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Dell data storage remains the weak link in FY18 revenue

Finding a way to grow enterprise storage and data protection will comprise a major focus for Dell Technologies this year, company executives told analysts during an earnings call on Wednesday.

Dell data storage revenues tumbled 11% to $4.2 billion last quarter, continuing a trend extending back over the vendor’s past several quarters. Full Dell storage revenue for its 2018 fiscal year was $15.3 billion, compared with $8.9 billion a year ago. The year-over-year jump of 71% reflects operating results for the first full year of a combined Dell EMC.

Dell posted $21.9 billion last quarter, up 9%, to close its fiscal year with revenue of $78.6 billion. Consolidated full-year results were up 28%.

Sagging Dell data storage sales weighed on its Infrastructure Solutions Group (ISG), which also includes networking and servers. Revenue from Dell PowerEdge and Cloud x86-based servers grew 27% to $4.6 billion, helping to offset the decline in storage sales. For the quarter, overall ISG revenue was $8.8 billion.

“We have work to do to change the performance of our storage business. Our issue isn’t that we grew our server business too much. It’s that we didn’t grow our storage enough,” said Jeff Clarke, a Dell vice-chairman of products and operations.

Dell is hoping a reorganization of ISG will help jumpstart sales going forward. A realignment in February separated converged and hyper-converged infrastructure products in an effort to simplify product categories.

Dell data storage is growing in flash, midrange and hyper-convergence, Clarke said. Dell does not disclose number of units sold, but claims it closed last year with a $5 billion run rate for its all-flash arrays. Demand for VxRail hyper-converged infrastructure tripled.

Deferred revenue topped $22 billion for the quarter, up $6.6 year over year.  That reflects revenue increases in maintenance and consumption-based services.

“We are encouraged that we exited the quarter with better storage velocity,” CTO Tom Sweet said, referring to a strategy designed to accelerate Dell data storage sales through the pipeline.

Increased focus on midrange Dell data storage products offers another avenue to pursue, said Patrick Moorhead, president of Moor Insights & Strategy in Austin, Texas.

“I believe the best way Dell EMC can boost storage sales is to drive offerings more aggressively into the midmarket, where EMC hadn’t traditionally had as much success. Dell traditionally did very well in these segments in PCs and servers. Simplifying the enterprise offering would help too, as it could lead to a more focused sales force and product development,” Moorhead said via email.

Revenue for Dell’s VMware segment surged 20% to $2.3 billion last quarter on operating income of $834 million. Bookings for NSX licenses climbed 50%. For the full year, VMware revenue soared 146% to $7.9 billion, although the year-to-year change reflects modifications in how Dell reports consolidated earnings. VMware adopted Dell’s fiscal calendar in February, after previously reporting financials on a calendar-quarter basis.

Dell executives did not take questions on the status of internal discussions to explore strategic options. Dell announced in February it was studying a potential reverse merger with VMware as one option. Also under consideration is spinning out Dell EMC storage in an initial public offering. The vendor said it also may keep its present management structure intact. No timetable has been publicly disclosed for a decision.

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