8%, that stood out. As the pandemic-driven remote workforce lingers, the demand for client devices is strong.
The company’s Infrastructure Solutions Group (ISG) revenue was $8 billion, down 4%. Storage revenue was down 7%, at $3.9 billion. Server and networking revenue were down 2%, at $4.2 billion. From the customer perspective, Dell Technologies fared better with SMB customer buying activity than enterprise customers where business is challenged.
“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 [and] government, particularly in our North America federal business and the consumer vertical,” Jeff Clarke, vice chairman and chief operating officer at Dell Technologies, said on an earnings call.
Probably no surprise to channel partners is that consumer direct business was up 47%. Dell Technologies’ consumer direct online business was up 62%, based on orders. The company sees this as a long-term, multiyear trend toward e-commerce.
VMware business revenue was $2.9 billion, up 8%. From a year-on-year view, revenue was flat, at $69.2 billion. Clarke commented favorably on the consistency of performance given a challenging macro environment.
However, looking at VMware’s standalone results, subscription and SaaS revenue grew 44%. The business saw better than expected growth in the VMware Cloud Provider Program, Modern Applications and VMware Cloud on AWS. VMware Cloud on AWS continued to show traction in the recent quarter, with triple-digit revenue growth.
Rob Williams, head of investor relations at Dell Technologies, said the following about the fate of the Dell Technologies-VMware relationship:
“We believe a tax-free spin could drive significant shareholder value by simplifying our capital structures and enabling greater strategic flexibility, while maintaining a strong commercial partnership between Dell and VMware. Both Dell and VMware have publicly highlighted mutual interest and the potential benefits of such a transaction and have engaged on key work streams including mutually beneficial commercial arrangements and Dell’s expectation of a substantial cash dividend to VMware stockholders in connection with such a transaction. As a reminder, the earliest a transaction could close would be September 2021, with an announcement coming between now and then assuming we can come to an agreement. There is also the possibility that we will not do anything, and we would maintain our current ownership structure.”
Also on the earnings call, Clarke noted the company’s tracking of digital transformation patterns of more than 4,000 customers since 2016. The latest 2020 index reveals that 80% of businesses, globally, have fast-tracked digital transformation initiatives. Compare that to 2018 findings, where about 25% of respondents were in a more advanced stage of their digital journey.
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