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Dell (DELL +4%) is trading nicely higher following a huge EPS beat with its Q1 (Apr) earnings report last night. This was Dell's third consecutive large EPS beat. Dell also reported revenue upside, but it was more modest. It also guided in-line for Q2 (Jul) and raised full year EPS guidance to $5.25-5.75 from $5.00-5.60.

• Infrastructure Solutions Group (ISG) saw revenue decline 18% yr/yr to $7.6 bln while Client Solutions Group (CSG) revenue fell 23% yr/yr to $12 bln. As has been the case in recent quarters, Dell says the demand environment remains challenged, and customers are staying cautious and deliberate in their IT spending. Dell continued to see demand softness across its major lines of business, all regions, all customer sizes, and most verticals.
• However, there were some glimmers of hope as Dell is seeing some pockets of stronger demand. The CSG business performed sequentially better than expectations laid out during its Q4 call and it has seen some early signs of demand stabilization in commercial PCs in its small and medium business segments and across its transactional business. In Storage, Dell saw continued demand growth in PowerStore, its marquee midrange offering, and in PowerFlex.
• Dell noted that it maintained pricing discipline even as competitors continued to reduce excess channel inventory. Its average selling prices increased, and that helped it deliver strong sequential and yr/yr gross margin performance. Dell also maintained strong cost controls, reducing operating expenses by 6%. Its supply chain also performed well and Dell reduced inventory by $800 mln in Q1 and by $2.3 bln over the last year. Lead times and backlog have normalized post-pandemic and ahead of competitors. It seems this solid performance on the operations side helped spur the EPS upside.
• Looking ahead, Dell expects the cautious IT spending environment to continue in Q2 (Jul). It expects CSG to perform closer to historical sequentials given pockets of commercial PC demand seen in Q1 and the duration of the PC downcycle relative to prior cycles. Dell expects Q2 ISG spending to remain muted as customers scrutinize and prioritize spend.

Overall, Dell posted a better than feared Q1 result despite multiple headwinds, posting a huge EPS beat. The performance was pretty similar to HPQ's report last week, although Dell's EPS upside was much larger. Based on the stock reaction, investors appear to be quite happy with this report. Macro headwinds remain and customers remain cautious, but Dell seems to be managing pretty well.