U.S.-China trade tensions impact Dell's Q1 server sales

Dell's server revenues slip a bit in its fiscal first quarter due to ongoing trade tensions between the U.S. and China. (Pixabay)

Citing ongoing trade tensions between the U.S. and China, Dell Technologies said its server revenue was down in its first fiscal quarter.

In its Thursday earnings report, Dell said its server and networking revenue declined 9% year over year to $4.2 billion. Dell CFO Tom Sweet said on the conference call with analysts that China was Dell's second-largest server market.

"We think we have a good relationship and a good business there," Sweet said, according to a Seeking Alpha transcript. "But, clearly, the U.S.-China trade tensions are a bit of an overhang on the business."

Sweet said there was more competitiveness in the server market during the first quarter, which ended May 3, and that Dell walked away from several large deals that it felt didn't make sense.

Sweet said that while Dell's server growth increased 41% in the same quarter a year ago, the company did plan for slower server growth this year.

"But, we did see some slower server growth than we anticipated," he said "This was more pronounced in a few areas, principally China and in certain large enterprise opportunities.

"The macro dynamic around trade and tariffs is one we're watching. You think about the impact on business confidence, consumer confidence, you think about the impact on our domestic China business. Those are the dynamics that we're also keeping our eye on."

Sweet said that Dell has been making plans for a potential fourth-round of U.S. tariffs on Chinese products that could impact Dell's notebooks and monitors. While there's not a firm target date in place, Sweet said Dell would adjust its global supply chain to minimize the impact on its customers.

"As we head into Q2, we continue to monitor the macro economic environment, the IT spending environment and ongoing trade discussions between the U.S. and China." Sweet said. "With the help of our supply chain team, we have navigated the first three China tariff list and are well positioned against the announced tariff increase from 10% to 25%."

Sweet said despite the slower server demand, Dell did see "reasonable" demand growth and revenue in its storage business in China. Dell reported $4 billion in storage revenue in the fiscal first quarter, which was down 1% from the same quarter a year ago.

Dell reported first quarter revenue of $21.9 billion, which was up 3% year over year. Dell’s $21.9 billion in sales was just below analyst expectations of first quarter revenue of $22.5 billion, according to Zacks Investment Research.

Dell's Infrastructure Solutions Group (ISG), which includes servers, storage, networking and hyperconverged infrastructure, reported revenues of $8.2 billion, which were down 5.4% year over year. Dell's Client Solutions Group revenues were $10.91 billion, up 6.2% year over year. Dell's commercial revenues increased 13% year over year to $8.31 billion while consumer revenues were down 10% year over year to $2.6 billion.

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Revenues at VMware, which is majority-owned by Dell, came in at $2.27 billion in its fiscal first quarter, which was up 12.5% year over year.