Dell Technologies Inc.’s revenue rose more than expected in its fiscal first quarter, sparking a 3 percent rise in its stock price in early trading today.

Although the shares fell back to rise just a fraction of a point by the end of the trading day, the news was pretty much all positive.

The unexpected increase was fueled by an especially strong rise in sales by the company’s Infrastructure Solutions Group, which saw revenues rise 25 percent to $8.7 billion. Particularly encouraging for Dell was the performance of its storage business, which has been in decline for six straight quarters since the acquisition of EMC Corp.

Servers and storage sales both saw double-digit percentage growth in the quarter, fueled by what the company said is “extraordinary demand” for PowerEdge servers, even as average selling prices increased. Server revenue grew for the sixth consecutive quarter, while storage revenue of $4.1 billion was up 10 percent over the same quarter last year. The company also saw sales of its hyperconverged VxRail and VxRack offerings more than double.

Total revenue rose 17 percent from a year ago, to $21.5 billion, which was more than 10 percent better than analyst estimates of $19.4 billion. Dell also narrowed its net loss to $636 million, or $1.95 per share, from $1.17 billion, or $2.29 per share a year ago.

The company continued to make steady progress in reducing its debt through $600 million in core debt payments and the retirement of $2.5 billion of investment grade notes that it inherited with the acquisition of EMC. That brings Dell’s net core debt burden to $31.7 billion, down more than $4 billion for the same time last year and more than $10 billion since the close of the EMC deal. “We’re financially strong and comfortable with our plan to pay down $5 billion in net debt this year,” said Chief Financial Officer Tom Sweet.

Investors worried about Dell’s large debt load should be heartened by the improvements in gross margins to 27.5 percent of revenues, compared to 24.8 percent in the same period last year. Operating expenses grew 12 percent, well below the rate of revenue growth. Cash flow also quadrupled compared to the first quarter of 2018. All of those metrics are important in ensuring that the company can continue to generate the kind of cash it needs to reduce debt.

Stopping the bleeding

Dell has been laser-focused on stanching the bleeding in its storage business, where sales fell 11 percent in the previous quarter. The company has taken steps on multiple fronts to address its weaknesses in that market, including launching PowerMax last month, which the company bills as “the fastest, most intelligent and resilient storage product on the market today.”

It has also aligned its software-defined storage strategy with that of its VMware Inc. subsidiary and introduced updates for its Unity, SC Series and XtremIO all-flash arrays in the past quarter. The business is also benefiting from a recent overhaul of Dell’s sales compensation structure to encourage and reward storage sales.

While cautioning that storage performance “may be lumpy quarter-to-quarter,” Products & Operations Vice President Jeff Clarke said he’s optimistic about storage sales for the remainder of the year. “We have a take-share plan and a grow-revenue plan,” he said. The storage business is growing, despite the company having made “no structural change in our pricing to compete in the market.”

Another driver is a new loyalty program that rewards repeat storage buyers with such enticements as a three-year satisfaction guarantee, simple upgrades, hardware investment protection and a full line of storage management software. “Our loyalty program is winning the hearts and minds of our customers,” Clarke said.

Business is humming in other areas as well. The company claimed No. 1 market share in servers, hyperconverged infrastructure and all-flash arrays, based upon the most recent International Data Corp. estimates.

Its core client solutions group, which sells PCs, saw a 14 percent year-over-year jump in revenue and a 64 percent growth in operating income, despite Gartner Inc.’s estimate of an overall market decline. The business was helped, in part, by higher average selling prices and strong acceptance of the company’s all-in-one XPS desktops and laptops, officials said. Dell has gained market share in PC unit sales for 21 straight quarters, according to IDC, and even logged double-digit percentage growth in displays and peripherals.

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