Dell Technologies, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• AI server momentum continued: Orders demand reached a record $3.6 billion, up 11% sequentially. Shipped $2.9 billion of AI servers in Q3 with a backlog of $4.5 billion. The five - quarter pipeline grew over 50% sequentially.
• Traditional servers: Saw double - digit demand growth for four consecutive quarters, driven by consolidation and power efficiency.
• Storage: PowerStore and PowerFlex had double - digit demand growth, and PowerScale F710 and F910 were ramping nicely.
• CSG: Had continued stability in Commercial PCs but faced challenges in consumer demand and profitability, with the PC refresh cycle pushing into next year. Leveraged AI to reimagine the business and drive productivity while growing the business.

In Q3, ISG revenue was $11.4 billion, up 34%. Servers and networking revenue was $7.4 billion, up 58% (a Q3 record). Storage revenue was up 4% to $4 billion. CSG revenue was down 1% to $12.1 billion, with Commercial revenue up 3% to $10.1 billion and Consumer revenue down 18% to $2 billion. ISG operating income was $1.5 billion, up 41%, with an operating income rate of 13.3% of revenue. CSG operating income was $694 million, 5.7% of revenue, 50 basis points lower sequentially due to a more competitive pricing environment.

Guidance: Expect Q4 revenues to be between $24 billion and $25 billion, up 10% at the midpoint of $24.5 billion, with ISG and CSG combined growing 13% at the midpoint. ISG revenue growth rate is expected to be mid - 20s year - over - year driven by AI and Traditional servers, and CSG revenue growth rate is expected to be low - single - digits year - over - year. OpEx is expected to decline mid - single - digits year - over - year. Q4 diluted share count is between 715 million and 719 million shares, and diluted non - GAAP EPS is expected to be $2.50 ± $0.10. Full - year revenue is expected to grow 9%, and diluted non - GAAP EPS is $7.81, up 10% year - over - year.

Risks: Actual results and events could differ materially from projected due to a number of risks and uncertainties, including those discussed in the webdeck and SEC filings.

Q: Amit Daryanani asked about ISG margins.

A: Yvonne McGill said ISG margin improvement was due to improving gross margins in servers and reduced operating expense percentage, expecting ISG operating income rates to continue improving.

Q: Toni Sacconaghi asked about guidance change.

A: Jeff Clarke and Yvonne McGill said the PC refresh moved out and AI shipments shifted to Blackwell, causing the guidance change.

Q: Aaron Rakers asked about AI server cadence.

A: Jeff Clarke said the five - quarter pipeline grew over 50%, orders shifted to the Blackwell design which is in production and ramping.

Q: David Vogt asked about federal spending.

A: Jeff Clarke and Yvonne McGill said the federal business was strong in Q3 and the pipeline was building.

Q: Erik Woodring asked about storage and services opportunity.

A: Jeff Clarke said opportunities exist in networking, storage, cooling, power distribution, services, and financial services.

Q: Wamsi Mohan asked about Q4 AI shipments and FY'26 CSG margins.

A: Jeff Clarke said AI shipments reflected the backlog shift, and Yvonne McGill said it was early to talk fully about FY'26 but was optimistic about tailwinds.

Q: Ben Reitzes asked about AI pipeline and storage growth.

A: Jeff Clarke said the pipeline grew due to differentiation, and Yvonne McGill said storage was expected to grow in FY'26.

Q: Asiya Merchant asked about customer concentration in AI backlog.

A: Jeff Clarke said there were over 2,000 enterprise customers, and the enterprise portion of the pipeline was growing.

Q: Mehdi Hosseini asked about AI platform migration.

A: Jeff Clarke said there was demand on both Hopper and Blackwell architectures, and the open - based architecture allowed customization.

Q: Krish Sankar asked about AI server attach rate.

A: Jeff Clarke said storage was essential for AI, and the PowerScale and Dell IP portfolio were positioned for AI storage.

Q: Michael Ng asked about AI server backlog and shipments.

A: Jeff Clarke said Q4 shipments were slightly down, but the five - quarter pipeline was growing.

Q: Samik Chatterjee asked about traditional server growth sustainability.

A: Jeff Clarke said traditional server growth was due to consolidation, TRU expansion, and was early in the consumption cycle.

Q: Simon Leopold asked about OpEx decline and tariffs.

A: Yvonne McGill said OpEx decline was year - over - year, and Jeff Clarke said the global supply chain was resilient to tariffs.

Q: Steven Fox asked about storage business dynamics.

A: Jeff Clarke said PowerStore, PowerScale, PowerMax, etc., were driving storage growth, and Yvonne McGill said Q4 was strong for storage.

Q: Tim Long asked about AI server gross profit.

A: Jeff Clarke said ASPs were high, the rate was dilutive but improving through services, installation, financing, networking, and storage opportunities.