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GPTW Texas Large 2022-Dell Technologies

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G500 76 Dell Technologies

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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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Q3 2025

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

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Dell Technologies

dell technologies

Ladies and gentlemen, thank you for standing by. You're currently on hold for the fiscal year 2025 Third Quarter Financial Results Conference Call for Dell Technologies, Inc. At this time, we are assembling today's audience and plan to be underway shortly. We appreciate your patience and ask that you please remain on the line. Ladies and gentlemen, good afternoon, and welcome to the Fiscal Year 2025 Third 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 copyrighted 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.

Thanks, everyone, for joining us. With me today are Jeff Clark, 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 some time to view 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 continue to execute well and delivered strong performance in Q3. Revenue was $24,400,000,000 up 10% on strong ISG revenue growth. Diluted EPS was $2.15 up 14% and cash flow from operations was $1,600,000,000 Our focus on balanced profitability paid off with improved operating income, earnings per share and cash flow. We're proud of the fact that year to date, our team has delivered 10% of revenue growth in ISG and CSG combined and overall EPS of $5.31 In ISG, our AI server momentum continued and we saw substantial expansion in our 5 quarter pipeline.

Orders demand was a record $3,600,000,000 up 11% sequentially, primarily driven by Tier 2 cloud service providers with continued growth in enterprise customers. We have seen sequential orders demand growth every quarter since the launch of the XE9,680. We shipped $2,900,000,000 of AI servers in Q3 resulting in AI server backlog of $4,500,000,000 Our 5 quarter pipeline grew more than 50% sequentially with growth across all customer types. We continue to gain traction with enterprise customers large and small with over 2,000 unique enterprise customers since launch. Increasingly, enterprises see the disruptive nature and the innovation opportunities with GenAI, resulting in growing GenAI experimentation and proof of concepts.

Underpinning our success is broad enterprise coverage, professional services, engineering leadership and large scale system design all done with incredible speed and time to market. These highly specialized workloads and deployments require high value engineering and a solutions mindset where custom designs and fast deployments are the norm. Beyond the AI servers, we like the profit pools that surround them like power management and distribution, cooling solutions, network switches, network cables, optics, storage, deployment maintenance, professional services and financial services. We have accelerated the speed of innovation to respond to our customers' GenAI needs over the past year. A few highlights from the past 2 months.

We launched our 21 inches OR V3 Integrated Rack 7,000 in both a 4450 OU Rack design with integrated cooling, power and networking that is multi generational and future proof up to 480 kilowatts per rack. This rack falls in our integrated rack scalable solutions, which are focused on at scale deployment ensuring Dell's AI factories can meet the demands of foundational training at the data center scale. We are shipping the industry's 1st enterprise ready GV200 NVL72 server racks with our new XE9712 with direct liquid cooling that holds up to 72 GPUs per rack. We also announced that Super Compute 24, a new AI server supporting NDL4, also with liquid cooling supporting up to 144 GPUs per rack, one of the industry's most dense designs. And we have the M7725, a dense compute design which supports up to 27,000 CPU cores per rack to meet high performance computing demands.

Our IR5000 can achieve up to 96 GPUs per rack and with a more traditional 19 inches rack design. Within the IR5000 which includes the XE9680L, we introduced the XE7,740 and 7,745 designed for enterprise customers focused on inferencing. We've increased the density and performance of our PowerScale products updating the PowerScale F710 with 61 terabytes of QLC SSDs and capacity density of 6 14 terabytes per rack unit. And with a new software release that when combined with 200 gigabit Ethernet support increases our streaming write performance by 163% and streaming re performance by over 2x versus the previous generation. An application of this technology that I'm excited about is a biomedical research center using the PowerScale F710 and the XE-nine thousand six hundred and eighty to take their own unstructured data and train AI models that will advance personalized treatment plans resulting in better prevention, diagnosis and treatment of various types of cancers.

The opportunity in AI is enormous and we are pushing the boundaries with our engineering and all of this innovation is making its way into the enterprise. In traditional servers, demand improved double digits in Q3, making 4 consecutive quarters of year over year growth driven by growing units and ASPs with denser core counts, memory and storage per server. Customers are focusing on consolidation and power efficiency by modernizing their data centers with more efficient and dense 16 gs servers, freeing up valuable floor space and power that will support their AI infrastructure. In storage, the demand environment continued to trail traditional servers. PowerStore and PowerFlex demand grew double digits in the quarter indicating that our focus on the mid range market with product and software enhancements will drive future growth and margin over time.

The PowerScale F910 and F710 continue to ramp nicely driving double digit growth in the unstructured all flash portfolio. In CSG, we saw continued stability with demand growth in commercial PCs for the Q3 in a row. More enterprise customers are beginning to refresh albeit modest and in a more price competitive environment. We are seeing an indication that customers are lining up their upgrade cycles with new AI PCs in the first half of next year, a clear signal that enterprises are balancing their need to refresh and their desire to future proof their purchases. Consumer demand and profitability continues to be challenged.

We are optimistic about the coming PC refresh cycle as the installed base continues to age and with Windows 10 reaching end of life in 46 weeks. The significant advancements in AI enabled architectures and application development are welcome tailwinds. In closing, AI is a robust AI is a robust opportunity for us in both ISG and CSG and interest in our portfolio was an all time high with no signs of slowing down. That said, this business will not be linear, especially as customers navigate an underlying silicon roadmap that is changing. Regardless, we are winning deals at a price premium to our competition delivering value across a much broader AI ecosystem.

We have the balance sheet to grow the business and the credibility to deliver on our commitments to our customers. When you pair this with a recovering traditional server market and pending PC refresh and our updated storage portfolio, we are extremely well positioned. Now over to Yvonne

Thanks, Jeff. Let me begin with an overview of our performance. Then I'll jump into the specifics of IHG CSG cash and guidance. In the Q3, we delivered strong results including double digit revenue growth, while maintaining our focus on profitability.

This resulted in EPS growth that outpaced revenue. Additionally, the business delivered strong cash performance. Our total revenue was up 10% to $24,400,000,000 This was driven by continued strength in AI and traditional servers and our combined ISG and CSG business grew 13%. Gross margin was $5,400,000,000 or 22.3 percent of revenue. This is down 140 basis points due to an increase in our AI optimized server mix and a more competitive pricing environment, specifically in CSG.

Operating expense was down 2% to $3,200,000,000 or 13.3 percent of revenue. We remain focused on unlocking efficiencies within our cost structure and leveraging AI to reimagine our business and drive higher productivity, all of this while continuing to grow the business. Now, let's look at operating income. We delivered a 12% increase to $2,200,000,000 or 9% of revenue. This was driven by higher revenue and lower operating expenses, which were partially offset by a decline in our gross margin rate.

Finally, Q3 net income was up 11% to $1,500,000,000 primarily driven by stronger operating income and our diluted EPS was up 14% to $2.15 Now let's move to ISG where we delivered another quarter of strong performance. ISG revenue was $11,400,000,000 up 34%. Servers and networking revenue was $7,400,000,000 up 58%. This was a Q3 record for us. And we continue to see strong demand across both traditional and AI servers.

Storage revenue was up 4% to $4,000,000,000 The overall demand environment in storage continues to lag that of traditional server. However, as Jeff mentioned, we saw double digit demand growth in PowerStore and PowerFlex, 2 of our marquee mid range offerings. We had strong ISG operating income of $1,500,000,000 up 41%. This was driven primarily by higher revenue. Our ISG operating income rate was up again sequentially to 13.3 percent of revenue.

The rate improvement of 2 30 basis points was the result of improving gross margins, especially in servers and reduced operating expense. Now let's turn to CSG. CSG revenue was down 1% to $12,100,000,000 Commercial revenue was up 3% to $10,100,000,000 while consumer revenue was down 18% to $2,000,000,000 CSG operating income was $694,000,000 or 5.7 percent of revenue. This is 50 basis points lower sequentially due to a more competitive pricing environment, primarily in the consumer space. Enterprise demand was promising, though less than expected as we saw some demand push into future quarters.

Possibility in the commercial space held up well sequentially as customers continued to purchase more richly configured devices. Our consumer business was weaker than expected as demand and profitability remained challenged. The PC refresh cycle is pushing into next year, but has significant tailwinds around an aging install base, AI driven hardware enhancements like battery life and Windows 10 end of life. Shifting gears, Dell Financial Services originations were down 11% to 1,600,000,000 in the Q3. When you normalize for the exit of our VMware resale business and the sale of our consumer revolving portfolio, DFS originations were up 4% driven by strength in AI optimized servers.

Now let's move to cash flow and the balance sheet. Q3 cash flow from operations was $1,600,000,000 This was primarily driven by profitability, partially offset by working capital. Our cash conversion cycle was negative 38 days with $6,700,000,000 in inventory, which is elevated compared to historical levels due to our AI server business and AI order linearity. We ended the quarter with $6,600,000,000 in cash and investments, up $600,000,000 sequentially. This is the result of free cash flow generation partially offset by capital returns of $700,000,000 We repurchased 3,700,000 shares of stock at an average price of $107.53 and paid a dividend of $0.45 per share.

Since our capital return program began at the beginning of FY 2023, we've returned $9,800,000,000 to shareholders through stock repurchases and dividends. Finally, our core leverage ratio was flat sequentially at 1.4x. Now turning to guidance. The IT spending environment continues to be dynamic with certain areas experiencing faster growth than others. That said, our business model is advantaged.

We have a broad portfolio of solutions and a go to market engine that's poised to capture these opportunities. We expect the strength in our server business to continue. However, enterprise and large customers are being more mindful of their PC and storage IP spend in the short term. Against that backdrop, we expect Q4 revenues to be between $24,000,000,000 $25,000,000,000 up 10% at the midpoint of $24,500,000,000 with ISG and CSG combined growing 13% at the midpoint. We expect the ISG revenue growth rate to be up mid-20s year over year driven by AI and traditional servers and we expect the CSG revenue growth rate to be up low single digits year over year.

OpEx is expected to decline mid single digits as we continue to drive efficiencies in the business. We expect the operating income rate to be up sequentially with continued improvement in ISG. We expect our Q4 diluted share count to be between 715,000,000 719,000,000 shares and our diluted non GAAP EPS is expected to be $2.50 plus or minus $0.10 up 14% at the midpoint. At the midpoint of our full year guidance, revenue is expected to grow 9% and diluted non GAAP EPS is expected to be $7.81 up 10% year over year. Now turning to fiscal year 2026.

We'll provide formal guidance in our Q4 call, but I know that many of you have questions about our view on next year. So let me walk you through our current thinking. We expect multiple tailwinds going into next year, including more robust AI demand supported by our strong 5 quarter pipeline. There's also an aging install base in both PCs and traditional servers that are prime for a refresh. We expect ISG growth to be driven primarily by AI servers, followed by traditional servers and storage.

We expect CSG to grow as enterprise customers refresh a large and aging install base. We'll continue to balance growth and profitability, managing price within the competitive landscape and input cost environment. And we'll continue to invest in the business while driving cost efficiencies across the portfolio. In closing, I'm incredibly proud of the team and how we executed operationally. We remain focused on growth and profitability, always looking to optimize our margin rates and dollars.

We have a unique operating model and strategy where we leverage our strength to extend our leadership position and capture new growth. We have a strong control environment, differentiated cash conversion cycle, a strong balance sheet, financing capabilities with DFS and investment grade ratings. All of these elements position us to win incremental business. Our confidence is underpinned by our 40 year history of success and durable cash flow generation. I'll echo Jeff.

We are extremely well positioned as we look to Q4 FY 'twenty six and beyond. We are winning in AI. Traditional servers are recovering. We are positioning storage for the long term and commercial PCs are stabilizing and on the cusp of a refresh. As always, we'll continue to provide differentiated solutions for our customers and drive shareholder value.

Now, I'll turn it back to Paul to begin Q and A.

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

We'll take our first question from Amit Daryanani with Evercore ISI.

Good afternoon, everyone. Thanks for taking my question. I guess I just wanted to focus on the ISG margins. They came in at 13.3%, much better than I think what most folks were expecting. So can you just kind of dig into what the puts and takes where that enabled this ISG margin performance that seems more impressed than what people were apprehensive about?

And then perhaps you just talked about the durability of these ISG margins as you go forward as well? Thank you.

Thanks Amit. I'll start on that. So ISG, let me start with revenue. Revenue grew 34% year over year, so impressive performance with server and networking up 58% and storage up 4%. ISG operating income like you said was up 2 30 basis points quarter over quarter, which is up 5.30 basis points since Q1.

So a nice recovery there as we had indicated. The Q3 quarter on quarter change was driven primarily by improving gross margins, so especially in servers and a reduced operating expense percentage. Traditional servers demand improved and customers are buying more richly configured servers, which has we've seen over the last few quarters. Units and ASPs grew with denser core counts and more memory and storage per server. So again, great to see.

Customers focused on consolidation and power efficiency by modernizing their data centers, which frees up some volume or space for, AI infrastructure. From an AI standpoint, AI servers, as well as storage margins were flat to slightly up quarter on quarter. So that was again good to see. And we also realized more cost efficiencies quarter on quarter helping our operating income. Looking into Q4, expect ISG operating income rates to continue to improve.

Our next question comes from Toni Sacconaghi with Bernstein.

Yes, thank you. I'm just wondering, I think last quarter, you were the midpoint of your guidance for the year was $97,000,000,000 Now the midpoint is $96,100,000,000 And I'm wondering what has changed in terms of coming up weaker than your expectations, especially in light of the fact that it sounds like the AI pipeline is really strong. I think last quarter you said it was multiples of backlog, which would have put it at $11,000,000,000 to $13,000,000,000 And you said it grew 50% sequentially. So are we looking at a backlog that's a pipeline, excuse me, that's like $16,000,000,000 or $17,000,000,000 And why is that not informing a more optimistic view for Q4 than what you had 90 days ago? Thank you.

Tony, maybe a couple of things to think about what's changed in our thinking over the past 90 days and then I'm going to build on this. First and foremost, as we tried to outlay in our remarks is the PC refresh is continues to move out. It was the source of our under run-in Q3 and we're kind of reflecting that through the balance of the year that this refresh that we're all anticipating that we know is there with a large installed base and a Windows 10 end of life is coming, but the triggers have been slower to move. In many cases, late in starting and slow in refreshing, and we have a pent up demand, we believe, that's pushing into calendar 2025 fiscal 2026. And the second element that we reflect in that annual guidance or specifically in Q4 is the shift in demand in AI to Blackwell.

And it's the best reflection we have is that demand is in our backlog now when we can ship it. And those are the two levers of why you see a change in our fiscal year and Q4 guidance. Yvonne?

Yes. I'd say we did bring Q4 revenue guidance down as you mentioned, Tony, and it's basically those two elements. PCs, it's not a matter of if the refresh is going to happen it's when and we're seeing that move more into next year. And then the unpredictability of the AI shipments. And so putting those two things together, we feel strong about the overall performance in Q4, but there's some more timing differences than what we were anticipating when we gave the guide the last quarter.

Our next question comes from Aaron Rakers with Wells Fargo.

Yes. Thank you for taking the question. Kind of sticking on the theme of the AI server dynamics, Jeff, I'm curious as you think about this several multiples AI pipeline, I think defined as 5 quarters in front of you, how do you think about the cadence of shipping Blackwell in volume? And do you have any thoughts around the GB200 NBL? How much of that would be as a percentage of your mix and the margin profile in those relative to maybe the traditional or the AI servers you ship today?

Sure. And maybe a couple of things as we think about the 5 quarter backlog and bridging from Tony's question to yours. Look, it grew. We talked about several multiples without telling you the exact number.

That multiple expanded quarter over quarter and grew in excess of 50%. The enterprise customer portion of that grew even faster. And remember, that's an unweighted pipeline. That's the full opportunity. Obviously, it's for us to convert in the marketplace, but it's a reflection of the growing demand.

We saw it grow. We believe it continues to grow. We saw in Q3 a shift and a pretty rapid shift of the orders moving towards our Blackwell design, the specific one that you called out the GB200. That's now on backlog. So the backlog in orders for the quarter, without giving you a specific percentage, was a significant portion of the demand and now is a significant portion of the backlog.

That's what we're trying to reflect in our guidance and when the ability to get that material and then put it in the hands of our customers. You would have seen us 9 or 10 days ago make a post that we were the first to ship a GB200 design in the marketplace. We have them designed. We're ready to go. Blackwell is in production.

It will continue to ramp and we'll be ready.

Our next question comes from David Vogt with UBS.

Great. Thanks guys. Thanks for taking my question. So not to beat a dead horse in AI, I want to try a different topic. I don't think I heard you guys talk about

federal spending or sovereign spending. Can you guys

of the impact that you're seeing in sort of the federal vertical?

Is that having an impact on traditional servers, storage and maybe on the margin commercial PC if it's captured in that category? And then how do you think about that getting resolved into 2025 as we move through a new administration

handoff and what that might mean for the business?

Well, for the quarter, and Yvonne can build on this, as we saw the government, the federal government business was strong in Q3. The demand was strong across all types of products. With respect to the AI pipeline that I referred to, it does not have a sizable sovereign component to it. We're well aware of the opportunities. We're actively engaged across the globe in those opportunities, but that number does not reflect a significant sovereign number in it, which speaks to the opportunity that's still in front of us there.

No, I think you hit on it, Jeff. The federal business, we did have a strong quarter within the Q3 and are continuing to see the pipeline build specifically there. So excited about that opportunity.

Our next question comes from Eric Woodring with Morgan Stanley. Mr. Woodring, please remember to unmute.

Sorry about that. Thank you, guys. So, Jeff, earlier this year, there was a belief that AI server sales would pull forward some storage and services demand. And I'm just curious as you look at kind of the needs and evolution of your AI server customer base, whether this is still kind of an untapped storage and services opportunity that just hasn't materialized yet? And if it hasn't materialized yet, kind of why that would be the case?

Would love for you to double click on that. Thanks so much.

Of course, Eric. Look, we're pretty excited about the opportunity in AI to expand beyond the individual node. I think we've tried to reflect that in our previous comments, but to maybe try to be very specific here, the opportunity is beyond the node into full rack scale integration. And in full rack scale integration is the networking opportunity, the storage opportunity, mundane things like cooling and how you actually build very efficient cooling subsystems to take the energy density out, how do we do power distribution, power management, putting telemetry in, doing power management, all of those are opportunities for us to expand our margins and why we believe we have a differentiated solution and ultimately are at a premium to our competitors. Then you add the service component to it, our ability to do L11 and L12, our ability to take this racks these integrated rack scale solutions and be able to design, support and service those in the field, deploy at scale, the financial services our DFS team can provide our customers in their early times and growing at incredible rates.

That combination of opportunity exists for us in each and every one of these large opportunities, and we're increasingly seeing the opportunity. Again, whether it's storage, whether it's networking, cabling, all of those matter. The design matters and then being able to deploy it at speed is another characteristic of the Dell scale.

Our next question comes from Wamsi Mohan with Bank of America.

you noted AI revenues would be down quarter on quarter in 3Q. Can you talk about how we should think about Q4 as well? And my main question is, Ivan, you mentioned an early look into fiscal 'twenty six on CSG, where you're expecting revenues to be up. Can you talk about how you're thinking about margins also in that context and potentially any impact that you're contemplating from tariffs? Thank you.

So I can talk a bit about the Q4 guide and we have taken into account in that guide the mix within AI and expecting but expecting those margins which I know we don't talk about holistically, but expect them to stay relatively consistent. So the mix would be what's driving there. We've talked about AI revenue or in our offerings being margin dollar accretive and margin rate dilutive. So we'll continue to see that play out as we grow. But you've seen our results and we're continuing we had record or very high operating income in ISG, while again growing AI and growing across portfolio.

If I move into FY 2026, which I think you're heading to, I think it's a we're a bit early in the process to talk fully about FY 2026. We kick off that process in full over the next few weeks. But very optimistic about where next year will head. We don't we do expect multiple tailwinds that support growth next year. So we feel positive about that.

So more robust AI demand portfolio or opportunity with strong 5 quarter pipeline that Jeff already talked about going into the year, an aging installed base for both PCs and traditional servers, again, opportunity there. We expect IHG growth driven and primarily by AI servers followed then by traditional servers and storage and we expect CSG to grow. And enterprise expansion refresh cycle that is coming and coming soon will help drive those the profitability and that revenue. So looking forward to next year, a little too soon for us to give a guide, but we will follow that up at the next earnings call for everyone and announce what we intend for next year.

Dell Technologies (DELL) Q3 2025 Earnings Call Transcript

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