Editor’s note: Key partnerships and recent product launches highlight Dell Technologies’ long-term vision for success, says Technology Business Research Analyst Stephanie Long.

HAMPTON, N.H. – During 2Q17 Dell Technologies’ achieved $19.3 billion in revenue and a gross margin of 24.9%, according to its latest financials.

Announcements within the last few quarters, including the launch of PowerEdge 14G, the introduction of its flexible consumption model (FCM), and ongoing positive traction for its Client Solutions Group’s (CSG) attached services bring the promise of long-term revenue and profit stability.

VMware’srecent partnership with Amazon Web Services and the introduction of AppDefense and Pivotal Container Services reinforce revenue acceleration for Dell Technologies during 2H17.

However, Dell Technologies faces macro challenges, including rising components costs, which will impact its Infrastructure Solutions Group (ISG) and CSG, and require the vendor to balance its future-looking investments with mitigating profitability challenges from these rising costs.

  • VIDEO: Watch an update about Dell offerings at https://www.youtube.com/watch?v=ICp6A2s9nkc

Overall, TBR believes Dell Technologies continues to drive improvements and synergies across its business units, but investments in long-term visions, such as FCM, result in near-term challenges that are exacerbated by the impact of rising component costs.

Successfully landing large deals and recently formed strategic partnerships lay the groundwork for stabilization of revenue and profitability as Dell Technologies continues to invest in reducing its debt while bringing cutting-edge solutions to market.

Traditional storage challenges prevents ISG from achieving its full potential

ISG saw some positive momentum, with orders up by mid-single-digits year-to-year. Synergies between segments within ISG as well as between legacy Dell and legacy EMC portfolios enabled the vendor to sign multiple large multi-year contracts, including a recently signed deal with General Electric Company.

The addition of FCM to ISG’s capabilities provides the vendor with long-term opportunities, but in the near-term will lead to less consistent revenue as deals shift from one-time purchases to a monthly subscription model. TBR believes there are many benefits to FCM within Dell Technologies’ business model, but there will also be a need to promote a change in mindset especially for channel partners, which will likely see a shift in their compensation model due to this billing shift.

In 2Q17 Dell Technologies’ server business was buoyed by strong demand for PowerEdge 14G. Although storage experienced sequential growth, revenue was flat. Growth for all-flash and hyperconverged infrastructure allude to ongoing challenges for Dell Technologies’ legacy storage business that are greater than its successes in emerging technologies.

TBR notes Dell Technologies is investing to spark storage improvements by incentivizing mid-market storage sales in the channel and strategically increasing headcount to support go-to-market changes for this business.