Editor’s note: Dell Technologies achieved $17.8B in revenue in the first quarter, but an operating loss indicates it still has some hurdles to overcome, says Technology Business Research Analyst Stephanie Long.

HAMPTON, N.H. – In 1Q17 Dell Technologies achieved $17.8 billion in revenue, which marked an 11% sequential decline, and an operating loss of $1.5 billion.

Dell Technologies’ portfolio has undergone substantial changes in 2017, and a series of product announcements in May benefit the majority of its business units and bring the promise of revenue gains that will, to a degree, mitigate some industry-wide challenges, such as rising components costs during 2H17.

However, TBR believes Dell Technologies’ near-term strategy to address these market dynamics is unclear at this time, as the vendor searches for a balance between restructuring internally to minimize price increases while balancing raising prices with market share to maintain its growing customer base and profitability.

ISG remains focused on its long-term strategies despite legacy challenges and rising components costs hindering its bottom line

Infrastructure Solutions Group (ISG) revenue, which accounted for 38% of Dell Technologies’ overall revenue in CY1Q17, declined 18% sequentially to $6.9 billion. Its operating margin of 4.7% was a 730 basis point sequential decrease.

While a portion of these operating margin challenges are due to rising components costs and the seasonality of the business, TBR believes portfolio rationalization also impacted sales. Although pressures to traditional hardware segments, such as its midtier storage business. persisted, ISG saw gains in its all-flash, hyperconverged and software-defined storage (SDS) solutions, indicating the vendor’s emerging technologies are experiencing success in the market.

Further, ongoing synergies between legacy Dell and legacy EMC, combined with new go-to-market strategies and a revamped channel program, bring the promise of long-term gains for ISG. TBR believes these synergies can be seen in the 5% year-to-year revenue gains to ISG’s server and networking business, as tie-ins between PowerEdge servers and legacy EMC storage assets encourage customer adoption for modern installments.

The recent announcements of PowerEdge 14G servers, new hyperconverged configurations and CloudFlex demonstrate the combined strengths of Dell Technologies’ emerging capabilities and will reinforce positive shifts in revenue performance in 2H17.