What happened
Shares of Dell Technologies (DELL 4.16%) rose 10.4% during the month of August, according to data from S&P Global Market Intelligence. The technology conglomerate, whose offerings span servers, computers, and software, posted better-than-expected results on Aug. 27. Shares may have also benefited from comments earlier in the summer regarding a possible spinoff of the company's VMware (VMW +0.00%) stake in the future.
So what
For its second quarter, Dell delivered revenue of $22.8 billion, which was actually down 2.8% year over year, but still some $300 million ahead of analyst expectations in the pandemic-affected quarter. Meanwhile, thanks to cost controls and lower marketing expense during the uncertain time, adjusted earnings per share grew to $1.92, beating expectations by $0.52.
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Although Dell's infrastructure group, which includes servers, networking, and storage, saw profits fall 7%, and its client solutions group, which includes both commercial PCs and consumer notebooks, saw profits fall 27%, Dell's high-margin VMware virtualization software subsidiary grew 10%, with profit growth up 19%.
Now what
Speaking of VMware, Dell had confirmed in July that it was exploring a potential spinoff of its 81% stake in VMware. Currently, the value of Dell's stake in VMware, the other 19% of which is publicly traded, is worth nearly as much as Dell's entire equity value. Therefore, a spinoff could perhaps unlock hidden value for Dell's assets outside of VMware.
Such a move likely wouldn't happen until late 2021, when it becomes tax-free to do so. Still, each month closer to that date may bid up shares of this large-cap tech stock as investors anticipate the spin-off happening. On the other hand, management has stressed that the move isn't automatic, and discussions are in their early stages.
