Investors Cheering the Quiet Comeback of Dell Technologies

Editor’s Note: This article was updated to include Dell’s announcement that it will spin off its 81% stake in VMware.

If you wanted to make big money in tech over the last year, buying a Cloud Czar like Amazon (NASDAQ:AMZN) or even Apple (NASDAQ:AAPL) was not the way to go. The play was Dell Technologies (NYSE:DELL). Over the last 12 months of trading DELL stock is up over 128%.

Dell (DELL) Technologies Display and Logo
Source: Jonathan Weiss / Shutterstock.com

It closed yesterday at about $92.70. That’s a market cap of $70.7 billion, on 2021 sales of $94 billion. That’s also a price just two bucks below its 52-week high.

It may still have further to run. Its price-to-earnings ratio is under 22. There is no dividend yet, but net income of $4.22 for the year and free cash flow of $9.3 billion would justify it. So far, the only move to reward shareholders has been to buy back stock, $1.6 billion worth. Dell also retired $4.5 billion in debt during the year ending in January.

Another reason to buy is the pending spin-off of VMware (NYSE:VMW), announced late on April 14.  VMware will need to borrow money to pay a special dividend to its shareholders, including Dell, which owns 81% of it. Dell’s part of the cash, about $9.5 billion, will be used to retire its debt.  The two companies will remain closely linked for at least five years.

This morning, the shares are trading up 8% in premarket activity following the news.

How Dell Got Here

Those payments still left the tech firm with long-term debt of $43.4 billion, about $1.8 billion convertible into DELL stock, and a cash balance of $15 billion, up $5 billion from a year ago. The fortune of founder Michael Dell is now estimated to be worth $47.9 billion. Much of his fortune is now in a private investment firm called MSD Capital rather than Dell stock.

Dell is one of the last among the first generation of PC era founders still on the job, and he’s still just 56. He founded Dell in his University of Texas dorm room, assembling computers for other students.

The current company evolved from a complex set of transactions Dell made with Silver Lake, a private equity firm that now owns 29% of the company. Silver Lake took Dell private in 2013 billion, then bought EMC in 2015, along with its 81% stake in VMware. It returned to the public market in late 2018. The dealmaking left Dell with $67 billion in debt in early 2020, leading to rumors it would sell VMware.

After tightening its belt during the no-longer-novel-coronavirus pandemic, they finally took action yesterday.

Transition to Services

The layoffs helped Dell accelerate its move from hardware sales to subscription services. Dell Technologies on Demand is part of a market that will represent 15% of PC deployments in 2022, according to Gartner (NYSE:IT). The Dell Solution is also offered by its 2,000 partners.

The move should transform Dell’s income statement over time. Sales can be a seasonal business. Last year Dell had $5 billion more revenue in the Christmas quarter than in the March quarter. Subscriptions even that out. The risk is that when clients go under, Dell gets back used gear, which could prove a danger to its profitability unless it’s reflected in pricing up-front.

Dell still sells PCs. Its Inspiron laptops are priced as low as $300. Its servers use chips from Intel (NASDAQ:INTC), Advanced Micro Devices (NYSE:AMD) and Nvidia (NASDAQ:NVDA), and Dell is the leader in that market. 

But the future focus is renting servers. Boeing (NYSE:BA) recently outsourced 600 jobs to Dell, and the company launched a back-up service aimed at companies using multiple clouds.

The Bottom Line on DELL Stock

The December quarter was great for Dell. Net income was $1.34 billion, $1.57 per share, on revenue of $26.11 billion. On a non-GAAP basis earnings were $2.70 a share, easily beating estimates of $2.14. DELL stock is up 16% since the earnings announcement.

Dell’s ability to thrive during the pandemic, and growing optimism over the global economy, now have analysts pounding the table for the stock. Of 10 analysts tracked by TipRanks, eight are saying buy it, even though their average price target is just 1.4% higher than its April 15 opening bid.

My guess is there are upgrades to come.

At the time of publication, Dana Blankenhorn directly owned shares in AMZN, AAPL, INTC and NVDA.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.


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