Dell’s 1Q18 Operating Loss Widens 979%

Dell’s 1Q18 Operating Loss Widens 979%

Last Thursday, computer manufacturer Dell Technologies Inc. (NYSE: DVMT) reported a fiscal 2018 first-quarter net loss that widened from the year-ago. Notably, the quarterly operating loss widened by a whopping 979% on y-o-y basis. The market did not waste time and punished the stock by battering it to a low of $61.86. Considering the issues faced by Dell – the world’s largest privately held technology company, we expect the stock to decline further in the short-term.

The Texas-based company reported Q1 2018 non-GAAP revenue of $18.17 billion, up 48% from $12.32 billion in the similar period last year. First-quarter operating loss widened to $1.500 billion, from $139 million in the same period last year. Net loss from continuing operations was $1.383 billion in 1Q18, compared with $424 million in the year-ago quarter. The increase in revenue reflects the acquisition of EMC, a data storage giant, in September 2016 for $67 billion.

Excluding charges, 1Q18 non-GAAP net income in the March quarter was $581 million, an increase of $317 million on y-o-y basis.

Client Solutions Group reported a 6% y-o-y increase in revenues to $9.1 billion. Infrastructure Solutions Group posted revenue of $6.9 billion. That includes $3.2 billion worth servers and $3.7 billion worth storage devices. Similarly, VMware segment reported first-quarter revenue of $1.7 billion.

PC shipments increased 6.2% y-o-y. It is the seventeenth consecutive quarter of y-o-y increase in PC unit shipment growth. During the quarter, Dell maintained its number one position for displays. Additionally, Dell was the only vendor to gain market share in fixed and mobile workstation categories.

Cash and cash equivalents at the end of first-quarter was $14.9 billion. Since the completion of EMC acquisition, Dell has repaid about $7.1 billion in gross debt.

Selling, general and administrative costs skyrocketed 126% y-o-y to $4.7 billion. Similarly, cost of net revenue from products jumped 30% y-o-y to $11.5 billion.

The cost of memory chips has increased sharply in the past one year. Thus, Dell has raised the price of its products. Still, analysts believe that Dell would be able to reap returns from the introduction of new products and increase in the price only in the second half of 2017. Thus, fundamentally, the stock is expected to remain range bound with bearish bias.

Technically, the stock has broken the support level of 65. The MACD indicator has made a bearish crossover below the zero line. Furthermore, the stock is trading below its 50-day exponential moving average. Thus, we can expect a further downtrend in the stock of Dell.

Dell - Technical Analysis - 13th June 2017

To gain from the prediction, we wish to invest in a put option offered by a binary broker. The stock should trade near $63 and a contract expiring on or around June 21st should be available. Only then we would go ahead with the purchase of the put option.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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