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Founded by Michael Dell in his dorm room at the University of Texas at Austin in 1984, the pioneering personal computer company made its mark by selling affordable PCs directly to consumers. The company’s offerings grew to include televisions and cameras, and by the early 2000s it came to dominate the consumer electronics market. Dell Computer went private in 2013, when Michael Dell and the private equity firm Silver Lake Partners purchased it for $25 billion; the company returned to public markets in 2018 as Dell Technologies. In 2016 the company and an investment firm acquired data storage provider EMC for $67 billion—at the time the biggest tech deal in history. In May 2025, amid growing demand for artificial intelligence systems, Dell unveiled new AI servers powered by Nvidia chips.

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Dell Technologies (DELL): Company Profile, Stock Price, News, Rankings

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Dell Technologies

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Afternoon, and welcome to the Fiscal Year twenty twenty six Second Quarter Financial Results Conference Call for Dell Technologies Inc. I'd like to inform all participants, this call is being recorded at the request of Dell Technologies.

This broadcast is a copyright property of Dell Technologies Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question and answer session. I'd like to turn the call over to Paul Franz, Head of Investor Relations. Mr. Franz, you may begin.

Thanks, everyone, for joining us. With me today are Jeff Park, Yvonne McGill and Tyler Johnson. Our earnings materials are available on our IR website, and I encourage you to review these materials. Also, please take time to review the presentation, which includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call.

During this call, unless otherwise indicated, all references to financial measures refer to non GAAP financial measures, including non GAAP gross margin, operating expenses, operating income, net income, diluted earnings per share, free cash flow, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release. Growth percentages refer to year over year change unless otherwise specified. Statements made during this call that relate to future results and events are forward looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings.

We assume no obligation to update our forward looking statements. Now, I'll turn it over to Jeff.

Thanks, Paul, and thanks, everyone, for joining us. We had a strong operational execution in the second quarter with record AI shipments. Our revenue was a record $29,800,000,000 up 19%. ISG and CSG were up 22%. Earnings per share increased by 19% to $2.32 marking a Q2 record.

Our modernization work continues to enable internal efficiencies, driving decoupling of revenue growth and operational expenses, which were down 4% while continuing to invest in R and D. This strong performance resulted in another quarter of robust cash generation and significant capital returns to shareholders. Now let's move to AI, which remains a significant tailwind. We continue to see strong demand for AI servers, building on the exceptional demand observed in Q1. We booked $5,600,000,000 in orders in the second quarter and shipped a record $8,200,000,000 resulting in an ending backlog of $11,700,000,000 For context, we have shipped more AI servers in the first half of this year than all of last.

Our May pipeline continued to grow sequentially with double digit growth across enterprise and sovereign opportunities. Our pipeline remains multiples of our backlog. Enterprise orders and our buyer base grew sequentially in Q2 distributed across various industries such as financial services, healthcare and manufacturing. And we're seeing strong enterprise interest in our new NVIDIA RTX Pro 6,000 AI factory solutions. These turnkey solutions provide the performance, flexibility, and power efficiency enterprises need to manage the entire AI lifecycle at any scale with air cooled and PCIe options available.

As I mentioned last quarter, our execution in AI continues to be a key differentiator. We are innovating at an unprecedented pace, engineering at scale solutions for customers while remaining agile to rapidly changing customer roadmaps and architectures. We were the first in the world to ship both the NVIDIA GB 200 NVL 72 solution last year and the GB 300 NVL 72 in July, two great examples of our speed to market in an environment where speed matters. Customers are seeing real time the value in our ability to deploy large scale clusters quickly and reliably. Our execution, value add through engineering, and ability to Dell design and even Dell manufacturing components within our at scale data center solutions drive margin rate improvement within AI.

In traditional servers, revenue grew again. We now have six consecutive quarters of year over year p and l growth. From a demand perspective, international markets grew, but the April weakness we saw in North America continued. TRUs grew double digits as customers prioritize richly configured servers, given their focus on density and power efficiency driven by a higher mix of our sixteenth generation servers. We have completed the launch of our seventeenth generation portfolio of servers, designed for ultimate performance, reliability, and security, giving customers the ability to consolidate workloads to make room for AI and to drive broader data center efficiencies.

There's still significant opportunity ahead as over 70% of the installed base is running on fourteenth generation servers or older. In storage, revenue was down 3% and demand moderated. We saw double digit demand growth in PowerStore, which has grown six consecutive quarters, five of those up double digits, fueled by very strong channel participation. Within PowerStore, 46% of the buyers were new PowerStore customers, and 23% were new to Dell storage. All flash storage saw strong growth driven by strength in our all flash offerings across PowerMax, PowerStore, PowerScale, and ObjectScale.

Our focus remains on driving not only growth, but also expanding profitability in storage by increasing our mix of Dell IP storage and improving margins within each product. In CSG, we saw momentum continue, although not at the pace we expected. Overall, CSG was up 1% and commercial was up 2%. We now have four consecutive quarters of P and L growth, six consecutive quarters of demand growth in commercial. Commercial demand grew double digits in EMEA with continued growth in North America and APJ, but to a lower extent.

We saw strong demand growth across small and medium business, which helped drive profitability improvement. Consumer revenue declined 7%, but profitability improved as we did a better job on positioning our products, plus we were in a deflationary environment. We expect moderate growth as the PC refresh continues, driven by an aging installed base and the Windows 10 end of life, which is now forty eight days away. To fully seize the refresh opportunity, we've taken steps to improve execution and expand our PC TAM. For example, just this morning, we launched a new business notebook specifically designed to win the entry level commercial PC market.

This is indicative of the fast strategic actions we're taking to drive growth and gain share while operating within our five to 7% long term profitability target. In closing, I'll wrap it up by saying we are pleased with our overall performance. We had another strong quarter with record revenue. EPS grew well above our long term value creation framework. We generated strong cash and shareholder return, and we are building a better company with our modernization work.

Our innovation engine is firing on all cylinders, and the opportunity is showing no signs of slowing down. With the AI hardware and services TAM expected it to double from a $184,000,000,000 last year to $356,000,000,000 in 2028. And we are doing the work internally to adapt rapidly to evolving customer needs. We really like our hand. Now let me turn it over to Yvonne to talk about Q2 in more detail.

Thanks, Jeff. Let me begin with an overview of our Q2 performance, then I'll move to ISG, CSG, cash and guidance. In the second quarter, we saw record revenue and also delivered a Q2 EPS record. Our total revenue was up 19% to $29,800,000,000 Our combined ISG and CSG businesses grew 22%. Gross margin was $5,600,000,000 or 18.7% of revenue.

Gross margin rate was driven primarily by a mix shift to AI servers due to record AI shipments. Operating expense was down 4% to $3,300,000,000 or 11% of revenue as we continue to unlock efficiencies and modernize our processes. Now let's look at operating income. We delivered a 10% increase to $2,300,000,000 or 7.7% of revenue. The increase in operating income was driven by higher revenue and lower operating expenses, partially offset by a decline in our gross margin rate.

Q2 net income was up 13% to $1,600,000,000 primarily driven by stronger operating income and our diluted EPS was up 19% to $2.32 a Q2 record. Now let's move to ISG, where we delivered another quarter of strong performance. ISG revenue was a record $16,800,000,000 up 44%. This marks six consecutive quarters of double digit revenue growth. Servers and networking revenue was a record of $12,900,000,000 up 69%.

Demand for AI remained strong with $5,600,000,000 in orders in the second quarter, and we shipped $8,200,000,000 of AI servers. In traditional servers, we saw continued P and L growth driven by strong TRU expansion as customers consolidated and modernized their data centers. Storage revenue was down 3% to $3,900,000,000 as demand was softer than anticipated. PowerStore continued its double digit growth trajectory with six consecutive quarters of growth. We had ISG operating income of $1,500,000,000 up 14, a Q2 record, and has been up double digits for five consecutive quarters. This was driven primarily by higher revenue.

Our ISG operating income rate was down year over year to 8.8% of revenue. As we have outlined before, the mix of our AI business will have an impact on our margin rates. In the second quarter, we saw a significant shift in our mix to AI as the team executed very well and drove record AI shipments. This was the primary driver of our operating income rate this quarter, partially offset by lower operating expenses. Given our engineering differentiation and integration, we expect our AI margin rates to improve in the second half. Now let's turn to CSG. CSG revenue was up 1% to $12,500,000,000 Commercial revenue was up 2% to $10,800,000,000 while consumer revenue was down 7% to $1,700,000,000 CSG operating income was $800,000,000 or 6.4% of revenue.

TRU's remained stable sequentially and we continue to see customers prioritize richly configured AI ready devices. Our mix of small and medium business and transactional increased, driving an improvement in profitability. In Consumer, profitability improved due to better execution and a deflationary environment. Now let's move to cash flow and the balance sheet. We had another strong cash quarter with cash flow from operations of $2,500,000,000 This was primarily driven by profitability and revenue growth.

We ended the quarter with $9,800,000,000 in cash and investments, up $500,000,000 sequentially. Our core leverage ratio is at our target of 1.5 times. We returned $1,300,000,000 of capital to shareholders with 8,000,000 shares of stock repurchased at an average price of $114 per share and paid a dividend of roughly $0.53 per share. Since our capital return program began at the beginning of FY 2023, we've returned 14,500,000,000 to shareholders through stock repurchases and dividends. Turning to guidance.

We saw strong AI shipments in the first half, delivering $10,000,000,000 of AI servers more than the entirety of last year. We are raising our AI server shipment guidance $5,000,000,000 to $20,000,000,000 with shipments slightly weighted to the third quarter. We expect the demand environment we saw in the second quarter for traditional servers and storage to persist into the second half. In CSG, as the PC refresh cycle continues, we are focused on improving our execution to grow revenue and gain share. Overall, we expect profitability to improve in the second half across CSG and ISG and specifically within AI servers.

Given that backdrop, we expect Q3 revenue to be between $26,500,000,000 and $27,500,000,000 up 11% at the midpoint of $27,000,000,000 ISG and CSG combined are expected to grow 13% at the midpoint, with ISG in the low 20s and CSG up mid single digits. OpEx will be down low single digits. We expect operating income to be up roughly 7%. We expect our diluted share count to be roughly $681,000,000 shares. And our diluted non GAAP EPS is expected to be $2.45 plus or minus $0.10 up 11% at the midpoint.

Moving to the full year. We are raising our full year revenue guidance and now expect FY twenty twenty six revenue to be between $105,000,000,000 and $109,000,000,000 with a midpoint of $107,000,000,000 up 12%. We expect ISG to grow mid to high 20s, driven by AI server shipments and continued growth in traditional servers, and we expect storage to be flat for the year. We continue to expect CSG to grow low to mid single digits. We expect ISG and CSG combined to grow 14% at the midpoint.

The full year guide reflects improved profitability in the second half for ISG and CSG. We continue to execute our modernization efforts and we expect operating expense to be down low single digits. We expect operating income to be up roughly 10%. We expect I and O to be between 1,400,000,000.0 and $1,500,000,000 We are increasing our diluted non GAAP EPS guidance to $9.55 plus or minus $0.25 up 17% at the midpoint, assuming an annual non GAAP tax rate of 18%. In closing, we had very strong results with record revenue and a Q2 record for EPS.

We have a broad portfolio with many operational levers that provide the ability and flexibility to hit our commitments. I have four key priorities. First, enable and drive revenue growth and share gains in the business. Second, do the first one profitably. Third, continue our modernization efforts.

And lastly, generate significant cash flow and continue our track record of strong capital returns to shareholders. I look forward to seeing many of you at our Security Analyst Meeting on October 7. There, we will discuss our optimism on the growth and value creation opportunities that lie ahead. Now, I'll turn it back to Paul to begin Q and A.

Thanks, Yvonne. Let's get to Q and A. In order to ensure we get to as many of you as possible, please ask one concise question. Let's go to the first question.

Thank you. We'll take our first question from Aaron Rakers with Wells Fargo.

Yes. Thanks for taking the question. I guess, Jeff, kind of just hitting on the AI discussion out of the gate, you've raised your full year target to $20,000,000,000 plus, up from $15,000,000,000 last quarter. You've got a Grace Blackwell Ultra product cycle with the GB 300 kind of kicking in. So I'm curious, given that you did $8,200,000,000 this last quarter, I guess implying, call it, 5,000,000,000 to $6,000,000,000 plus or minus throughout the next couple of quarters.

What is your ability to kind of flex upward in the capacity to see continued upside to even that $20,000,000,000 Thank you.

Sure. Maybe to bridge from our discussion ninety days ago, we said $15,000,000,000 was sounding like a plus with a capital P, L, U, and S, and I think we delivered upon that in our guide at $20,000,000,000 It's an exciting category. You've heard us talk about the numbers, but I always sit back and like to reflect on it. So far through the first half of the year, we've sold $17,700,000,000 of AI infrastructure. And we shipped $10,000,000,000 of that, which would imply we'll ship about $10,000,000,000 in the second half, equal to the 20,000,000,005 quarter pipeline continues to grow.

Exciting in that pipeline is we saw the sovereign opportunities and the enterprise opportunities grow double digits. But there's complexity here and the complexity lies into these are large scale deployments. Many have scheduled deliveries, and those scheduled deliveries are dependent on things like buildings being ready, power being installed, cooling being installed, and they were managing a very complex supply chain and a transition, as you called out, to Blackwall Ultra. We're excited about Blackwall Ultra as we are about the rest of our NVIDIA portfolio. The demand continues to be, I think we've said this every quarter, continues to come in lumpy.

It's nonlinear. And our guide is the best estimate that we have at this time. But I'll tell you, we're not slowing down. We have every intention to convert that very large pipeline into incremental orders. We're gonna run through our goal is to run through the 20,000,000,000, and it feels like a a plus.

And we have more than adequate capacity to take that through our manufacturing network to be able to deliver upon that as we work to convert those orders in time. I hope that helps.

The next question will come from Wamsi Mohan with Bank of America.

Yes. Thank you so much. Nice to see the upward revision and momentum in AI servers. When I look through your third quarter and implied fourth quarter guide, it seems like the profit flow through will improve quite significantly as you go into the fourth quarter. And I was hoping maybe you can help us think through the components of change as we go from second to third and third to fourth from a profitability standpoint because it feels like a meaningfully higher step up in fourth quarter? Thank you so much.

Sure, Wangzhi. Why don't I take a run at that? CSG for the second half, I'll talk about the second half holistically and then we can talk about the fourth quarter. CSG is expected to be slightly higher for the second half versus the first half. We plan to focus on execution, driving revenue and share gains while improving profitability, so continuing that focus.

We expect AI servers to be balanced between the first half and the second half. Jeff just alluded that we'll do more if we can, but that's what's implied in our guide. With about $10,000,000,000 of revenue with improved margin rates. From a storage perspective, storage is expected to perform better sequentially in the second half with more Dell IP as well as normal seasonal acceleration in the fourth quarter. That acceleration in fourth quarter that storage weighting is what's driving a significant amount of that expected profitability that's implied in our fourth quarter guide.

Traditional servers are expected to grow in the second half. And of course, we expect our operating expenses to continue to come down as well. So net net, we expect to be able to deliver more profitability in the second half and you see that again weighted into the fourth quarter.

And the next question will come from Eric Woodring with Morgan Stanley.

Hey, guys. Thanks so much for taking my question. I just wanted to, Jeff, maybe touch on the storage market. We heard from some of your peers last night about a strengthening data center monetization opportunity. Revenue was down 3% for you guys, and you're guiding that business flat now.

I think ninety days, you expected to grow 3% plus for the year. So I'd love to just know from the Dell perspective kind of what has changed in the storage market over the last ninety days to get a bit more cautious there? Thanks so much.

Sure. Eric you correctly pointed out down 3% P and L growth. And we tried to describe what we saw was in large accounts, demand was a bit slower, particularly month two and three of the quarter, and particularly in United States and North America. We tend to look at this through the lens of some of the bright spots that we called out in our remarks where power storage grew double digits. It's grown now six consecutive quarters, five of them double digits.

And our entire all flash storage portfolio grew double digits. And when you look at where we landed in Q2, the guidance for Q3 would suggest we're doing better than normal sequentials, which I think is an improvement. And the fact of the matter is our Dell IP storage, we expect to outperform the marketplace. So the market is growing, and we expect to outgrow that market in the second half. It's offset by HCI customers going through what I think is a rethink of their private cloud options.

You might have noticed yesterday, we actually made an announcement around our Dell automation platform to help those HCI customers with an open disaggregated automated alternative. So we're working through that headwind of HCI customers that are in the portfolio trying to determine their next path or the path going forward, While at the same time, our Dell IP portfolio continues to grow. It outperforms the market. We're expanding margin in each of the categories, so we're very optimistic about our Dell IP portfolio and managing through customers' decision and future decision about where they're going with their private cloud deployment. I hope that helps some.

Yep. Super, super helpful. Thank you, Jeff.

And we'll take a question from Ben Reitzis with Melius Research.

Yes. Hey, guys. Thanks. I wanted to go back to sort of Wamsi's question, but more specifically around AI servers. Why will the margins improve?

And what is the order of magnitude there? I think there's a perception that it's low single digits op margin and that it could have the potential eventually over time to get to a higher number than that. So what specifically is going on there? How high can it get by the fourth quarter or long term? And I know Jeff you've talked about an attach rate there.

Is that the reason that the margins are going up? Thanks.

I think thanks for the question. I think there are two things to consider. Yvonne hit it, but I think it's worth making sure we communicate. The business mix matters. And when you look at Q2, the AI server component was nearly half of the CSG or excuse me, the ISG revenue.

And that meant that the traditional server business and the storage business underperformed. And what we're trying to call in our guidance is going to see a recovery in North America servers, are profitable. And we're going to see improved margin performance in our storage business that I just reflected to. That changes the ultimate business mix in the second half, is why Yvonne talked about that as the improvement. In AI specifically, which is your question, q two is interesting.

I mean, would call to your attention that we did add $6,500,000,000 of revenue quarter over quarter and nearly $500,000,000 of operating income quarter over quarter with that significant shipment that we had in AI. As we said consistently, that's gross dollar accretive, rate dilutive. And I think those are examples of that. In our Q2 shipments, we shipped a lot of the early Blackwell wins. And as you might mention that I said last quarter, those were aggressive deals, very competitive deals.

And they were shipped throughout the quarter coupled with we had some expense that I think is one time in nature in our supply chain as we expedited materials to meet our customer needs and demands and to reconfigure the supply chain with what was going on in our geopolitical environment. We expect those margins to improve through some value engineering, scaling of the business, and the expansion of our enterprise customer base. We had the best quarter we've had in AI with enterprise customers in q two. Number of customers grew, the largest dollar demand that we had to date in enterprise. And I think that bodes well for the future, and particularly in enterprise where we have the opportunity to sell networking storage and services with AI factories.

And our next question will come from Vijay Rakesh with Mizuho.

Yes. Hi, Jeff and Yuan. Just a quick question on the pipeline. Just wondering what your mix of sovereign orders was. And then I know you talked about improving AI margins in the back half.

Just wondering what would be the improvements there and the margin upside that you expect? Thanks.

Sure. As we look at the pipeline, again, I think it's important for us to make sure we communicate clearly our sovereign part of the pipeline and our enterprise part of the pipeline grew double digits and grew faster than the CSP portion of the pipeline. That pipeline now has over 6,700 unique customers as opportunity for us. And the composition of that is predominantly Blackwell. Encouraging, we're seeing the new RTX 6,000 in that portfolio, and we're seeing AIR and PCIe as a result of that in the pipeline, which are very good indicators of enterprise opportunity.

So that's the composition of it. It is a composition of CSP from a customer point of view plus enterprise plus sovereign. It's predominantly from a technology point of view. Blackwell with a growing demand of PCIe options. And then if I go back to your question about margins, it's what I tried to articulate earlier to with Ben, we expect the onetime cost in our supply chain to reconfigure into expedite materials not to be in place in the second half.

We think there's some opportunity for us to continue to value engineer the scaling of the p and l, and then lastly, the enterprise customers and shipping to enterprise customers and the opportunity to attach unstructured storage, networking and our professional services around that.

And the next question comes from David Voigt with UBS.

Guys. Thanks, Jeff. Thanks, Yvonne. Jeff, maybe not to belabor the point, but just for clarification, if we think about the mix in the October to more proprietary Dell storage and software delivery in server traditional server, should we expect to see the same level of profitability from those products? Or should they expand relative to where you were last year where it was more 3P technology within storage?

And if that's the case, then should we just think about maybe margins holistically in ISG still being down from last year because of the greater AI service within the ISG segment? Thanks.

I'll start and then Yvonne can come in and get specific with the details with the guide. As we've been moving towards more Dell IP, which is the strategy, those are more margin rich storage offers than our partner IP. We continue to see our Dell IP portfolio grow, and within that, we are actually working to improve and have made progress improving the margins at each one of our Dell IP storage products in our portfolio. And as I just mentioned, think it was Eric's question about growing in storage, we expect our Dell IP storage portfolio to outperform the marketplace. So I I think that bodes very well for what we're doing in terms of margin and margin growth.

The challenge we have is we didn't grow. That was unacceptable. We see that. We are working to remedy that. But that's an aggregate storage number which again I think is partly explained by the fact that we have HCI customers working through their next decisions and next purchases in infrastructure.

Dell Technologies (DELL) Q2 2026 Earnings Call Transcript

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