Dell stock is trading sharply lower in US premarket price action today after the company posted mixed earnings for the fiscal second quarter of 2023 but provided weak guidance. Dell’s earnings have only reaffirmed what other PC makers and chip companies have said during the last two months.

The PC industry is witnessing a severe growth slowdown. Firstly, the industry is battling tougher YoY comps as sales were strong in 2020 and 2021 because more people bought new PCs to work from home. A lot of sales boost that PC makers saw in 2020 and 2021 was also due to the pull forward of demand.

dell's stock

Secondly, amid a slowing economy and rising inflation, sales of discretionary products are anyways coming down. Micron expects global PC shipments to fall 10% in 2022. Gartner estimates that PC shipments fell 13% YoY in the second quarter of 2022 which was the steepest pace of decline in nine years.

PC Sales Are Falling in 2022

PC sales account for the bulk of Dell’s revenues so the company is negatively impacted due to the sales slowdown. During the fiscal second quarter, Dell’s consumer sales fell 9% to $3.3 billion. However, its commercial PC sales rose 15% to $12.1 billion. Notably, a lot of companies have recalled employees back to offices and others are in the process of doing so.

Peloton, for instance, has said employees to return to offices by mid-November. The company posted a massive loss in its fiscal fourth quarter of 2022 and the stock slumped as a result. Earlier this week, Peloton stock had surged after it announced that it would sell its equipment on Amazon. However, the stock slumped after the earnings release. While most newly listed companies have fallen, Peloton is among the worst affected.

Falling PC sales are also taking a toll on Nvidia’s sales. Its gaming revenues plunged 33% YoY and reached $2.04 billion in the fiscal second quarter of 2023. The demand for gaming hardware has fallen sharply this year. The industry saw strong growth between 2020 and 2021 as gaming demand was strong due to the lockdowns.

Dell’s Sales Were Lower Than Expected

Dell posted revenues of $26.4 billion in the quarter which was 9% higher YoY but fell short of the $26.6 billion that analysts were expecting. Its adjusted EPS of $1.68 was however ahead of the $1.64 that analysts were expecting.

Commenting on the earnings, Dell’s Co-Chief Operating Officer Jeff Clarke said, “In Q2, we executed well and delivered strong financial results despite a rapidly changing and challenging macro environment.” He added, “The Q2 and second half macro dynamics have become more challenging as customers are taking a more cautious view of their needs given the uncertainty.”

Dell guided for revenues between $23.8-$25 billion in the current quarter which at the midpoint would mean an 8% YoY decline and was also short of the $26.4 billion that analysts were expecting. Dell’s Co-COO Chuck Whitten said, “there’s caution around future hiring, trade-offs within their IT budgets given the macroeconomic uncertainty, customers reducing the size of orders and buying for only immediate requirements.”

Dell Stock is Trading Lower on Tepid Guidance

Dell stock is trading lower after the dismal guidance. Notably, even though Apple had reported lower Mac revenues in the June quarter, it more than made up due to higher iPhone revenues. Warren Buffett bought more Apple shares in the first and second quarter of 2022 as the Oracle of Omaha turned into a net buyer of stocks after remaining a net seller for five consecutive quarters before that.

Coming back to Dell, the company sounded cautious on the demand and Clarke said, “Since we last spoke in late May, our view of the demand environment through the back half of FY23 has changed.” Dell’s warning is yet another sign that the pandemic-driven boost is now fading away for a lot of companies, and stock prices are also adjusting to the new realities.

In the prepared remarks, Dell said, “We remain focused on what we can control, staying flexible and opportunistic, and delivering revenue and EPS growth with strong free cash flow to our shareholders over time.”

Dell has a dividend yield of 2.76% which is higher than that of the S&P 500. Rival HP has a dividend yield of 2.9%.

Related posts

Tamadoge - The Play to Earn Dogecoin

Our Rating

  • '10x - 50x Potential' - CNBC Report
  • Deflationary, Low Supply - 2 Billion
  • Listed on Bybit, OKX, Bitmart, LBank, MEXC, Uniswap
  • Move to Earn, Metaverse Integration on Roadmap
  • NFT Doge Pets - Potential for Mass Adoption