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After posting its first earnings miss since returning to the public markets in late 2018 for Q4 (Jan), Dell (DELL -6%) finds its shares meaningfully lower today. The PC and IT products supplier did announce a new quarterly dividend of $0.33 per share to complement its current share repurchase program. Unfortunately, that was not enough to excite investors, especially since supply-chain headwinds, which led to DELL's JanQ adjusted EPS miss, are expected to continue through at least the first half of FY23.

• These headwinds, led by component shortages and higher shipping costs, drove a 36% drop in adjusted earnings to $1.72 per share. Because DELL was forced to pay higher prices to secure parts and choose a higher mix of air freight over ocean freight, gross margins fell 320 bps yr/yr to 20.8%.
• Despite the setbacks, DELL still expanded its revs 7.2% yr/yr to $27.99 bln, beating estimates with ease. Most of the growth stemmed from revs in DELL's Client Solutions Group (CSG), which mainly includes PCs, jumping 26% yr/yr to $17.33 bln on robust commercial sales.
• However, strong volume in PC units shipped was mostly priced in. In late January, peer Intel (INTC) had noted that third parties reported a 15% growth rate in PCs in 2021, marking one of the best years in a decade for the PC industry. Also, earlier in the week, rival PC maker Lenovo Group (LNVGY) reported solid PC growth for its DecQ.
• DELL's other segment, Infrastructure Solutions Group (ISG), which includes servers and storage products, delivered moderate growth of just 3% yr/yr to $9.22 bln. Component shortages hit hardest in this segment; storage manufacturer Western Digital (WDC) reported similar impact in late January. WDC made it clear that its primary headwind for the remainder of FY22 (Jun) was its ability to source components to meet demand, predicting a sequential decline in hard drive and flash storage revenue for MarQ.
• Looking ahead, backlogs are expected to either worsen or remain elevated in the near term. DELL expects its PC backlog to grow in Q1 (Apr) after having reduced its previous backlog over the past two quarters. Meanwhile, since DELL was unable to work down its ISG backlog, it expects it to remain elevated through at least the next two quarters. Nonetheless, DELL still guided AprQ adjusted EPS in-line with consensus and revs above consensus.

Overall, DELL's PC sales shone bright in Q4, but not enough to peek through the cloud cast by shortages in ISG and rising transportation costs, which led to the company's first earnings miss since its return to the public markets in 2018. We like DELL's decision to provide a dividend of $0.33 per share, which amounts to about a 2.5% yield. Although dividends can be stopped at any time, DELL expects to grow its dividend at least consistent with EPS growth, which is a sign of confidence by management in the company's long-term growth profile. With a forward P/E ratio of under 8x and headwinds mostly set to impact the short run, today's pullback represents a solid entry point for buy-and-hold investors.

On a final note, DELL's results shed some light on what investors can expect from HP (HPQ) when it reports JanQ earnings on February 28.