Supplier of hardware and infrastructure solutions Dell Technologies (NASDAQ: DELL) is a diversified technology company consisting of two main segments, infrastructure and customer solutions. The segment that manufactures and sells PCs, monitors, accessories and gaming hardware is the Client Solutions segment. The acquisition of storage solutions provider EMC helped shape the storage and networking solutions segment known as the Infrastructure Solutions Group more than a decade ago. While the Client Solutions Group (CSG) saw revenue drop by normalization of the pandemic-driven 2021 compositions, the Infrastructure Solutions Group (ISG) continues to generate record revenues. The company also has Alienware gaming systems, SecureWorks cybersecurity and cloud computing management software company Virtustream. Dell also sold its 81% stake in the virtualization company VMWare (NASDAQ: VMW). The company has continued to gain market share for commercial PCs in 35 of the past 39 quarters and has been able to reduce quarterly operating expenses by more than $300 million since Q1 2022. strong US dollar with an impact of 500 basis points, Dell handily beat its Q3 2022 EPS estimates and similar rival HP Inc. (NYSE: HPQ) may indicate that the bottom of the normalization pc sales process can be created.
Pandemic Strengthens APEX As-a-Service Solutions Model
The pandemic has also been a boon for Dell’s infrastructure business, as companies pulled back their heavy infrastructure capex spending due to the unpredictability of the COVID pandemic and budget constraints due to lockdowns. This caused more companies to consider as-a-service subscriptions (i.e.: Software-as-a-Service, Storage-as-a-Service, Hardware-as-a-Service, etc.) that enabled lower costs in the cope with uncertainty while acquiring more flexibility, value and capacity. For Dell and other as-a-service (aaS) providers, this meant stable, predictable and consistent cash flows. Dell’s APEX enabled businesses to enable hardware, storage, software, safety and cloud in one offering with full end-to-end maintenance and management, making it scalable and affordable at no additional cost under its hybrid subscriptions and consumption billing plans. This was especially suitable for companies employing a growing number of remote workers and suitable for the ‘new normal’ of hybrid work and the elastic office.
Strong beat but still…
On November 21, 2022, Dell announced third quarter results for fiscal 2022 for the quarter ended October 2022. The company reported earnings per share (EPS) of $2.30 excluding one-time items versus consensus analyst estimates for a earnings of $1.61, a hit of $0.69 per share. Revenues fell (-6.4%) year-over-year (YoY) to $24.72 billion, beating consensus analyst estimates of $24.61 billion. Comparisons to 2021 were tough as it was a peak year for the Client Services segment as sales of consumer PCs and hardware reached record levels due to the pandemic. Jeff Clarke, COO of Dell, commented, “If we take a step back, the market remains challenged and uncertain in the near term. On the one hand, we see some customers delaying IT purchases. Other customers continue to make progress with Dell given the importance of technology to their long-term competitiveness and a growing need to drive productivity through IT in the short term.The world continues to transform digitally, data continues to grow exponentially, and customers continue to look to technology to advance their business regardless of the economic climate.” On November 16, 2022, Dell also announced a $1 billion settlement in a class action lawsuit related to its return as a publicly traded company.The insurers may pay a portion of the settlement but still require final approval from a court of law. Delaware Chancery Court.
DELL Weekly Cup and Handle Pattern
The weekly candlestick charts illustrate the breakdown of the triangle that occurred in August 2022, which set the stage for the collapse below the $45 level, with stocks moving to the low of $32.90. Stocks managed to stage a rally after forming a rounded bottom leading to the break of the weekly market structure low (MSL) from a $36.98 trigger driven by the weekly stochastic bounce through the 20 band. Stocks broke higher through the weekly 20-period exponential moving average (EMA) resistance which has now turned support at $41.22 while stocks are moving towards the weekly 50-period MA resistance at $47.01. The rally sends stocks into a potential weekly cup-and-handle formation at a spike in the lip area between $45.40 and $46.73, which was also the previous apex and breakdown level of the triangle. A shallow pullback to the low $40s and a breakout through the weekly 50s period MA would activate the pattern. Since the weekly stochastic is only in the 50 band, there is potential for higher movement. Pullback support levels sit at the weekly MSL trigger of $41.18, $39.90, $38.32, $36.98, $34.80 and the weekly swing low of $32.90.