Q1 2024 Dell Technologies Inc Earnings Call
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Good afternoon and welcome to the fiscal year 2024 first quarter 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. This broadcast is the copyrighted property of Dell Technologies, Inc.
than one on your telephone keypad 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 everyone for joining us. With me today are Jeff Clark, Chuck Whitten, Tom Sweet, Yvonne McGill, and Tyler Johnson.
Our earnings materials are available on our IR website and I encourage you to review our materials and presentation which includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call.
During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures including non-GAAP gross margin, operating expenses, operating income, net income, and diluted earnings per share.
A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release.
Growth percentages refer to year-over-year change unless otherwise specified. Statements made during this call that relate to future results and events are forward-looking statements based on our 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 WebDeck and SEC filings. We assume no obligation to update our forward-looking statements.
Now I'll turn it over to Chuck.
Thanks, Rob. Our Q1 results demonstrate our strong execution and the power of our model in what remains an uncertain macroeconomic environment. At the summary level, we delivered revenue of $20.9 billion, operating income of $1.6 billion, diluted EPS of $1.31, and cash flow from operations of $1.8 billion.
Consistent with our commentary in recent quarters, the demand environment remains challenged and customers are staying cautious and deliberate in their IT spending. We continue to see demand softness across our major lines of business, all regions, all customer sizes and most verticals.
That said, we did see pockets of stronger demand performance worth noting. The CSG business performed sequentially better than our expectations at the time of our Q4 earnings call, and we did see some early signs of demand stabilization in commercial PCs in our small and medium business segments and across our transactional business.
In storage, we saw continued demand growth in PowerStore, our marquee mid-range offering, and in PowerFlex, our leading software-defined storage solution. PowerStore has grown for 11 consecutive quarters since its release, and PowerFlex has now grown for seven consecutive quarters. And in servers, we saw an increase in demand for our AI-optimized solutions.
Interest has been particularly strong for our new purpose-built 16G server for artificial intelligence, the PowerEdge XE9680, though we caution that we are early in the demand cycle for AI infrastructure and it will take time to translate to the P&L. In what was a challenging demand backdrop, we executed extremely well and stayed...
We continue to maintain strong cost controls, reducing operating expenses by 6%. Since Q1 of last year, we have reduced operating expense by $240 million and will continue to focus on prudent cost management as the year progresses.
Our supply chain performed well. We reduced inventory by approximately 800 million in Q1 and by 2.3 billion dollars over the last year. And our lead times and backlog have normalized post pandemic and ahead of competitors.
And we are clearly focused on relative performance. We again gain share in calendar Q1 in commercial PCs, excluding Chrome, the most profitable segment of the market and our focus, and we expect to gain share in Q1 in storage when IDC results come out later this month. So we anticipate some fluctuations in share performance as the year progresses.
given the timing of industry backlog reduction, we remain confident in our ability to remain a structural share gainer over the long term.
We also pressed forward on a substantial innovation agenda. Last week we hosted our annual Dell Technologies World Event with more than 10,000 attendees and made several big announcements as we advanced our strategies in multi-cloud, edge, AI, security, hybrid work, and as-of-surface solutions. In multi-cloud, we introduced three APEX cloud platforms.
developed with Microsoft Red Hat and VMware to seamlessly extend cloud platform operating environments to on-premise environments.
We also announced new Apex cloud storage for public cloud offerings, bringing Dell's industry-leading block and file enterprise storage capabilities to Azure and native US environments and delivering on the promise of Project Alpine announced last year. We delivered on the vision of Project Frontier introducing Dell native edge, our software platform that makes it easier for customers to manage, simplify and support.
service capabilities across our full portfolio with the addition of compute and PC as a service. And finally, we announced Project 4.0, a collaboration with over 30 partners to develop a U.S. Department of Defense Validated Solution that will ease the adoption of zero trust security in private clouds.
Looking ahead, we expect the cautious IT spending environment to continue in Q2. We expect CSG to perform closer to historical sequentials given the pockets of commercial PC demand we saw in Q1 and the duration of the PC down cycle relative to prior cycles.
We expect Q2 ISG spending to remain muted as customers scrutinize and prioritize spend. Though customers continue to move forward with digital investments, sales cycles continue to lengthen given the macroeconomic uncertainty. And at the industry levels, continue to normalize. We expect an increasingly competitive environment relative to Q1.
Ultimately, we have confidence in the long-term health of our core markets and the advantages of our business model. Data continues to increase exponentially in both quantity and value and customers see us as a trusted partner ready to help them navigate the complexities of multi-cloud, edge, AI, data management, and hybrid work. We remain the industry leader in all of our key solution categories.
are central to our customers' technology agendas, and have a strong track record of delivering our commitments in any environment. So short and long term, we'll stick to the playbook that has served us well across multiple cycles, focusing on customers, driving differentiated relative performance, delivering against our innovation agenda, prudently managing costs, and ultimately, expanding our
maintaining pricing discipline and investing for the long term. Now we're to Tom for the detailed Q1 financials.
Thanks, Chuck. We're pleased with our Q1 execution given the current environment.
We delivered revenue of $20.9 billion down 20% with strong gross margins and operating cost management.
Current through remained a headwind and impacted revenue by approximately 290 basis points.
Gross margin was 5.2 billion and 24.7% of revenue.
Gross margin rate was up two points driven by lower input cost and pricing discipline.
We did see increased pricing pressure in Q1, but we're selective on deals, depending upon the customer and the opportunity.
Expect us to continue to focus on the more profitable segments of the market and remain disciplined on pricing. Operating expense was 3.6 billion down 6% driven by lower marketing and head count related costs and 17.1% of revenue given scaling.
1.6% of revenue due to a decline in revenue partially offset by a higher gross margin rate and lower operating expense. Our quarterly tax rate was 22.7%.
Net income was 963 million, primarily driven by lower operating income and to a lesser extent a higher tax rate.
Deluted earnings per share was $1.31 down 29% due to lower net income, partially offset by a lower share count.
Our recurring revenue in the quarter was approximately 5.6 billion, up 6% and our remaining performance obligations or RPO was approximately 39 billion, which was down 7% due to a reduction in backlog partially offset by an increase in deferred revenue.
Deferred revenue was up primarily due to increases in services and software maintenance agreements.
ISG revenue was 7.6 billion, down 18% driven by soft demand and servers and storage.
We delivered storage revenue of 3.8 billion with demand growth and power store and power flex.
Well, Q1, the seasonally our softest storage port where we did see customer decisions extend out in some deal sizes reduced.
Servers and networking revenue is $3.8 billion. We saw server ASPs continue to expand in our mix of high value workloads servers increased as we continue to sell deeper into the customer's digital agenda.
ISG operating income with 740 million or 9.7% of revenue, down two points primarily due to a decline in revenue, partially offset by a better gross margin rate. Turning to CSG, the PC market has continued to slow since June of last year, and the market declined sharply in calendar Q4 and again in calendar Q1.
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Commercial revenue and consumer revenue were 9.9 billion and 2.1 billion respectively.
CSG profitability was strong in Q1 with operating income of $892 million or 7.4% of revenue, up 20 basis points driven by a higher gross margin rate and lower operating expenses.
We remain focused on commercial and the high end of consumer relative performance and in executing our direct attach motion for services, software, peripherals, and financing.
Turning to GFS and Apex, customer interest remains high in consumption and financing models that provide both payment flexibility and predictability.
RQ-1 Delph Financial Services Originations were 1.8 billion.
GFS ending managed assets reached 14.3 billion, up 9%. While the overall GFS portfolio quality remains strong with credit losses near historically low levels.
During the quarter, we continue to see Apex momentum including an increase in the number of Apex customers that have subscribed to our as a service solutions.
Turning to our cash flow and balance sheet, our cash flow from operations was seasonally very strong at $1.8 billion, aided by our focus on working capital efficiency.
As Chuck mentioned, we reduced inventory by approximately 800 million in Q1 and by 2.3 billion over the last year through disciplined execution and improvement in our supply chain and our receivables balance benefited from strong collections this quarter.
Our balance sheet remains strong and we ended the quarter with 9.2 billion in cash and investments. Down $1 billion sequentially due to a 1.1 billion of core debt paydown and 527 million of capital returns offset by free cash flow generation. Our core leverage ratio improves sequentially to 1.7 times
as we prepaid our billion dollar note, due in June .
Turning to capital allocation, we will continue our balanced approach we purchased you shares programmatically to manage dilution while maintaining the flexibility to be opportunistic.
In Q1, we repurchase 6.1 million shares of stock for 251 million and paid 276 million in dividends
Now, I'll turn it over to Avon to cover our guidance.
Thanks Tom.
Turning to guidance, we expect Q2 revenue to be in the range of 20.2 billion and 21.2 billion, or between down 3% and up 1% sequentially, with a midpoint of 20.7 billion.
Currently continues to be a headwind, and we are expecting a roughly 200 basis point impact to Q2 revenue.
We expect CSG revenue to be roughly flat sequentially and ISG down in the low single digits sequentially.
With inventory normalizing across the supply chain, we expect a more competitive pricing environment.
Given Q1 profitability combined with more muted sequential component cost deflation, we expect gross margin rates to be down roughly 50 basis points sequentially.
We expect our Q2 diluted share count to be between 733 million and 738 million shares, and our diluted EPS to be $1.10 plus or minus 10 cents.
for the full year.
We're maintaining our FY24 revenue expectations down between 12% and 18% and down 15% at the midpoint.
Given Q2 guidance, this implies the return to sequential growth in the second half of the year.
Interesting other will be up approximately 100 million as we fund DFS origination in a higher interest rate environment.
For our tax rate, you should assume 24% plus or minus 100 basis points. We are increasing our expectation for diluted earnings per share to $5.50 plus or minus 25%.
In closing, expect us to continue to be disciplined in how we manage the business in the current macro environment, focusing on what we can control and delivering for our customers.
While there is mere term uncertainty, we have strong conviction in the growth of our tam of the long term.
We are committed to delivering our value creation framework with revenue cager of 3 to 4% a diluted EPS cager of 6% or higher and the net income to adjusted pre-cache flow conversion of 100% or higher over time.
We had returned $5 billion to shareholders over the last six quarters through share repurchases and dividends, approximately 96% of our adjust-to-free cash flow over that time period, well in excess of our 40 to 60% return target.
We value our relationships with our shareholders and we are actively listening to your feedback. We value our relationships with our shareholders and we are actively listening to your feedback.
We increased our annual dividend by 12% last quarter, and we recently put in place new governance enhancements to our board and oversight structure.
Ellen Coleman has been elected by our board as lead independent director with robust oversight responsibilities.
and our board committee members are independent directors.
Also, with recent S&P global eligibility rule changes, we are encouraged about the potential for future inclusion in the S&P 500 index. Now I'll turn it back to Rob to begin Q&A. Thank you.
Thanks, Von. Let's get to Q&A. We do ask that each participant ask one question to allow us to get to as many of you as as possible. Let's go to the first question.
Thank you. We'll take our first question from Eric Woodring with Morgan Stanley .
Thank you for taking my question. You know Tom, maybe this question is for you or Vaughan. And that is, you just beat the first quarter by 50 cents. You only raised the full year guide by 20 cents.
And then on the revenue side, we're seeing some moving pieces that just look a little bit different than what you expected last quarter. In terms of last quarter, you talk about sequential revenue growth through the year. Now you're talking about a little bit of a weaker two-queue. And so can you just help us understand some of the moving pieces? Why seasonality might look a bit different?
landed in Q1, in Q1 you really did see the strength of our model so we were happy with that performance. But with the channel inventories and backlog clearing across the industry, you know, as well as access to lower cost components, we're expecting a more competitive environment going forward.
some gross margin delusion going forward. You know, all of these areas were contemplated in the guide we gave. And, you know, I want to reiterate, it's still early in the year, right? It's the first, we just finished the first quarter. And so, you know, we want to make sure that we maintain, you know, balance.
approach there with our priorities around our relative performance, balancing growth and profitability, and continuing prudent cost control.
Go!
Super bright. So much.
Thank you and our next question will come from Womsey Mohan with Bank of America.
Yes, thank you so much. I was wondering if you could talk about how you're thinking about pricing and share, and maybe also reference how you're looking at elasticity of demand as a response to pricing. I think, along you just said, it's definitely a more competitive environment. So where is Dell going to be?
kind of flexing more in its ability to drive more share with prize. In more areas do you think that won't be quite as much? Where there might not be as much elasticity as it is, then thank you so much.
Hey, Womsey, it's Chuck. Thanks for the question. Look, I don't think our posture has changed over multiple quarters on that topic. We maintain a balanced approach to profitability. And we are finding in the current environment, whether it's the CSG business or end servers or storage.
You know, there's just not a lot of price elasticity out there to use. If there's a place in the business where we see elasticity, it's in the consumer business, which is a very small portion of what we focus on. So look, the pricing environment is we've seen it through Q1.
You know, has been more challenge. We're certainly seeing more aggression out there. That always presents to us deals that we could choose to take at a margin losing proposition. You know, and we tend to spend, do you steer clear of those? We, if we don't see a path to margin recovery, we tend to, tend to not.
are attached.
In our CSG business as well as in our ISG business was good in Q1 and that helped offset that competitive pricing pressure that we saw across the portfolio.
All right, maybe one other quick comment to build on what check said once you look, we're committed to long-term sharing. That's part of the model that check referring to in our prepared remarks.
I think we've also been consistent that not all share gain in all categories as equipment. So our focus continues to be in what we think are the advantaged opportunities for us, commercial pieces.
that not all share gain in all categories is equivalent. So our focus continues to be in what we think are the advantaged opportunities for us, commercial peace, workstations.
high-end consumer PCs and gaming and the opportunities that exist in our broad storage portfolio and server business. That's where we'll focus on share gains, where a long-term share, a choir or a gambit and we'll continue to do so.
All right, hey, thanks. Thanks for the question, Mom. Ziggie. And our next question will come from Ahmed Daryani with Evercore.
All right, thanks. Thanks for the question, Bob. And our next question will come from Ahmed Daryngani with Evercore.
Yep, thanks being my question. You know, I guess you put that fairly impressive performance in the free cashless side of the quarter. So hopefully you could talk about age, just free cash flow generation with a company broadly, how do you really think about it for the year? And is there any way to think about what normalized cash circulation looks like for Dell? That would be really helpful. And then...
I think Tom, you talked about on the press release about how shareholder retool is in excess of your target. Does that mean you should start to think about buybacks consistently outpacing your prior framework or anything of the buyback that would be helpful? Thank you. Hey, I'm in its time. Let me start with your second part of that question and I'll pivot over to Tyler so we can...
chat about how we think about free cash flow and context of the financial model. Look, I think the shareholder return over the last six quarters has been, I think we'll put right around $5 billion of overall capital return. And that's roughly about 96% of our free cash flow generation.
or two or last quarter or so around the fact that he believes that there is incremental capability and capacity around capital we turn to shareholders and that's something we're clearly evaluating.
As we work our way through that, we're continuing to be opportunistic and how we think about share a buyback relative to, you know, other uses of capital. We do have some death that will continue and that we'll focus on paying down this year in addition to the billion dollars that we just highlighted in the call.
But look, I think from our commitment to our investor in base is that we'll continue to drive shareholder value and capital returns through a, I think, a appropriate level of capital allocation. And then Tyler, one return over you on talk about free cash flow for each item. Yeah, let me try to frame it.
Maybe talking a little bit about what happened last year and then what we're seeing now, right? So last year, we obviously had a headwind from a working Catholic perspective. And as you know, we've got a negative cash conversion cycle and that can be a big driver of what our cash does. And we talked about last quarter, how?
We didn't expect working capital to be a headwind this year. And what you saw in Q1 was obviously a pretty big benefit coming from both inventory and on the receivable side. As I think about going forward and just recognizing as a reminder, we don't give guidance. I would think about it this way. I think...
We saw an opportunity in working capital, but it's not gonna improve in a linear fashion. So I think that this is gonna happen over time. We remain very focused on it. And as you think about what we've talked about in the second half of the year, we're trying to sequential growth. That would help throw off good cash. So I feel good about the year and where we are. I think that we'll migrate back towards that one time.
Moving on to Tony Secondoggy with Bernstein.
Yes, thank you. I just like to go back to the to the Q2 guidance. I think
Historically, you're up about 6 to 8% in revenues on a sequential basis. You're, you know, guiding for, you know, flat to slightly down. And I think you also commented or chucked it in the prepared remarks that you expected kind of normal seasonal growth and PCs.
their below normal seasonality? Or is there something about what happened with backlog this quarter? I was sort of under the impression you were gonna build more backlog than normal this quarter, which would point to a both seasonal growth. Maybe you can just help square the circle on how we should think about your guidance relative to seasonality and oh
what the demand out what out there is. Thank you. Yeah, thanks Tony. Let me start on the CSG portion of the question and let me hand to a Vaughan on on on unpacking the guidance. But look, I I would categorize the client business at still recovering. So I'd start with the consumer business obviously remains under pressure. The commercial business showed.
some pockets of improvement, our small and medium business performance improved as we called out and it outperformed large enterprises. That is typically a good leading indicator for us and our transactional business which is inclusive of our small and medium business segment but also reflects the run rate enterprise demand that is out there.
also showed some signs of stability as we move through the quarter. But what is not fully recovered yet is the large bids from the largest customers. And that's ultimately the demand that we're going to need to see for a full scale recovery in the PC market. Enterprise is just continue to be cautious about their spending. So that's what's factored into our Q2 guidance. We expect CSG revenue to be
roughly flat sequentially. That reflects a recovering but not fully recovered market. I think if you look at it, it's probably closer to the three-year average sequential, but not yet back to pre-pandemic levels.
that reflects a recovering but not fully recovered market. I think if you look at it, it's probably closer to the three-year average sequential, but not yet back to pre-pandemic levels. 12.
Thanks, Chuck. You know, Tony, I'd also add, I think our three-year sequential is running at about 4% from Q1, 6Q2. So that's part of that. And what we've flashed, obviously, is lower than data. A sequential at the midpoint down 1%.
with CSG being flat and IHG being down four. So, you know, I think that we're starting to see that. We also had a, as we've disclosed today, a better ZAN expected first quarter. And so that's having a little bit of an impact in the CSG space also.
As I look through the rest of the guide, I think again, we've talked about revenue, but other areas we're expecting affects to be down sequentially, really in line with revenue at the midpoint.
And we're expecting, you know, interest in other to be up about $60 million sequentially. So, there's some of the elements that we're evaluating as we look through the guidance. Hey Tony, it's Tom. Let me also just add, if you step back and think about the Q1 revenue of 20.9 billing, which obviously came in higher.
of the times that they're generally in line, except for maybe one or two outliers. So there was between, if you look at our RPO watch, you can see there's roughly a $500 million backlog reduction in that Q1 revenue number. And then so you think from a normalized base of roughly 20.4.
so that the component costs are coins. And so that's the mix that's in play right now. So we think about that 20.7 midpoint guide.
to clients. And so that's the mix that's in play right now. So we think about that 20.7 midpoint guide. All right. Thanks for the question, Tony.
And our next question will come from Shannon Cross with Credit Suisse.
IPCs, there's obviously, you know, on the server side, I think you had some announcements, but I'm also wondering in your conversations with customers, and I know it's early days, but how they're thinking about, you know, AI deployments where they think the data will reside, where they want to inference. Just, I'm curious, because you have all these conversations would be helpful too.
We are seeing a lot of demand for AI optimized infrastructure. That's obviously a very good thing for our business. Customers, enterprises are broadly pursuing and experimenting with AI efforts right now.
They're doing it on-premise and at the edge and as the leader in infrastructure and data that obviously has, you know, it's good news for our business. You know, as we said in our prepared remarks, demand for our XC 9680, that's our 16G in first-to-market purpose built-Ai server.
with eight NVIDIA H100 or A100 GPUs has been very good, but we're also seeing demand across our portfolio. It's not simply the specialized eight-way GPU servers that can run AI, not everything needs billions of parameters. So, NET, look, we look at it and say,
AI is going to drive demand for our business. It's going to drive demand for our business on-premise and at the edge, which is incremental growth and profitability for us. I just caution as we said in our prepared remarks that we are early in the demand cycle and it's going to take time for that to translate to the P&L excitement for AI applications is ahead of GPU supply right now and AI optimized servers are still a very small part of our overall.
portfolio and our PC portfolio for many, many years.
Those that are following up, that's the right thing to do. It's putting intelligence into our product to make better experiences for customers is absolutely what we've been doing in C. We're excited in the PC with what was announced that built last week with new versions of Windows 11 with co-pilot and more integrated AI capability.
I love it as perhaps a reason to buy a new PC. We've got to get that done and get the products out of the marketplace, but that's a pretty exciting opportunity of being able to use windows and the different forms of applications in a very different way and a more efficient way. So that's exciting.
And then world of buzz is on generative AI and large language models. And it's an incredible opportunity. Demandist Chuck referred to is...
been great. I think that continues because quite frankly, what customers are trying to do is to figure out how to use their data with their business context to get better business outcomes and greater insight to their customers and to their business. And while there's a lot of discussion around these large
generalized AI models, we think the more specific opportunity is around domain specific and process specific generative AI. Where customers can use their own data, the data sets tend to be smaller. Those data sets then can be trained more quickly and they can use their business context to help them inform and run their businesses.
pre-trained models, tuned models, and be able to drive inference out in the data center and at the edge. So we're pretty excited about the opportunities in front of us.
tune models and be able to drive inference out through the data center and at the edge. So we're pretty excited about the opportunities in front of us. All right. Thanks Shannon. Thanks Jeff.
And our next question will come from David Vogue with UBS. Great, thanks guys. Thanks for all the color. I just wanted to dig into ISG and specifically on the server storage margin. You mentioned Boss Volume leverage. Was there anything sort of unique?
in the quarter that maybe hit margins. I know you had a little bit of a benefit in the fourth quarter that was not sustainable. And how do we think about as demand comes back reasonably?
Normal should server margins and storage margins be in that sort of historical 11 to 12% range and longer term what is you know potentially richer configurations mean for I. She margins you know down the road as we see you know obviously higher end use cases and obviously you know the talk of the town is AI but as configurations become richer and richer does that mean better pricing and ultimately.
Clearly better margins for the ISG business or should we expect sort of a run rate that's more consistent with the past. Thanks. Well, hey, David. Let's talk what we saw in Q1 just for a second on ISG margin. So in general, what we saw was relatively strong server margins given the cost environment we were in. So with the inventory work that the team did, the ability to get to the component incremental, incremental lower component cost.
We did see some year over year margin pressure given some of the descaling that we saw quite frankly with lower revenue, lower gross margin dollars.
and some pressure on operating margin there. Now, we'll continue to make sure that we're adjusting the portfolio and the cost environments will move forward in that as you go forward. As you pass forward and you think about the opportunity around margins given pricing and...
and component cost, I think there's some opportunity there that, you know, that will be able to take advantage of as it relates to gross margin dollars, particularly on configuration. As configurations get richer.
I do think that as a bond in Chuck alluded to that the server ASP dynamic, we're gonna see some declines over time, give us some of the pricing dynamics. So I think you'd get back to more historical norms.
and storage is typically generally going to be just, you know, what's the revenue velocity going to look like in the mix within that? You know, Chuck, I don't know if you'd add anything to that. No, I think you got it. I think the question on AI, AI margins, you know, I would just continue to say, look, we view it as incremental growth and...
with critical, sensitive data. So we ultimately don't see it as a commoditized space in the enterprise, but as Shannon alluded to in her question, it's still early days.
All right, thanks. Thanks for your questions. And we'll take a question from Frommick Chatterjee with JP Morgan.
Hi, thanks for taking my question. I guess just into the question on the second half sort of recovery that you're expecting more in terms of sequential growth. Just want to clarify if you're sort of expecting most of that to be driven by CSG or maybe what's your assumption in terms of ISG returning to sequential growth in the second half and more sort of
associated with that, how should I think about the reductions that you're doing on op-ex? Do we start to sort of think that you get back to sort of stable op-ex from, as you see, the business return to growth in the second half? Sure. Let me take that time. You know, as we are talking about sequential growth in the second half across the portfolio.
inclusive of ISG and CSG. From an overall standpoint, I think that as we look at an OPEX level and SEND level, that's certainly something that we'll continue to optimize......
But I think overall you should expect as I stated earlier, a continued improvement as the year progresses, but in an expected competitive environment.
So I don't know if anybody has anything else to add. You got it everyone. All right. Thanks, Thomas. Thanks, everyone.
So I don't know if anybody hadn't anything else there. Well, thank you. You got it. All right. Thanks, Thomas. And our next question will come from.
Anybody had anything else to add? You got it. All right. Thanks, Dominic. And our next question will come from Michael.
Hey, good afternoon. Thank you for the question. I just had one on the segment margins. I think last quarter you said CSG margins might be back in the normalized 5 to 6 percent range for the year and ISG margins would be 200 to 250 basis points lower than the
15.6 in the fiscal fourth quarter. I was just wondering if that's still the case or are there any puts and takes that we should consider incrementally relative to last quarter. Thank you.
Hey Michael, if you look at, I did say that last quarter by the way, around CSG 5 to 6, it did come in stronger than what I had anticipated, quite frankly, because we got to lower component costs.
As we thought, the inventory management was quite strong. That combined with the pricing discipline that we talked about in our talk track, as well as the fact that, quite frankly, we didn't see a lot of elasticity out there. So to burn economics on...
as we thought as the inventory management I think was quite strong. So that combined with the pricing discipline that we talked about in our in our talk track as well as the fact that quite frankly we didn't see a lot of elasticity out there so to burn economics on
Transactions are our customer deals that didn't make sense to us. We passed on. So, so CSG profitability was quite strong. And that's really a driver of a lot of the margin upside or the profitability upside we saw in the quarter. As it relates to ISG, it's sort of a tale of two different sort of...
you know, the labs, right? The server margins were in the range that I expected to be maybe a little bit stronger than I expected them to be given the component cost of clients again. Storage margins were lower than I anticipated quite frankly because of the de-scaling that we saw on the P&L.
Along with the Yorola revenue which antique translated in lower across the margins dollars,
And even though we've taken a number of op-x actions, those are going to work their way through the P&Ls we go through the year. So, yeah, so there were some obviously some variances against the guide that we gave. I think in general, we'll work through those as we go forward.
even though we've taken a number of op-x actions, so we're going to work their way through the PNL as we go through the year. So, yeah, so there were obviously some variances against the guide that we gave. I think, and Jan, we're going to work through those as we go forward.
All right, next question. And our next question will come from Simon Leopold with Raymond James.
Thank you for taking the question. I wanted to see if you could update us on how you're thinking about the overall PC market, sort of this idea of what's the new normal and where's your place in it and sort of the trajectory given all the moving parts coming out of kind of this post pandemic normalization.
Where are we in the cycle and what's your expectation for the year? Thank you.
Yeah, let me build on my prior comments. Look, I don't think we have a ton to add to our prior public comments on the size of the unit PC. Tam, we continue to peg it around 250 million units. And as I always emphasize, the reality is not all of these PC units are created equal, right? So on an ASP basis, a commercial non-cromb PC is...
and that's the net impact of the PC being asked to do more in a hybrid world. You know, in terms of the refresh cycle, you know, again as we called out, you know, we see the business moving closer to normal sequential, so the rate of decline in the business has come down, that's starting to show signs of stability.
And what we know is we've, as an industry, shipped 950 million units over the last three years. We delved shipped 160 million PCs over the last three years. That mix is more heavily notebook. And all of our telemetry data says those devices are still in use. So you have a commercial PC install base that's at the
recovers, you know, to be determined, but we certainly see customers having stretched at very large commercial install base for some time.
Yeah, I might add the question was how do we do ourselves going into the pandemic and coming out?
We were taken chair before the pandemic. We took chair through the pandemic. We expect to take chair after the pandemic. We are a consolidate or we can we're consolidating before, through and after. We'll continue to focus on the differentiated aspects of our model, which allows us to attach services, soft-room, and purpose and drive differentiated performance with our business, which you saw in the quarter.
And we are the revenue leader, which is a tribute to what Chuck said. We focus on the most valuable parts of the market where our model is differentiated and our products have an advantage.
All right. Thanks, sir. And we have a question from Kim Long with Barclays.
Thank you. Could you talk a little bit, you mentioned the Apex cloud services and some mentions of the service platforms. Could you just give us a sense as to kind of scale those businesses now? What inning are we in? And do you think this is being aided by the macro and maybe touch a little bit on?
on profitability for these businesses at the scale. Thank you. Yeah, thanks for the question. Let me share what I can. Look, we continue to be really pleased with our APEC strategy and performance. We're seeing really healthy customer interest and growth, particularly in this economic environment, where customers are looking to stretch every IT dollar and they're looking to opt for.
announcements at DTW last week including a number of differentiated multi cloud solutions, Apex cloud platforms, Apex storage for public cloud and our Apex Navigator offering and then we extended our Apex portfolio across our entire business with the addition of Apex compute and Apex PC as a service.
It is now the most comprehensive as a service and multi-cloud portfolio in the industry. And we're getting a lot of clients and customer interest in that offering. We're just going to continue to focus on customers. We'll continue to provide periodic updates on our progress like we did last year in terms of the size of the business. But for now, we're just focused on expanding the portfolio and the customer interest we're seeing.
Thanks, Hata. Thank you.
And our next question will come from Sydney Ho with Deutsche Bank.
Thank you. I wanna go back to ISG server. Reving was obviously not weaker than storage, as you can expect it. You guide the ISG to be downloading single-digit sequentially in second quarter. Do you expect the trajectory to be different between server and storage?
Maybe talk about some of the trends you see in the first month of the quarter. And also, I want to ask about, are you still thinking the group, ISG being down by teams percentage for the year as you alluded to a quarter ago? Thank you. Maybe I'll start with just the demand environment, then Yvonne can talk about the specific components of the guide. Look, it just remains a challenging demand environment clearly in ISG. You know, the caution that we saw enter the spending environment in Q2 last year.
that reflects that tightening budget environment, and we're seeing lengthening decision timelines. And look on storage as we cautioned during our Q4 earnings call, it's not immune to the IT cycles. It typically lags servers, but it's never fully insulated. And after seeing slowdowns in small and medium business in Q4, we saw a slowdown in larger customers in Q1. So.
I think that continues through the, in our guide for the rest of the year, as you articulated, when a server slowed earlier than storage, and we started seeing storage slow in Q4, so we'll see those both improve as the year goes on sequentially, but obviously storage.
Hey guys, Eddie on behalf of Chris, thanks for taking my question. Your comparison storage have expressed positive views on QL, CNN, and it's potential to replace hybrid and HD storage system.
Given your company's size and exposure to these types of system, I'm curious to know your thoughts on QLC. I know you guys have a QLC product that you announced last year, but do you think other QLC systems are likely to compete heavily on price with hybrid and HD systems?
on a 3rd gigabyte basis. Thank you. Yeah, over time, absolutely, which is why we're pursuing it. You hear from others. We'll continue to build across our portfolio. Today, given the compressed pricing of man, you don't necessarily need to.
see to meet those cost targets or price targets. So we're well aware of the dynamics and I think have a very good understanding of the technology given our storage portfolio and our aggregate buy across and in our sector is I think the largest we understand the dynamics and independently. Well, hey, thanks Jeff and so.
so with our solution capability, the EMC merger, then off the latest being our spin out of VMware to our shareholders. And we also have evolved our technology vision. We're number one in virtually every category, and we're clearly at the center of our customer's digital journey. So I'm pretty proud, incredibly proud I should say.
the team and the company and what we've been able to accomplish. But I also wanted to say thank you to all of you for your feedback, your partnership, and your deep relationships that we've had with the investment community. So I'm going to leave the company in strong hands with a great team and great hands with Yvonne as she steps into the leadership role as the CFO .
And obviously I'll be cheering the company on as we move forward. So let me just finish by saying thank you, thanks for your support and your trust over the last decade. So talk to you guys at some point in the future. Take care. All right, thanks Tom. That wraps the call today.
Thank you. This concludes today's conference call. We appreciate your participation. You may disconnect at this time.
Thank you. This concludes today's conference call. We appreciate your participation. You may disconnect at this time.