Q4 2021 Dell Technologies Inc Earnings Call
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Good afternoon, and welcome to the fiscal year 2021 fourth quarter and year end financial results Conference call for Dell Technologies, Inc. I'd like to inform all participants this call is being recorded at the request of Dell technologies.
And is broadcast is copyrighted property of Dell Technologies, Inc.
Any rebroadcast of this information and whole or part without the prior written permission of Dell technologies is prohibited.
Following prepared remarks, we will conduct a question and answer session.
Do you have a question simply press Star then one on your telephone keypad at any time during the presentation.
I'd like to turn the call over to Rob Williams head of Investor Relations. Mr. Williams, you may begin.
Thanks, Catherine and thanks, everyone for joining us today.
With me today are vice Chairman and CFO, Jeff Clarke, our CFO Tom Sweet.
And our Treasurer Tyler Johnson.
Our press release financial tables web deck prepared remarks, and additional materials are available on our IR website.
The guidance section will be covered on today's call.
During this call unless we otherwise indicate all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue gross margin operating expenses operating income net income earnings per share EBITDA, adjusted EBITDA and adjusted <unk>.
Free cash flow.
A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release.
Please also note that all growth percentages refer to year over year change unless otherwise specified.
Additionally, I'd like to remind you that all statements made during this call that relate to future results and events are forward looking statements based on current expectations.
Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and SEC filings, we assume no obligation to update our forward looking statements.
Finally, before I turn it over to Jeff I wanted to touch on the amended 13D, we filed in July 2020 regarding our exploration of potential alternatives with respect to our ownership interest and Vmware.
We continue to believe that a tax free spin could drive significant shareholder value by simplifying our capital structures and.
And enabling greater strategic flexibility, while maintaining a strong commercial partnership between Dell and Vmware.
Both companies continue to be engaged on key work streams and as Vmware communicated earlier today, we are making progress and our discussion.
However, there is no assurance that we will reach a definitive agreement.
We will not address the discussions any further or take questions related to this topic on today's call.
Now I'll turn it over to Jeff.
Thanks, Rob Hi, everyone. Thanks for joining us for our first call of calendar 'twenty 'twenty, one 'twenty and 'twenty was a year that none of us anticipated and none of us want to repeat but it also brought out the best of humanity and reinforced the criticality of technology to solving the problems of today and tomorrow and.
Dell technologies, we are grateful and honored to have a central role and helping our customers from consumers to the largest enterprises keep our society, our economy and our lives moving forward.
Finally, I could not be prouder.
Of how our teams responded and Q4 and throughout this challenging year delivering for customers worldwide. The real business outcomes. They need as a result, our customer relationships and commerce conversations have deepened.
And no customer is asking how they can unwind their investments and digital transformations, it's all about moving their businesses forward and investing and their future for example.
Gaining insights from data customers like the University of Pisa, and Italy turned to power store power scale and Paramax for core storage infrastructure and to enable remote learning and accelerate their hybrid cloud and AI projects.
Swisscom AG is using our as a service and flexible consumption storage solutions for affordable on demand access to extra capacity when they need it and Dell technologies has and the middle of the edge and telecom transformation and most recently with tech Mahindra and all that.
Edge and Brazil to offer edge computing as a service to local telecommunications service providers.
These customer examples illustrate not just the market tailwind that will benefit Dell technologies and future that is highly digital and highly distributed but why we are uniquely positioned to take advantage of the trends are unique direct sales engine touches more customers than anybody and technology.
Giving us insights as we build solutions and allowing us to meet customers, where they are and their digital transformation, our breath from edge to core to cloud makes us relevant no matter the customer challenge and our unmatched global services allow us to simplify.
Complexity for our customers.
Behind all of this of course, our award winning product teams, a global supply chain with unmatched scale and reach and financing capabilities that make us trusted.
And makes us trusted advisors excuse me too it decision makers of companies of all sizes Dell technologies has never been stronger or more irrelevant.
Turning to the financial results, we delivered a record $26 $1 billion of revenue in Q4 with sequential revenue growth of 11% driven by strong results and our <unk> and Vmware businesses as well as our improvement and the ISG business, Tom will cover Q4 and more detail later and.
And the call.
For the full year revenue was a record $94 $4 billion up 2% operating income was up 6% to $10 $8 billion and adjusted EBITDA was $12 $7 billion up 8% earnings per share for the full year was $8 up 9%.
Throughout FY 'twenty, one we leveraged the depth and breadth of our portfolio to lean into the pockets of growth when and where they occurred and we executed with discipline and speed and precision and and what was an extremely dynamic environment. We delivered record results are.
Our client solutions group had an outstanding year delivering record shipments revenue and operating income revenue for the full year was $48 $4 billion up 5%.
And operating income was up 7% to $3 4 billion and for the calendar year 2020. According to IDC, we shipped 53 million units up 8% and the most ever and a year our.
Our commercial PC results were even stronger with commercial unit growth of 11%.
Dell gained the most commercial unit share of the top three vendors with share gains concentrated and notebooks.
Resilient demand was driven by the fast growing technology enabled world.
Where consumers can do anything from anywhere and instead of going to work School entertainment and a restaurant or a shopping it all comes to us the P. C. As the hub of this new economic model.
Our consumer business delivered record revenue of $13 billion for the year up 12% customers have shifted shifted.
To E Commerce, and our strategy shift early earlier this year to advantage, our direct and Unsell online selling paid off our consumer business was up 51% on a revenue basis based on orders and our consumer online business was up 64% for the year on orders revenue.
Commercial revenue was up 3% to 34 or $35 4 billion also a record.
Orders for our commercial notebooks were up 46% on a unit basis, and 28% on and orders revenue basis, while orders revenue for commercial chromebook was up triple digits.
ISG solutions group revenue was $32 $6 billion and down 4%, we saw demand and the second half of the year improve with our best results and Q4 and.
And spend increased and the infrastructure needed to power the due from anywhere world servers and networking revenue for the year was $16 $5 billion down, 4%, but with that but with growth and the fourth quarter server demand improved in Q4, and parage orders were up mid single digits.
Our storage revenue was $16 1 billion down 4%.
But we did see demand growth in key areas Paramax hyper converged infrastructure and power protect data and the main all saw solid growth during the year on and order spaces.
Our mid range storage business returned to growth and the fourth quarter driven by accelerated adoption of our power store power store orders grew four times compared to the third quarter orders as customers embrace the next generation of modern data center technology and applications and a challenging environment power.
Or is ramping faster than and extreme Io and VX rail, making it the fastest new architecture, we have released and.
Additionally, approximately 20% of our power storage customers are new to our storage business as we tripled the number of wins against key competitors quarter over quarter.
Our Vmware business also had a strong year with revenue of $11 $9 billion up 9%.
Our partnership and Cowen and co innovation engine with Vmware has never been stronger in Q4, we announced a collaboration with SK Telecom and Vmware to deliver five gene enabled edge computing solutions to help enterprises quickly act on data where it resides throughout a year of unprecedented disruption we were.
<unk> able to pivot quickly deliver profitable growth disciplined share gains consistent execution innovation and strong financial returns.
Now, let's move from FY, 'twenty, one and I'll share a little perspective of what we see ahead.
We believe the demand environment will continue to improve estimates from both IDC and Gartner C spending growing mid single digits and calendar year, 2021, including growth and our core PC and server and storage markets.
The due from anywhere world is here to stay and we believe the total addressable market is expanding as there are still millions of children around the world that need Pcs the number of Pcs and the household continues to increase and additionally, the refresh cycles are accelerating with the shift to notebooks and.
And we are on the cusp of widespread five G connectivity driving real time automated and intelligent outcomes at the edge.
This will drive an estimated 700 billion and cumulative spend on the edge.
On edge infrastructure and data centers within the next decade, there was a lot of opportunity ahead for Dell technologies, and we are going after it with a balanced growth strategy that begins with growing and modernizing our core businesses the.
And the value creation potential and our and our client and our infrastructure business is enormous as we consolidate share and the markets that have steady GDP like growth.
We also know long term success means doing more than just winning the consolidation it requires us to keep modernizing the customer experience, which brings us to apex and announced the last October and Dell technologies World with apex, we are extending our long history of offering I T. As a service to deliver it resources on demand Dell.
And managed infrastructure.
Enabling our customers to pay for only what they use built on a foundation of trusted technologies all of that scale.
Starting in May we will bring the first of the new apex offers to market and add new offerings over the course of the year. This foundational work sets up sets us up to respond to accelerating customer needs and capture market momentum.
And towards a hybrid distributed future fueled by data and analytics, we are integrating and innovating on vmware and across our leading capabilities and partner ecosystems to create the automated integrated infrastructure for five G and the data era that is AI and ml enabled with intrinsic.
Security throughout.
And that's how we went at the edge. The next technology frontier by extending our cloud model and ecosystem to the edge. We can provide a consistent approach to infrastructure data applications and security across the entire environment.
Our competitive advantages I highlighted earlier, our Indian and portfolio, our sales force and customer intimacy are global services capability give us a distinctive position and the next evolution of our industry.
Before I turn it over to Tom Let me leave you with a few thoughts we are emerging and and advantage position for the enormous opportunities ahead.
<unk> delivered as a service <unk> and edge computing technology is clearly front and center for the digital futures and Dell technologies is uniquely positioned to win and the data era that is already underway now I'll turn it over to Tom for a closer look at the financials.
Thanks, Jeff.
Given what we were modeling for the demand environment early last year with the onset of the pandemic I am pleased with our record results and revenue operating income earnings per share and cash generation, both for the full year and the fourth quarter.
The flexibility of our business model and the adaptability of our team positioned us to successfully navigate the macro environment, while enabling our customers' digital transformation.
We ended the year with a strong Q4 revenue was up 8% to $26 1 billion driven primarily by the strong growth and our <unk> and Vmware businesses with improvement and our ISG business.
With a weaker U S dollar FX was a tailwind and the quarter of approximately 100 basis points.
Gross margin was eight 6 billion up 3% and 33% of revenue.
Gross margin as a percentage of revenue was 170 basis points lower driven by the overall mix shift to <unk>, given the strong client demand environment.
Operating expense was $5 3 billion down 5% year over year, but up 6% sequentially and.
And the quarter, we started to add back certain employer and employee related costs like 401 K match.
<unk> promotions and new hiring to support growth.
Operating income was up 19% to $3 3 billion or 12, 6% of revenue driven primarily by our operating expense controls revenue growth and C. S G and improved consumer gross margins.
Consolidated net income was $2 3 billion up 36% and earnings per share was $2 70, a share up 35%.
Our operational execution and the strong demand environment combined to deliver record P&L metrics and a record $5 9 billion and cash flow from operations.
Total deferred revenue was $30 8 billion up $3 billion.
Our recurring revenue, which includes deferred revenue amortization utility and as a service models it.
It is now approximately $6 billion, a quarter up 8% year over year.
And as Jeff highlighted our apex offerings will broaden our as a service solutions across our portfolio.
Giving customers more flexibility to scale their Iot solutions to meet their needs and budgets.
Turning to the business units, our client solutions group delivered record results the ongoing strong demand for remote work and learning solutions, along with gaming systems drove <unk> revenue up 17% to $13 8 billion as we delivered record shipments again in the quarter.
<unk>.
Commercial revenue was up 16% to a record high $9 9 billion as we continued to see strong growth and latitude and precision notebooks and commercial chromebooks.
Consumer revenue also reached a record at $3 8 billion up 19% share.
And by strength across all of our consumer notebooks and gaming systems.
<unk> operating income was up 67% to a $1 billion and was seven 6% of revenue.
We saw better than expected profitability due to our record shipments favorable component cost improved profit profitability and consumer and continued operating expense controls across the business.
Our client solutions business had an extraordinary year in FY 'twenty, one because we moved quickly to take advantage of demand opportunities.
This business consistently provide stable revenue and generate strong cash flow regardless of the demand cycles, we see and the PC space.
Now with the record year. We just finished <unk> revenue has grown at a 7% CAGR over the last five fiscal years, while the CAGR for operating income has grown by 18%.
ISG revenue was $8 8 billion, which was flat year over year, but up 10% sequentially.
We were pleased to see improvement and this business as we ended the year and we believe that there will be improved demand for infrastructure as we move through fiscal year 'twenty two.
Storage revenue was $4 4 billion down 2% mid range power protect data demand and VX rail and were highlights as all three saw solid orders growth.
As Jeff described power store and is gaining momentum and we are encouraged by the upward trajectory of the ramp as orders grew forex quarter over quarter.
Servers, and networking returned to growth with revenue up 3% to $4 4 billion.
We are pleased with mainstream orders growth up 11% sequentially.
We saw improved demand from large enterprises and continued improvement from our small and medium customers.
ISG operating income was a record at $1 2 billion or 13, 5% of revenue, which was up 80 basis points as we benefited from lower operating expense and an improving demand environment.
The Vmware business unit also had a record quarter delivering revenue of $3 3 billion up 6%.
And operating income of $1 1 billion or 32, 2% of revenue.
Based on Vmware Standalone results subscription and as a service revenue grew 27%.
The business saw strong growth and the Vmware cloud provider program end user computing carbon black and Vmware cloud on AWS.
Vmware cloud on AWS once again had a great quarter with both workloads and revenue nearly doubling year over year.
Looking at our Dell technologies and results from a geographic perspective, we.
We saw and encouraging rebound in Q4 orders demand across many of our largest countries.
And our top three markets the United States was up 1%, China was up 12%.
<unk> was up 18%.
Dell financial services fourth quarter originations were $2 4 billion and were $8 9 billion for the full year up 5%.
GFS ended the year with a record $13 1 billion and total managed assets up $1 $5 billion year over year with global portfolio losses at historical lows.
Turning to our capital structure and balance sheet.
We had record cash flow from operations, both for the fourth quarter and the full year, our strong profitability and sequential growth along with our working capital and management drove record Q4 cash flow from operations of $5 9 billion.
For the full year, we generated $11 4 billion and cash flow from operations.
Adjusted free cash flow and the quarter was $5 5 billion up 46% and for the year adjusted free cash flow was $10 5 billion.
Cash flow from operations for the past three years maintained an average of $9 2 billion illustrating a strong stable cash generation ability.
Cash and investments at the end of the quarter was $15 8 billion and approximately $10 6 billion at core Dell.
Adjusted EBITDA was $3 8 billion up 19% at 14, 6% of revenue.
For the full year adjusted EBITDA was $12 7 billion up 8%.
We delivered on our fiscal year 'twenty, one core debt Paydown target of $5 5 billion and are pleased with the progress we've made on Delevering.
Considering the uncertainty that arose in the early stages of the pandemic. This progress is extraordinary and I am proud of the team for our strong liquidity position as we exited the year.
The strong debt pay down along with lower interest rates drove interest expense down approximately 300 million year over year.
During the fourth quarter repaid down approximately $2 four.
$4 billion of core debt.
Since the quarter ended we have notified our bondholders of our intent to repay $1 billion and legacy and high yield notes that are coming due later in the year.
With this anticipated paydown, we only have approximately $500 million of remaining scheduled maturities for fiscal year 'twenty two.
Our total debt principal balances of fiscal year, and now stands at $48 5 billion.
And that includes DFS related debt of $10 3 billion and subsidiary debt of $4 8 billion.
Our core debt ended the quarter at $29 2 billion and our core leverage ratio is now approximately $2 five X, which is well within our target core leverage range of two to three X.
Given our continued strong cash generation and debt Paydown.
And Pete and Fitch, both raise their credit outlooks for Dell technologies, and Vmware from negative to stable, while maintaining their current credit ratings.
We will continue to prioritize debt pay down as part of our capital allocation strategy and we are confident and our path toward an investment grade rating.
Now to our outlook for fiscal year, 'twenty, two and Q1.
For fiscal year 'twenty, two while the exact timing is fluid and we expect the global economy to improve as we move through the year.
This should benefit ISG and Vmware as the year progresses, particularly as our customers return to the office.
We expect <unk> strength to continue through the first half with tougher compares and the second half.
Factoring in factoring and Vmware Standalone guidance, the divestiture of RSA and the ongoing risk associated with the macro environment.
We currently expect revenue to grow and the low to mid single digit range.
We expect to see cost come back into the P&L.
Full day back to pre pandemic opex levels, we have reinstated a number of employee related benefits, most notably mirror promotions and 401 K match and.
Vmware and Dell core businesses are investing for long term growth.
These expense additions and their full year impact combined with Vmware guidance for operating income of 28% for their stand alone P&L should be factored into your operating income models also remember Dell technologies Vmware business unit results include additional opex that we recognized related to the combined solutions selling.
Expenses.
Below the operating income line, we will benefit from a lower interest expense and a stable tax rate of 18% plus or minus 100 basis points.
Please also factor and a higher weighted average share count driven by the absence of a share repurchase program and FY 'twenty, one and currently plan for FY 'twenty two.
In addition, and we expect to pay down at least $5 billion and debt this year, including the $1 billion I referenced a moment ago.
For Q1, there are a few items, we would like you to consider first you should factor and Vmware Standalone revenue guidance, which is in line with normal seasonality. We also expect typical revenue seasonality for ISG.
For C. S. G. We had an exceptional fourth quarter and we expect continued solid industry demand in Q1 with industry demand potentially outpacing supply as.
As a result, we currently expect strong revenue growth and the mid teens year over year.
Given our exceptional results and Q4 and Q1 last year, we would be happy with that result.
This net sales to Q1 revenue Q1 year over year revenue growth and mid single digit range.
Below the revenue and line the same perspectives I share for the full year will also impact from Q1 modeling factoring this and we expect operating income dollars to be down slightly year over year.
In closing we have a strong operating heritage focused on execution, and our core businesses and value creation over time our.
And our model delivers top line growth solid profitability and generate strong cash flow through various economic cycles and environments.
Over the last four years, our C ISG and <unk> combined revenue has grown at a five percentage CAGR and contributed more than 310 billion and revenue with approximately 25 billion and operating income.
And that same time period, our Vmware business segment has delivered $41 billion and revenue and 12 billion and operating income.
Last year was no exception to that strong execution and value creation focus.
We outgrew our competitors gaining share and commercial clients and servers, we reenergized, our mid range storage offering we group profitability faster than revenue and generated record cash flow.
We delivered on our fiscal year, 'twenty, one and Delevering goal and continue to focus our capital allocation policy on debt Paydown.
And we've taken the appropriate corporate structure steps as evidenced by the ongoing simplification of operations, the divestiture of RSA and the exploration and the potential tax free.
Vmware.
As we look forward, we will continue to focus on what we can control and be disciplined and balancing growth with profitability and investing and future growth vectors with that I'll turn it back to Rob to begin Q&A.
Thanks, Tom let's get to Q&A, we ask that each participant ask one question to allow us to get to as many of you as we can Erica can you. Please introduce the first question.
The first question comes from the line of Aaron Rakers with Wells Fargo.
Yeah. Thanks.
And I guess the question is on the on the PC business as we look at your growth commercial up 16% I think your your competitor Tonight was down 6%.
And just curious of how do you see as we return back to normal just the demand environment, and our commercial Pcs and and what's your expectation of growth and net and that that segment as we move through the course of 2021.
Sure Erinn this is Jeff.
Think about where the strong points of growth have been and commercial this past year. We think there are sources of growth as we head into 2021.
<unk> being one of those the public sector being one of those or some modernization moving towards notebooks the mobile form factor we're.
And we're seeing the mobile form factor and now represent roughly 25% or excuse me, 75% of the marketplace desktops being 25% of the marketplace that bodes well for public organizations that have been roughly 50, 50 notebooks desktops and catching up to do there. We think that continues to fuel growth as we head.
And to the 2021 calendar year soon to be our now our fiscal 'twenty two for us.
So I think those signs are good I think we also have to realize that people are going to go back to work and go into an office in many cases, they haven't been in for 567 quarters, depending on when that occurs.
That will be the largest aging or the most signet.
And aging of and installed base that certainly we've seen ever and our industry.
I also think this and it's an important consideration this work from home and do from anywhere environment. We don't believe slows down post pandemic, our posts people going back to the office. So we're going to continue to see and environment, where people will do more and more work more and more of their activities.
Away from the office driving demand for Pcs, which has become a central and this type of work environment. This type of consumer environment.
I said on our last call Theres No question and our mind. The PC has become one of if not the most essential device and this work from here.
Do from anywhere and environment that we're in today.
Long winded way of saying I think the market continues to look strong if you saw the IDC data that came out yesterday.
The strength of the demand environment continues to be strong and both the commercial and consumer marketplaces and calendar 'twenty one.
I hope that helps.
Thank you and I appreciate it and it's going to the next question. Please.
Your next question comes from the line of Rod Hall with Goldman Sachs.
Yeah, great. Thanks for the question, Tom I wanted to drill and it is cash flow number because it's extremely strong and just get you maybe to talk a little bit about working capital changes there.
And how that working capital change looks and April I mean normally in April you would.
And you'd be increasing working capital I wonder if that is going to be the case. This year, just maybe talk us through kind of how sustainable some of that is thank you.
Hey, Rod I'm happy to chat about it now and first let me just say I think the company had an extraordinary Q4 from a cash flow perspective and I.
It shows the power of the model when you get sequential growth quarter on quarter and the business like we did and Q4 is normally a strong cash flow quarter for us to begin and withdraw it. So if you look at the demands are the dynamics within working capital and what you saw was despite the strong revenue growth, which drove a build and accounts receivable.
Our AG and actually improved and I think we are.
Had good discipline around our inventory positions and our payables positions were I think appropriate.
So there wasn't really anything unusual in the quarter from our working capital dynamic other than I think the team executed well and managing the balance sheet and we.
We benefited from the strong business environment and the revenue environment that we saw.
So as we step from Q4, and what I would remind everybody that Q1 is traditionally our weakest cash quarter. It's also generally our weakest quarter of the year from a business perspective, so normally C. A cash.
We normally burned some cash in Q1 and I think our expectation is that we'll we'll do that again in the quarter, although probably not to the extent that we did it a year ago.
So I mean, I think we're being good and I feel really good about our cash position and $10 $6 billion at the at the core Dell Lenovo.
I think the teams and I think we're well positioned from a liquidity perspective.
And we heard in my prepared remarks, and we've already notified the bondholders and $1 billion Paydown.
And from some of the maturity schedules that are due this year, which only leaves us $500 million of scheduled maturities for the year or so.
And then we're in good shape Rod and.
And we'll continue to manage our way and be disciplined and the balance sheet Todd.
Todd would you.
Thank you.
Yeah look I think the other thing I would add is you know look I think I think we'll remain focused on working capital right. I mean, we did and it really good levels right and I don't expect it.
Material shift as we work through next year.
And I guess the only other thing is keep in mind also that Q1, a year ago. We did have some impacts from COVID-19 to working capital right.
So obviously, we won't have those same impacts going into Q1 this year.
Thanks, Tom and thanks, Rod Thank you.
Next question. Please your next question comes from the line of Katy Huberty with Morgan Stanley.
Yes, Thank you and maybe Jeff what do you expect the shape of the recovery to look like and ISG. This year, given that was a laggard and in fiscal 'twenty, one and just any color around orders or the pipeline build that you saw and ISG that might build some confidence and a recovery. Thanks.
Sure and we will tell you. It's one of the questions, Tom and I, often sit back and reflect on inside the company as we look at our FY 'twenty two plan just how.
The ISG market response, you've seen the market forecast shows growth to be and both the server and storage sectors.
We spent a lot of time trying to figure out in the model what that looks like in terms of when and at what rate It comes back.
It's still a little foggy, if you will to call because if you look at the IDC forecast for storage as an example, and Q1 it's negative.
That said I think there are some encouraging signs and our business. If you recall and our Q3 comments I think I made a comment that our server business.
Accelerated throughout the quarter.
And that momentum continued in Q4 to the point, where our server business had for the first time and eight quarters growth.
That's encouraging we saw and our server business large bids respond back positively.
Our small business and medium business sectors came back positively so C and growth in the server sector is I think very encouraging for us we saw growth and the high value workloads. We're actually very excited about the progress that we've made and value workloads seeing that growth being and.
And let's say significant double digits, if you will and increasing our share position and the most valuable workflows and the data center.
And I'm encouraged by that and it clearly looks like several momentum continues storage clearly you've seen our results, we were down and a quarter and.
And improvement over Q3.
We saw vast improvement in the mid range of the first time, we've grown in the mid range now and storage I believe it's in nine quarters. We grew mid range by 8% on the back of power store.
We had growth and both are our power store business, our HCI segment, we grew and our data.
Our power protect data and our main segment and we grew which I think is equally important and our all flash array segment. So we had growth and those areas and our storage business, obviously still down.
But I'm encouraged by the progress we've made in the mid range I think I made reference in our talking points about power storage now up four times, what it was in Q3 and Q4, 20% of the customers are new storage buyers our win rate against our competition is up our tripled.
We're up three times, if you will and I think bodes well given the progress we've made over the last three years and consolidating the high end of the storage marketplace, where we've aggregated our share position by over 1300 basis points to over 50% of the market and the high and now.
Now with the momentum we have in.
The mid range and the opportunity is to grow the sub $250000 segment, the mid range and Thats, what we I how to call that.
I think Tom can weigh in here and a moment, we both and spend a lot of time.
I don't know, which is probably you've seen some of that.
Prudent.
Outlook that we have from the year of when that comes back and our business No I would just hey, Jeff if I would agree with that Katie I mean, it's just.
Trying to figure out the.
Timing and I think that's what we've been focused on and it's a little unclear now we clearly think the back half is better than the first half correct in terms of ISG velocity, just a question of that sequencing and the timing so.
Obviously, you're going to be focused on it and I think you've seen in our history and our execution, where we will drive where there's growth and and take advantage of the market opportunities, but it is still a little bit unclear in terms of sequencing there.
Awesome. Thanks, Tom Thanks Katy.
And if we take the next question.
Our next question comes from the line of Tim long with Barclays.
Yeah.
Hi, This is Peter <unk>.
And for Tim Congratulations on the quarter.
Could you could drill down a bit on the gross margin outlook into into fiscal 'twenty two.
Really as it related to component costs, and any supply chain and considerations there.
Yeah, Hey, let me start and then Jeff Jeff you should take the supply chain and component cost. So so look I think as we think about margin.
Margin.
I'm not going to go to gross margin, let me just sort of tell you about how we think about the bottom of the P&L so to speak.
Look.
And there'll be some mixed dynamics as we work our way through the year in terms of the CST ISG.
Businesses, we also and let me remind you that we've also added we are adding opex back into the business. This year as we think about the.
Some of the employee benefits that we've reinstated like 401k match and some of the merit cycle.
Vmware is also investing and their business and so they've got a heavier a bit more opex into the business. So net net you know I would tell you that we do think Theres, a and go out operating.
The margin, we do think on a percentage basis that.
And that it is.
And it probably run slightly lower than this year and then absolute dollars are probably down slightly as well. So go through the things that we're working our way through now look I mean.
The reality is is that we will have to work our way through the year and component cost, which Jeff can highlight or is it going to be a dynamic that we're going have to work through as well.
Yeah and to weigh in on the supply chain and commodity cost <unk>.
Dynamics clearly in 2020, we ended the year as a deflationary year.
Our view right now as we look at 2021 Q1 is light deflationary and then we believe over the year it becomes inflationary.
What's driving that.
C and Q1, ssds continue to be coming down and costs.
Offsetting well.
By increased costs, and LCD and Ics that are driving some of the demand supply shortages that we had and the marketplace today.
And if I was to call out one specific thing, which we're keeping our eye on is freight costs freight costs continue to be a challenge for us So thats exactly.
Ponant or commodity costs, but part of our supply chain transformation and while rates have I think eased a little bit. The fact is the industry is using and we're using more air we're expediting more and the air network is tight so we continue to watch the cost increase overall.
And that area as well as staring into and overall and deflationary year and calendar 'twenty, one but to be specific deflationary and calendar Q1.
Excellent fiscal Q1 excuse me.
Thanks Chuck.
Next question.
Our next question comes from the line of Toni <unk> with Bernstein.
Yes. Thank you.
Tom You commented about full year 'twenty two guidance being in the low to mid single digits.
But I think at spot rates currency will probably help almost two points, maybe you can confirm that.
And he also talked about IDC, and Gartner and markets growing at 5%.
So putting those all together what would be that you're kind.
Kind of assuming share loss.
In 2022, and I'm wondering if you can reconcile that and and.
Maybe more specifically I think you know there's always a lot of interest from investors about ISG.
And the one business that has been up and down over the last four years and I think its been down three of the last four do you believe that servers and networking and storage can grow at constant currency and fiscal 'twenty, two and is that and does that sort of embedded in your and your guidance. Thank you.
Hey, Tony So let me try and connect the dots with those multiple data points that you throw out so look I think as our as our view right. Now is we think our way through fiscal 'twenty, two and let me start with the fact that you know.
Well there are signs of optimism.
And in terms of ISG demand, we do we're being prudent and my opinion on <unk>.
And when does that sequence and so we'll take advantage of the growth opportunities that are there as they present themselves.
Think from a rather new framework.
I would have you think about it.
Our range of thinking right now is roughly in that 3% to 5% from a revenue growth range with what we know today.
Obviously, we will continue to watch this and take advantage of the opportunities and continue to provide you our perspective as we think.
And you go through the year.
On a currency basis, you know I'll ask pilot or jump in as well look we do expect to get a bit of a tailwind from from currency.
Comment on the spot rate that you made but.
That's fair, Yes, I think that's I think that's you know I think currency should be a benefit with what we know today.
And while average out anything on that network and I think definitely we're seeing favorability there and we'll see what happens over the course of the year, but I agree I think we could see some favorability.
Alright, great. Thanks, Tony.
Next question.
Next question comes from the line of Simon Leopold with Raymond James.
Thanks for taking the question.
And I wanted to see if you could maybe discuss the impact.
Semiconductor supply constraints.
Youre doing too to address what we've heard across the board in terms of shortages and and if you can quantify.
And if there was a revenue impact and the current quarter and in.
The April quarter, what you expect as a constraint from supply chain shortages of semiconductors. Thank you.
I am not sure some and I know exactly what you are hearing, but I'll at least illustrate what we're working through.
Being clearly we've been maneuvering across.
And supply base for now and the better part of two and a half years varies and shortages, most notably from the past.
A couple of years with microprocessors I think we made mention of it at the end of last quarter. The notion of that is now impacting things like LCD.
At the core of the issue.
Okay.
Wafer capacity as tax there's been a number of substrate issues that have disrupted the supply.
That has impacted particularly the eight inch network the eight inch network Inc.
Basic components that we all need and the industry from T com the driver Ics to power Ics to Microcontrollers card readers Codex you name it.
Those are the types of issues, we are working through as.
And industry, certainly Dell is working through that.
I think we've shown the ability to be resilient and responsive.
Right.
Just a point of pride, we shipped the most Pcs and we've ever shipped in Q3, and we followed that up and Q4 by ship and the most Pcs we've ever shipped in Q4, we.
We had the best quarter in terms of absolute shipments in calendar and more according to IDC. We just came off 50 million units and PC shipments and the calendar year. This is what we do for a living this is there are challenges and I'm certainly not in denial about that.
Look at the forecast and came out from IDC last night. There are certainly a lot of demand and we have challenges to make sure that we get the supply for our companies again is fully built we think our total buy helps US here. We think are long term relationships with our supply base helps us here, we think our direct model helps us here by shifting dim.
Manned to the components that we do get.
But if you are hearing.
And that there are supply shortages you are hearing correctly I hope it's across the areas that I described and.
And.
That's what we see and we're navigating real time today I.
And I hope that helps Simon.
Just to clarify not anything new you're seeing affect your April quarter.
Hey, Tom and we're just going to go with one question and you can jump back into the queue and follow up if you'd like to thanks.
Your next question comes from the line of Chris Dankert with.
Cowen and company.
Yeah, Hi, Thanks for taking my question and congrats on the good results and Delevering.
Jeff I had a question on the storage from you folks have done a great job and consolidating and storage product portfolio over the last couple of years and you highlighted from share gains a few quarters ago, how should we think of that momentum going into FY 'twenty two and.
Where does the storage market share today.
Lots of questions. Let me see if I can work through that so we've largely spent the last three years simplifying and consolidating the portfolio into the power portfolio that you would know them as power Max.
Powers for power evolve power scale as the primary storage at vehicles. That's gone from I think I've quoted in the past of 88 different platforms consolidating net to roughly 20 across our portfolio.
We've seen tremendous progress and consolidation and the above two $250000 product space over the last three years I think I mentioned, we've taken 3500 basis points of share have over 50% of the most valuable storage market.
The challenges that we had which we've talked about and numerous of these calls is mid range, which is the largest single portion of the marketplace and power score is the vehicle that we built we launched in may and and been ramping through the year to begin to change our.
And growth trajectory and that business I'm pleased to say mid range grew 8% and count around fiscal Q4 again, the first time, we've grown mid range and nine quarters.
All on the back of power store.
The product is being received well by our customers again over Q3, we grew four times, we tripled the amount of competitive take out 20% of the customers are new to the or excuse me, we doubled the amount of new customers, 20% of the customers are new to our storage business just with power store alone.
It is clearly the vehicle that we intend to take share with in fiscal 'twenty two calendar 'twenty one.
I like the progress we've made but.
But we have work to do and Tom and I have talked about our.
I guess strategic and patients and we want more faster and we like we've ended the year, we exit on a high note and we have a big set of ambitions about taking share and the mid range and storage with power store given the progress that we've made and non structured the progress we've made and the high and this is the space.
For us to absolutely capture.
<unk> market share, we intend to do so.
Your last question, what's our lat, what's our market share if memory serves me right. It's right at 28% from the last reported quarter from IDC and which was Q3.
I believe and if I'm off by a couple of tenths I'm and the ZIP code 29.
<unk> excuse me I was wrong 29 is more and I don't want.
And all that much. Thank you Rob I appreciate and 2029.
Thank you Jay Oh, you round it up and it's rounded up to 20 basis point, hi, Thanks, Krish and I. Appreciate that next question. Your next question comes from the line of with Bank of America.
Yes. Thank you.
Last year about 12 months ago, you had expected fiscal 'twenty, one to look like fiscal 19 and from our op margin rate perspective, and said it turned out to be quite different.
For obvious reasons as we look at fiscal 'twenty, two maybe could you draw similar comparison and looking back at prior years, whether its physical and 19 2021 and and talk about.
How we should think about the profile.
Fiscal 'twenty, two and if you didn't comment on auto visibility trends relative to three months ago.
That'd be helpful too. Thank you.
Hey, one C. It's Tom So let me try and sort of give you some context around it.
Obviously, a fiscal year 'twenty, one had a number of twist and turns and with the.
The pandemic and the extraordinary growth and the CSD business and the work from home environment, along with the sort of the supply demand dynamic pricing and FY 'twenty, one and was relatively stable.
<unk> helped us from a margin perspective.
And I think a couple of things to think about as we step into 'twenty two.
And as it relates to sort of op margin, we do expect op margin to go down.
And 'twenty two for a couple of reasons, one think about the Vmware Standalone guidance first and foremost where their operating margin guidance is down <unk> <unk>.
We have.
Incremental opex going into the business growth from our employee benefit perspective is reinstated and benefits as well as some investments now. So we do think from a operating margin percentage that it will be less and.
And in FY 'twenty, one if you go back to and FY 'twenty context for instance, I.
And I do expect that it will be.
You know lower than the FY 'twenty operating margin.
So I do think you've got to take that into account, but principally you got to think about the vmware dynamic within our consolidation.
And.
And from that perspective.
Think that that's something you should be thinking about so.
And thank all overall, we'll work our way through the year to take advantage of the growth vectors that are there, but you know we'll have to work there'll be some challenges as we work our way through the year as usual.
Alright, Thanks, a lot.
Your next question comes from the line of a net diet.
With Evercore.
Thanks for taking my question I guess my question is really going back to the free cash flow discussion.
Really impressive free cash flow generation this quarter to get back within your target leverage you've talked about so I guess I'm trying to understand.
How should we think about fiscal 'twenty two free cash flow.
And it takes for us to consider and then do we expect to shift to your capital allocation given all your macro commentary and the fact that leverages and within the target range now.
Yeah, Hey, Amit.
Look I think we don't give a cash flow forecast per se. So I mean, our cash flow generation.
Well to some extent dependent and PA business performance drives right, but.
And I think we're optimistic about our cash flow and our business overall as we work our way through the year and the cash flow generation as a result of that.
Our capital allocation policy is going to remain fairly stable and the context focused on delevering.
And then pretty consistent on that and what we have talked about is the fact that as we get to and our achieve investment grade.
And then that allows us to rethink or we look at the capital allocation policy and broadened it out as we've talked about before in terms of how much of our capital or do we wanted to go to debt repayment versus some type of a shareholder return program.
And that's where all of us continuing to invest and the business. So no tie.
Tyler I don't know what you would add if you would add anything on FY 'twenty two free cash flow, but that's how I'm thinking about yeah. I mean look I think I mentioned it earlier and just just.
But from a working capital perspective, we're not expecting any any huge shifts and our CCC metrics and theres nothing unusual so so Thomas right I mean, and it will follow the the shape of the P&L, but but obviously, we feel comfortable with the $5 billion plus debt paydown target. They were throwing out there we've got cash and the <unk>.
Balance sheet will generate good cash flow.
And and <unk>.
Conversations with the rating and cheese are all very positive I mean I think.
Quite frankly, and my guess is and with all three of them are our performance for the quarter and from here and better than what they had models.
And I think that we will see what happens.
Going forward for the year, we will see what happens.
With Vmware, obviously, they are watching that closely and and that goes into into their modeling and their expectations.
But we've got a little bit and work to do we're at two and a half using our metrics and I think we wanted to get closer to two right, where we're I think we're probably over half a turn inside and where S&P wants to see it.
There are three crossover so were probably sub two and a half now.
Two and a half with our metrics.
We will get Fitch and Moody's there and.
And I E.
Okay, Thanks, Paul and I appreciate it.
Thanks Thomas.
Your next question comes from the line from Shannon Cross with Cross research.
Thank you very much I was curious given this is about the time when you look at your comp plans and and maybe your channel strategy and what what you're focused on for the coming year and what kind of changes you've made to multi channel strategy as well as your comp plans.
Hey, Shannon, it's Tom and then Jeff can jump in here as well.
We haven't made significant change to our comp plans our channel strategy, we continue to refine them focused on.
Incentivising the behaviors, we want around driving our higher value products and services and capabilities.
And making sure that our programs both from a inside seller and.
Dell and team member compensation framework.
And our channel frameworks are consistent and so not a lot of change to be honest, we we've adjusted certain payout structures based upon.
Focus and emphasis which you might imagine we continue to be focused on the ISG portfolio to a heavy extent, we continue to be focused on the our solution capabilities with Vmware and.
And we're incentivizing those appropriately and Jeff I don't know, if you'd add anything and I just.
B real precise storage and the solutions with Vmware those high value solutions between the two companies that help our company to help our customers with digital transformation and Shannon and you've heard me say this before storage storage storage.
And Laura Thank you.
Alright, Thanks Shannon.
Your last question comes from the line of Jim Suva with Citigroup.
Thank you very much for fitting me in.
Gave some really good commentaries on overall and your different business segments I'd just like to ask one follow up question on the storage business you talked about how you've done a lot of consolidating of your products and how you feel like your portfolio isn't really good shape. If we compare though your recent results to say that app and some of the other ones that just recently.
Came out though your year over year sales decline is still lagging the others. So can you help me bridge the difference between your comments of the portfolio realignment and where your positioning with the mid range or is it simply a lot of that positioning is yet to come and the future. Thank you.
Well I think Jim part of the answer lies and do we have a very large broad diverse portfolio, playing and all aspects of the storage marketplace not all of them not all of them grow at a similar rate.
For example, I mentioned about the progress we've made and the heightened and we've made tremendous progress and the high end.
The high end of the marketplace, I think will show that it slowed down quarter over quarter and year over year.
Our exposure to that as I mentioned with half of the marketplace are half half of the share is Dell share.
And if that slows down and that has an impact.
Conversely, the area that is growing for US now is on the HCI side and the.
Mid range side.
We've had continued success with HCI and that.
And that continues to this day and.
About that going forward.
And we've talked on this call about the challenges that we've had and the mid range.
One data point does not make a trend, but we're encouraged that we had exited Q for the fiscal year with positive momentum and our midrange business.
We have a lot of work to do there.
We're optimistic.
We think our product continues to.
Hunt and the marketplace, it's doing very well.
I point to the things that keep us get us encouraged and.
And number of competitive Takeouts I don't know, what others are tripled quarter over quarter.
The number of new customers on power.
One and five of the customers are new to the Dell storage business.
It is four times larger than it was the previous quarter.
Clearly have momentum that we have to build from where we had great momentum we need to build from that into FY 'twenty. Two we have large expectations and that area, that's going to be key to our absolute performance.
We've made progress and unstructured so when I look at that.
I am optimistic back to one of the earlier questions I believe it was from Katie we're looking for the market to continue to.
Rebound or respond and Thats how were looking at.
Share and our business performance over the year.
And asking to go look and what product performance was and some of those results and full versus what our product performance was in the quarter.
And make those comparisons that said.
We're not satisfied with where we ended in Q4 and the year net improved over Q3, and we have greater expectations and FY 'twenty, two and back to the point that was made and one of the earlier questions.
We run these businesses to outperform the marketplace, we expect to take commercial PC share, we expect to take server share and we're going to run the business to take storage share and calendar 'twenty one fiscal 'twenty two alright.
Adjusted the last two questions didn't buy we're focused both on and non what else. We can do there. So I appreciate that thanks, everyone for joining us will be and Morgan Stanley and next week with Jeff. We've got another a number of other virtual events that we will be hosting or participating in and Mark your calendars for Dell World Dell technologies World on May the <unk>.
And sixth we will host a financial analyst Q&A.
Of course, virtually at that and so thanks for joining us.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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