Dell: Can new servers offset PC malaise?

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.

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, Servers, PCs

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  • Dell has to worry more about the lousy customer service

    While their servers are well priced, the customer service is abysmal. Bad enough that the first two servers I bought were the last.
    • lousy customer service

      Huh, I actually have the opposite experience with products under warranty. I usually start up a chat and tell them exactly what was wrong and what part I need and receive it 1-2 days later. Hardly ever takes more than a 5 minute chat session. Maybe it's because I talk to them so much, usually 2-5 times a month with all the PCs/servers we lease from them.
      Koopa Troopa
  • Two Possibilities for PC Makers: Reinvention or Consolidation

    It is clear that the PC is over the hump and on the way down its product life-cycle curve. The norm for companies whose main products are at this life-cycle stage is to either reinvent themselves by developing, adding, or switching to new products, or to succumb to an inevitable industry consolidation by either failing and being bought on the cheap by a company that knows how to capitalize on brand names and economies of scale in production for commoditized markets. Rarely does a company that has been a leading maker of a product actually become the buyer of its failing peers and transition into commodity supplier.

    The PC manufacturing industry is ripe for consolidation. It only remains to see who will successfully reinvent, who will fail and be gobbled up, and who will be the commodity PC producers (Samsung, GE, Panasonic) during the remaining years in the PC life-cycle.
  • What about market saturation don't these morons understand...

    Most of the people I know have at least one computer let alone the fact that most of them have a desktop and laptop computer. Even now many of them have an old PC in their garage that if push came to shove they could dust off and still use. Add to this smart phones and Ipads or some other dodad and you get SATURATION!

    This is one of those things about capitalism that always amazes me, there is no realization of when enough is enough or the ability to accept that things have changed that you have reached a point where you can't sell any more, because everyone has one already.
    • I agree

      It is really incredible that capitalistic enterprises think that they can keep selling more and more products forever when there clearly is a limited number of customers
      Normally, any company should expect exponentional increase of sales of a new product until the market is satured. Once the market is satured companies should expect a decrease of sales and focus on both maintenance and the design of new significant improved version of the product. Then years later, when customers really need to replace their products, there will be a new increase of sales.
      .Assuming that PC have a lifetime of several years, especially desktops , that there has been no significant P.C evolution and that this market is saturated, it is not surprising that the the sales of P.C will be declining.
      What OEM expected that people/companies would throw away their perfectly working computers to buy new who are bare improvement,if at all, of the ones they already own ?
      In order to have a new boom of P.C sales, baring to wait until customers really need to replace their computers, OEM and Microsoft should design new revolutionnary product that not only improve what previous P.C are able to do in a significant way but also bring appealing new features. And what i have seen up to now of Windows 8 based P.C is not really impressive to say the least.
      • I agree with your agreement!

        "...expected that people/companies would throw away their perfectly working computers to buy new who are bare improvement,if at all, of the ones they already own ?...

        Yes, and not just the OEMs. M$ and the fanbois also expect this. Just read the comments after any article on Win8.

        "...OEM and Microsoft should design new revolutionnary product that not only improve what previous P.C are able to do in a significant way but also bring appealing new features...."

        They keep trying, and failing! They have spent the last 18 years selling and upgrading Windows. They are at the point where it cannot be improved more, so they are trying to replace the whole UI with something new. Unfortunately for them, (and us,) new does not equal better.
  • General rule:

    When the title of a tech piece is a question, the short answer is almost always "No".

    As it was today. Revenue down, GAAP profits off by roughly half.

    Train wreck in slow motion. Notable that this was the Windows 8 launch quarter.