Dell is Riding high on Market Recovery

Dell’s desktop PC revenue reversed a long period of decline and increased at 13% YOY to $ 3.6B (12% unit growth). HP’s desktop revenue was up 27% YOY in its most recent quarter. Lenovo and Acer recorded 47% and 54% increase in desktop PC revenue respectively. Dell’s Mobility revenues grew 18% YOY to $4.6B on a 27% improvement in unit shipments as the company feels the effect of an increasing mix of lower priced netbook sales. HP, Lenovo and Acer grew their notebook business by 17%, 76% and 48% respectively. Apple’s Macintosh® computers recorded a 33% unit increase YOY.

Dell’s Server revenues increased 39% YOY to $1.8B on a 30% improvement in unit shipments. Previous quarter also had a 26% revenue growth and 17% unit growth (both YOY). Dell continued to post stronger server revenue growth (61% YOY) in Large Enterprise segment. HP recorded high growth in server market (Industry Standard Server grew 54% and Blade up 45% YOY). IBM also posted a high growth (36% YOY) in its x86-based x-Series business.

Storage revenue lagged servers growing 4% YOY to $554M with EqualLogic revenue up 74% YOY with particular strength in SMB and public sector. HP’s Storage revenue was up 16%, EMC's Information Storage product revenue (both HW & SW) increased by 28.3%. The increases experienced by EMC and IBM (Storage Systems revenues by 11% YOY) support the optimistic outlook for the storage industry in 2010. NetApp product (primarily storage and data management products) revenue increased by 17% YOY.

Enhanced Services grew 53% YOY to $1.9B as the deferred revenue backlog grew 8% to $6.1B. The integration of Perot is going well with predictable margins and Dell has identified 300 synergistic pipeline opportunities to date. HP’s services revenue was up 2% to $8.7B. ITO revenue was up 6% Y/Y while a technology service was flat and application services were down 2%YOY. BPO revenue was flat YOY. IBM’s Global Technology Services segment revenues increased 6% to $9.3 billion. Global Business Services segment revenues were flat at $4.4 billion. Application Management signings decreased 23%. EMC’s services revenues increased by 14% driven by an outperforming EMC Consulting team. Content Management and Archiving and Security products accounted for roughly 10.4%.

Emerging markets have demonstrated high growth for most of the companies. Dell’s revenue from BRIC countries (nearly 12% of total revenue) grew 60% to $1.8 B as revenue from outside the US increased to 48% of Dell’s quarterly total. India and Brazil recorded significant 91% and 81% YOY growth respectively. Similar high growth by reported by other key competitors as well. Lenovo witnessed 95% YOY growth in emerging market (12% of WW Lenovo’s WW sales). IBM’s revenue from growth markets grew 20% YOY (19% of IBM’s WW revenue). Lenovo continues to retain market share leadership in the big China market while Acer and HP have ambitious plan to expand in that market. Acer, which till now focused mainly at European and then US market has aggressive plans to expand in China market.

Growth Fueled by Hardware sales – High growth exhibited by most companies are primarily driven by core hardware sales indicating the much awaited hardware refresh cycle. Hardware sales of companies like IBM and HP have grown much faster than their services business. Companies have new products in their pipelines and are expanding into new areas – notably mobile phone segment in search of higher margin/value stream of business. HP has recently announced acquisition of Palm, Lenovo has reacquisition of Lenovo mobile and started shipping Smartphone in China, Acer has outlined plans to launch 4 Smartphone models for its coming Q2/Q3 FY 2010.

Recovery in commercial sector - Interestingly, growth rates in mature markets were buoyed this quarter by the continuing recovery in commercial products. Dell is currently at the beginning of a shifting demand pattern which will be characterized by continued improvements in the commercial sector, Dell’s strongest market segment.