Dell: Can new servers offset PC malaise?

Summary:The company's PC sales in the third quarter are expected to be weak, but a new family of servers may offset the earnings hit somewhat.

dellstampede
Can Dell's latest PowerEdge servers offset a PC decline?

When it comes to hardware, Dell's third quarter report may reveal a tale of two companies. Dell is likely to see pressure due to weak PC sales, but should also see strong server results courtesy of its new high-performance computing line and hyper-scale systems.

Simply put, Wall Street isn't expecting much from Dell in its third quarter. Analysts are expecting earnings of 40 cents a share on revenue of $13.9 billion in the third quarter.

The analyst reports previewing Dell's results are mostly glum. After all, Dell is in transition. Dell is pushing integrated data center infrastructure as it sells servers, storage and networking gear. Meanwhile, the company is diving into software more and completed its acquisition of Quest Software in the quarter.

However, Dell's business today is still driven by the PC market. Dell has chosen to preserve profit margins over market share. Analysts are expecting PC sales to be down about 19 percent or so. One area of focus will be Dell executives' comments about Windows 8 sales, but it's worth noting that the company will see a lag since it sells PCs primarily to corporations. Consumers will lead any adoption of Windows 8.

"Our estimates for the October quarter reflect the continued weakness in the PC market, though we expect there could be some benefit from consumer channel fill for Win8 products (we do not believe enterprises will adopt Win8 but do expect the continuation of refreshes into the completion of the Win7 upgrade cycle into next year)," said Wells Fargo analyst Maynard Um.

The offset to that PC malaise may be servers. Stifel Nicolaus analyst Aaron Rakers expects Dell's server sales in the third quarter to be up 12 percent from a year ago. "We expect Dell's server results to again reflect solid relative performance vs. HP and IBM; focus on margin implications of hyper-scale/Internet vertical momentum," said Rakers.

In addition, Dell recently scored a supercomputer win as its Stampede-based system at the University of Texas Advanced Computing Center made the Top500 list . That win could lead to other deals. In September, Dell outlined how its PowerEdge C8000, the commercial version of the server behind the University of Texas' supercomputer, will become the basis of a new family of servers.

Research firm Trefis estimates that the PowerEdge C8000 can preserve server average selling prices and enable Dell to sell storage and networking attached to them.

Another key business worth watching is Dell's software business. Dell recently completed the acquisition of Quest Software and has plans to grow its software revenue to be more than $2 billion in 2016, up from $400 million in fiscal 2012.

Topics: Data Centers, Dell, Hardware, Networking, PCs, Servers

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.