This was a fairly busy tech earnings week, as a slew of well-known large-cap companies posted their April-quarter numbers. Here’s a look at some of the comments that stood out for me during the companies’ earnings calls.
1. Nvidia Appears to Be Prepping for Very Strong Second-Half Data Center Segment Demand
“[In] terms of Data Center…We have growth from [fiscal] Q1 to Q2 planned in our overall guidance. And we do see as things continue to open up a time to accelerate in the second half of the year for Data Center,” said CFO Colette Kress during Nvidia’s ( NVDA) call.
In addition, both Kress and CEO Jensen Huang signaled that Nvidia’s Data Center strength was broad-based — encompassing server GPU orders from Internet/cloud giants (the proverbial hyperscalers) to support their massive AI training and inference workloads, DGX server sales to traditional enterprises (boosted by reopenings and improving macro conditions), and demand for Mellanox’s hardware among both cloud and enterprise clients.
Also, Nvidia disclosed that its outstanding inventory purchase obligations rose by $920 million sequentially to $3.46 billion, as it dialed up orders for Data Center products amid strong demand and lengthening supplier lead times. All of that makes Nvidia’s July and October quarter Data Center consensus estimates, which respectively imply 29% and 28% annual sales growth, look beatable.
2. Salesforce Is Seeing Both a Top-Line and Margin Boost from Remote Work
The fact that many companies plan to allow much of their workforce to keep working remotely some or all of the time is a demand driver for Salesforce.com’s ( CRM) Sales Cloud and Service Cloud platforms, Salesforce execs stressed on Thursday’s earnings call.
“Customer meetings aren’t going back to conference rooms only. They’re going to stay on Zoom ( ZM) as companies like ours just realize that we can execute as well as ever before in this digital environment,” said COO Bret Taylor. “The contact centers that move from being buildings to be in the cloud, thanks to the power of Service Cloud, they’re not going back to buildings anymore.”
Separately, CEO Marc Benioff and new CFO Amy Weaver stressed that Salesforce, which comfortably beat EPS estimates and hiked its full-year operating margin and operating cash flow guidance, expects long-term cost savings from both having more employees work from home and reduced travel.
“We are assuming, for purposes of guidance, some modest return of travel in the second half of this year,” said Weaver. “But it will be nowhere near where we were pre-pandemic. We’ve simply learned how to work effectively and how to serve our customers effectively without being on a plane every day.”
3. Dell and HP See Component Shortages and Higher Costs Through Year’s End
“Our best point of view is that supply constraint continues on into next year,” said Dell ( DELL) Technologies CFO Tom Sweet during his firm’s earnings call. Likewise, HP Inc. ( HPQ) CFO Marie Myers said her company expects supply constraints to “continue to negatively impact our ability to meet demand [for] PCs and printers, at least through the end of calendar 2021.”
Moreover, Dell and HP each indicated their companies would see margin headwinds related to higher costs in the back half of the year. Sweet noted display, DRAM and NAND flash memory prices are rising, while Myers said HP’s PC and printing margins will be pressured by higher commodity and logistics costs.
Also of note: While stating HP’s channel inventories are “sort of below historic levels,” Myers also said HP’s own inventories are elevated due to “strategic buys” (particularly of CPUs) meant to head off potential supply chain challenges. Such comments, which are similar to ones made by automakers and various other OEMs about stockpiling chip inventory, highlight the risk that exists of chip inventory corrections occurring down the road, if/when demand for things such as cars, notebooks and graphics cards cools and order lead times contract.
One silver lining: Sweet said that (unlike Dell’s PC business) Dell’s server business hasn’t seen major supply constraints yet, and that its lead times are largely normal. At a time when hyperscalers continue aggressively buying server components and traditional enterprise server demand is beginning to rebound, that’s perhaps welcome commentary for the server industry at-large.
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