Dell Technologies (NYSE: DELL) is a leading global brand of laptops, desktops, and peripherals. However, the company offers a comprehensive range of products and services including multi-cloud solutions. Dell has continued to grow its brand through acquisitions and diversification.
In the recent four to five years, Dell has experienced a sharp growth in its net revenue. Its net income has also grown sharply in 2020 compared to the previous several years. Dell generated a positive net income in fiscal 2020 compared to the net loss it has been incurring over the past several years.
Dell has divided its business into three segments that include Infrastructure Solutions Group, Client Solutions Group, and VMware. The largest of the three business segments of Dell Technologies Inc based on revenue is the Client Solutions Group (CSG), followed by ISG and VMware.
Dell Technologies Revenue from Products and Services:
Product Net Revenue of Dell Technologies:
Dell Technologies generated total net revenue of $92.15 billion dollars in 2020, compared to $90.6 billion in 2019; YoY growth of 2%. Out of the total revenue that the company generated in fiscal 2020, net revenue from the sales of products equaled $69.92 billion compared to $70.8 billion in 2019. The product revenue of the company fell by 1% in 2020 compared to the previous fiscal year. The product net revenue of Dell Technologies includes the revenue the company generates from the sales of hardware products and software licenses. The 1% decrease in product net revenue of the company was caused mainly by the decrease in revenue generated from the sales of ISG servers and networking. The decrease in product net revenue was partially offset by the growth in revenue from CSG and VMware. Dell’s product net revenue remained 75.9% of its total net revenue in 2020.
Services Net Revenue of Dell Technologies:
Dell technologies generates its services revenue from its portfolio of services offerings as well as support services related to hardware products and software licenses. Dell’s services net revenue grew by 12% in 2020 compared to the previous year. Growth in the CSG and VMware business segments mainly drive the growth in Dell’s revenue from services. The company experienced a growth in services revenue for hardware support and deployment and software maintenance.
Dell’s services net revenue in fiscal 2020 grew by 12% as compared to the previous year and was 24.1% of the total net revenue of the company for the latest fiscal year. Services net revenue reached $22.24 billion in 2020 compared to $19.9 billion in 2019.
Dell’s Segmentwise Performance:
Dell’s business is divided into three segments including CSG, ISG and VMWare. The largest of three segments on the basis of revenue is the Client Solutions Group or CSG. ISG is the second largest group of the three based on revenue and VMware the smallest business segment of all.
Client Solutions Group of Dell Technologies Inc.
The Client Solutions Group or CSG is the largest business segment of Dell Technologies Inc based on revenue. CSG is further divided into two units including commercial and consumer. Commercial is the larger unit of the two. In fiscal 2020, the CSG group generated $45.84 billion in net revenue compared to $43.2 billion in 2019. The company generated $34.3 billion from the commercial segment in fiscal 2020 compared to $30.9 billion in 2019; YoY growth of 11%. Commercial net revenue of the company grew mainly driven by strong demand for its commercial products across all categories. It generated $11.6 billion in net revenue from the consumer segment in 2020 compared to $12.3 billion in net revenue from the same in 2019; YoY decline of 6%. Total CSG net revenue grew by 6% in 2020 compared to the previous fiscal driven mainly by the Microsoft Windows 10 operating system refresh cycle, combined with strong execution by the business. In 2021, Dell expects CSG demand to decelerate as the Windows 10 refresh cycle winds down.
Dell’s operating income from Client Solutions group or CSG grew heavily in 2020 compared to the previous year. CSG operating income grew to $3.14 billion in 2020 compared to $1.96 billion in 2019; YoY growth of 60%. CSG net revenue grew mainly from the Americas, EMEA (Europe, Middle East and Africa), and APJ (Asia Pacific and Japan). CSG accounted for 49.7% of Dell’s total net revenue in 2020.
Infrastructure Solutions Group or the ISG
The Infrastructure Solutions Group or ISG is the second largest business segment of Dell Technologies Inc. It accounted for around 37% of the total annual net revenue of Dell in fiscal 2020. However, Dell’s net revenue from the lSG segment fell in 2020 compared to the previous fiscal. Annual net revenue from the ISG segment was down to $34 billion in 2020 compared to $36.7 billion in 2019; YoY decline of around 7%. Weaker demand of power edge servers in 2020 led to decline in the number of units sold. The company focused more on profitability in 2020 than on net revenue growth. Apart from that, there were certain competitive factors that also caused a decline in the number of Power edge server units sold. Competitive pressure and component cost deflation also caused the prices of power edge servers to fall leading to a decline in net revenue from their sales. The ISG group is divided into two business units for reporting – Servers and networking as well as storage. ISG revenue from servers and networking fell to $17.13 billion in 2020 from $19.95 billion in 2019; YOY decline of 14%.
One the other hand, ISG revenue from storage remained flat. Storage revenue was $16.84 billion in 2020 compared to $16.77 billion in 2019. ISG operating income declined by 4% in 2020 compared to 2019 after having climbed by 35% in the previous fiscal compared to fiscal 2018. ISG operating income was $4 billion in 2020 compared to $4.15 billion in 2019.
VMware is the smallest business segment of Dell Technologies Inc. This segment accounted for 11.8% of the company’s net revenue in 2020. Dell’s net revenue from the VMWare segment was $10.9 billion in 2020 compared to $9.7 billion in 2019; YOY growth of 12%. Dell’s net revenue from VMware (includes Pivotal) mainly includes the revenue from the sale of software licenses under perpetual licenses for subscriptions and SaaS, related software maintenance services, and support, training, consulting services, and hosted services. VMware net revenue during fiscal 2020 grew 12% mainly due to growth in subscriptions and SaaS, as well as an increase in sales of software maintenance services. VMware’s software maintenance revenue grew driven by strong renewals of VMware enterprise agreements, revenue recognized from maintenance contracts sold in prior periods, and additional maintenance contracts sold in conjunction with new software license sales.
VMware generates most of its revenue from sales to the customers in the United States. In 2020, sales in the US accounted for around 50% of the segment net revenue. Growth across the US and the international markets also drove revenue growth in the VMware segment. VMware operating income in 2020 grew 5% compared to the previous year. Segment operating income reached $3.1 billion in 2020 compared to $2.9 billion in 2019.