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    DELL
    Earnings call· Jan 2025(Q4 FY25)

    Dell Technologies Inc. DELL

    Feb 27, 2025 Source

    Executive summary

    Dell Q4 FY25 — Strong AI Server Demand and Record EPS

    Dell Technologies concluded FY25 with robust financial performance, driven by significant AI server demand and strong ISG growth, leading to record EPS. Despite a more competitive pricing environment and the dilutive effect of AI server mix on gross margins, the company is leveraging its operational efficiencies and strategic investments to maintain profitability and expects continued growth in FY26, supported by an expanding AI pipeline and an anticipated PC refresh cycle.

    Highlights

    5

    • FY25 revenue grew 8% to $95.6 billion.

    • FY25 record non-GAAP diluted EPS of $8.14, up 10%.

    • Q4 AI orders demand was $1.7 billion, with shipments of $2.1 billion, and current AI backlog is roughly $9 billion.

    • ISG revenue increased 22% in Q4, with servers and networking up 37%.

    • Annual dividend increased by 18% to $2.10 per share, and the share repurchase authorization increased by $10 billion.

    Concerns

    5

    • Q4 gross margin declined 50 basis points to 24.3% due to competitive pricing in CSG and an increased AI-optimized server mix.

    • Consumer revenue was down 12% in Q4, reflecting soft demand and challenged profitability.

    • Q4 CSG operating income rate decreased 90 basis points sequentially to 5.3% due to a more competitive pricing environment.

    • Blackwell AI server margins are currently lower than Hopper margins.

    • FY26 gross margin rate is expected to decline roughly 100 basis points due to a higher AI-optimized server mix and the current competitive environment.

    Guidance & targets

    21
    CategoryTargetConfidence
    FY26 Revenue
    $101B-$105B
    high materiality
    High
    FY26 ISG Growth
    High teens
    medium materiality
    High
    FY26 AI Server Shipments
    $15 billion
    high materiality
    High
    FY26 CSG Growth
    Low to mid-single digits
    medium materiality
    High
    FY26 Combined ISG and CSG Growth
    10%
    medium materiality
    High
    FY26 Gross Margin Rate
    Decline roughly 100 basis points
    high materiality
    High
    FY26 Operating Expenses
    Down low single digits
    medium materiality
    High
    FY26 ISG Operating Income Rate
    Roughly flat year-over-year
    medium materiality
    High
    FY26 CSG Operating Income Rate
    Down slightly
    medium materiality
    High
    FY26 Interest and Other
    $1.4B-$1.5B
    low materiality
    High
    FY26 Non-GAAP Diluted EPS
    $9.30, plus or minus $0.25
    high materiality
    High
    FY26 Non-GAAP Tax Rate
    18%
    low materiality
    High
    Q1 FY26 Revenue
    $22.5B-$23.5B
    high materiality
    High
    Q1 FY26 Combined ISG and CSG Growth
    6%
    medium materiality
    High
    Q1 FY26 ISG Growth
    Low teens
    medium materiality
    High
    Q1 FY26 CSG Growth
    Flat year-over-year
    medium materiality
    High
    Q1 FY26 Gross Margin Rate
    Lower sequentially
    medium materiality
    High
    Q1 FY26 Operating Expenses
    Down low single digits year-over-year
    medium materiality
    High
    Q1 FY26 Operating Income Rate
    Down sequentially
    medium materiality
    High
    Q1 FY26 Diluted Share Count
    706 million and 710 million shares
    low materiality
    High
    Q1 FY26 Non-GAAP Diluted EPS
    $1.65, plus or minus $0.10
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    ISG
    Delivered strong performance with record operating income and rate. Driven by strong demand across both AI and traditional servers, and a pivot to Dell IP storage. Storage profitability improved due to higher mix of Dell IP versus partner IP, improved product profitability, and revenue scaling.
    Servers and networking revenue: $6.6 billionServers and networking growth: 37%Storage revenue: $4.7 billionStorage growth: 5%PowerStore demand growth: 4 consecutive quartersPowerStore demand growth (last 3 quarters): Double-digitPowerScale demand growth: Double-digitPowerFlex buyer base: Grew
    		$11.4 billion22%—$2.1 billion (operating income), 18.1% (operating income rate)
    CSG
    Experienced a more competitive pricing environment, leading to a sequential decline in operating income rate. Saw strength in SMB, a leading indicator, but overall slowdown in January. Commercial profitability was weaker than expected, and consumer demand remained soft and profitability challenged.
    Commercial revenue: $10 billionCommercial growth: 5%Consumer revenue: $1.9 billionConsumer growth: -12%
    		$11.9 billion1%—$0.6 billion (operating income), 5.3% (operating income rate)

    Operational metrics

    31
    FY25 Revenue
    $95.6BUp 8%
    FY25

    Company-wide revenue for fiscal year 2025.

    FY25 Operating Income
    $8.5B
    FY25

    Company-wide operating income for fiscal year 2025.

    Operating expenses (Opex)
    Down 4%
    FY25

    Operating expenses reduced over the course of fiscal year 2025.

    Non-GAAP EPS
    $8.14Up 10%
    FY25

    Record non-GAAP diluted earnings per share for fiscal year 2025.

    Cash flow
    $4.5B
    FY25

    Company-wide cash flow for fiscal year 2025.

    Revenue & growth rate
    $23.9BUp 7%
    Q4 FY25

    Total company revenue for Q4 FY25.

    Non-GAAP EPS
    $2.68Up 18%
    Q4 FY25

    Non-GAAP diluted earnings per share for Q4 FY25.

    Gross margin
    $5.8B
    Q4 FY25

    Gross margin for Q4 FY25.

    Operating expenses (Opex)
    $3.1BDown 6%
    Q4 FY25

    Operating expenses for Q4 FY25.

    Operating income
    $2.7BUp 22%
    Q4 FY25

    Operating income for Q4 FY25.

    Net income
    $1.9BUp 15%
    Q4 FY25

    Net income for Q4 FY25.

    Cash Conversion Cycle
    Negative 31
    Q4 FY25

    Cash conversion cycle for Q4 FY25.

    Inventory
    $6.7B
    Q4 FY25

    Inventory balance for Q4 FY25.

    Cash and investments balance
    $5.2BDown $1.4B sequentially
    Q4 FY25

    Cash and investments balance at the end of Q4 FY25.

    Net leverage
    1.2xDown sequentially
    Q4 FY25

    Core leverage ratio at the end of Q4 FY25.

    Share buyback
    6.4 million
    Q4 FY25

    Shares repurchased in Q4 FY25.

    Capital returned
    $1.1B
    Q4 FY25

    Total capital returned to shareholders in Q4 FY25.

    Capital returned
    $10.8B
    Since FY23 start

    Total capital returned to shareholders since the beginning of FY23.

    Dividend
    18%
    Annual

    Increase in annual dividend.

    Share repurchase authorization
    $10B
    Increase

    Increase in the Board-approved share repurchase authorization.

    Dell Financial Services Assets Under Management
    $15BUp 5%
    Q4 FY25 end

    Assets under management for Dell Financial Services.

    Dell Financial Services Originations
    Up 7%
    Q4 FY25

    Normalized originations for Dell Financial Services.

    AI Hardware and Services TAM
    $295BNearly doubled over the year
    2027

    Total Addressable Market for AI hardware and services.

    Traditional Servers Growth
    Double digits
    Q4 FY25

    Growth in traditional servers.

    Server Mix
    Increasing
    Q4 FY25

    Mix of 16G servers continues to increase.

    PowerStore Demand Growth
    Double-digit
    Last 3 quarters

    Demand growth for PowerStore.

    Windows 10 End of Life
    9
    Remaining

    Time remaining until Windows 10 end of life.

    Installed base
    1.5 billion
    Current

    Total PC installed base.

    PCs running Windows 10 (cannot run Windows 11)
    Over 500 million
    Current

    Number of PCs running Windows 10 that cannot be upgraded to Windows 11.

    PCs running Windows 10 (can run Windows 11)
    More than 200 million
    Current

    Number of PCs running Windows 10 that can be upgraded to Windows 11.

    ISG Operating Income Rate
    9.1%Up from 8.9%
    FY26 midpoint

    Expected ISG operating income rate at the midpoint of FY26 guidance.

    Industry KPIs

    7
    MetricValueDetails
    Capital return FCF$1.1B (Q4), $10.8B (since FY23 start)USD
    Gross margin drivers24.3%%
    Services peripheral attach—
    Installed base refresh runway1.5 billionPCs
    Capacity roadmap qualification—
    Ai server orders revenue backlog$1.7B orders, $2.1B shipments, $4.1B backlog (Q4 end), ~$9B backlog (call date)USD
    Revenue mix by end market segmentISG $11.4B, CSG $11.9BUSD

    Orderbook & backlog

    4
    AI orders demand$1.7BQ4 FY25
    AI shipments$2.1BQ4 FY25
    AI backlog$4.1BQ4 FY25 end

    Customers working through technology changes.

    AI backlogRoughly $9B2025-02-27

    Includes deals booked in February with xAI and other customers.

    Product announcements

    10
    ProductTypeDetails
    PowerEdge XE9712launch
    Dell infrastructure rack Scalable system (IR7000 and 5000)launch
    Direct-to-chip liquid cooling version of 9680launch
    PowerStore Primeupdate
    PowerScale F910 and F710launch
    Copilot+ PCslaunch
    Intel Lunar Lake commercial PCslaunch
    4k monitorslaunch
    Holistic solution to manage fleet of PCs and peripheralslaunch
    PC portfolioupdate

    Deals & partnerships

    1
    xAI and other customersAI server deals

    Partnership continued in February, resulting in booked deals for AI servers.

    Risks & headwinds

    6
    Competitive pricing environmentQ4 FY25, FY26

    Q4 gross margin down 50 bps; Q4 CSG operating income down 90 bps sequentially; FY26 gross margin rate expected to decline roughly 100 bps.

    Mitigation: Managing pricing, competitive environment, and driving value for shareholders; leveraging operational efficiencies.

    Higher AI-optimized server mixQ4 FY25, FY26

    Dilutive to gross margin rate (Q4 gross margin down 50 bps, FY26 gross margin rate expected to decline roughly 100 bps).

    Mitigation: Balancing growth and profitability; driving profitability in traditional servers and storage; focusing on enterprise AI margins which are expected to be better.

    Soft consumer demandQ4 FY25

    Consumer revenue down 12% in Q4; profitability remains challenged.

    Mitigation: Well positioned for PC refresh with simplified rebrand, go-to-market engine, and focus on commercial PCs.

    Lower Blackwell AI server marginsCurrent

    Blackwell margins are lower than Hopper margins.

    Mitigation: Focusing on custom design/architecture work, supply chain optimization, attaching networking and storage, and services to drive differentiation and value; enterprise AI margins are expected to be better.

    Tariff uncertaintyOngoing

    New tariff announcements (e.g., 20%) not reflected in current guidance; potential for price adjustments.

    Mitigation: Globally diverse, agile, and resilient supply chain; using AI modeling to optimize network; treating unmitigated tariffs as input costs and adjusting prices accordingly.

    Headwind from HCI and high-end storageOngoing

    HCI business will become smaller; secular decline in high-end space (PowerMax).

    Mitigation: Overcoming by taking share in Dell IP storage portfolio (midrange, PowerFlex, PowerScale); driving growth in traditional servers through consolidation and higher TRU.

    What to watch in Q1 FY26

    5

    AI server revenue and backlog progression

    Q1 FY26 and beyond
    CurrentQ4 AI shipments $2.1B, Q4 end backlog $4.1B, current backlog ~$9B
    TargetContinued growth in AI server shipments and backlog, conversion of pipeline to orders.

    Why it matters

    AI server growth is a primary driver of the company's growth narrative and overall revenue/profitability.

    In Q4, AI orders demand was $1.7 billion with $2.1 billion in shipments, ending the quarter with $4.1 billion in backlog as customers work through technology changes. And in February, our partnership with xAI and other customers continued. We booked deals, putting our AI backlog at roughly $9 billion as of today.

    Q&A highlights

    6

    How does the FY26 guide, particularly EPS growth, reconcile with flat to down ISG/CSG margins, and what assumptions are made regarding buybacks and tariffs?

    Yvonne McGill explained that the 8% revenue growth (midpoint $103B) is driven by high-teens ISG growth (including $15B AI server shipments) and low-to-mid single-digit CSG growth. OpEx is expected to be down low single digits due to efficiencies. ISG operating income rate is expected to be roughly flat, balancing growth and profitability, while CSG is expected to be down slightly due to competition. New tariff announcements were not factored into the current guide.

    “we are going to be growing the AI business while continuing to drive profitability there. So we'll continue to balance, as we have been doing, our growth and profitability.”

    asked by Wamsi Mohan · answered by Yvonne McGill

    2 min read6 chapters

    Detailed Narrative

    01

    AI Portfolio Expansion and Innovation

    Dell expanded its AI-optimized portfolio with 5 new platforms, including the PowerEdge XE9712 supporting NVIDIA's NVL72 GB200, which was the first to ship globally. They also introduced the IR7000 and 5000 scalable systems, supporting up to 96 GPUs per rack and 480 kilowatts per rack, alongside liquid cooling solutions for improved density and energy efficiency. These innovations are designed to extend AI from large CSPs to enterprise workloads and the edge.

    02

    Strategic Storage Advancements and Profitability

    The company made significant advancements in its storage portfolio, including PowerStore Prime for mid-range storage with 5-to-1 data reduction and 30% IOPS improvement, and PowerScale F910/F710 for unstructured and AI workloads. This strategic pivot to Dell IP storage contributed to strong profitability and growth in the ISG segment, with PowerStore seeing 4 consecutive quarters of demand growth, the last three at double-digits.

    03

    PC Refresh Cycle and AI PCs

    Dell introduced Copilot+ PCs with ARM-based Qualcomm Snapdragon processors and Intel Lunar Lake commercial PCs, aiming to capitalize on the anticipated PC refresh. The company expects a broader refresh driven by an aging installed base (half of 1.5 billion PCs are 4+ years old), the Windows 10 end-of-life (9 months away), and the increasing availability of AI PCs, with SMB showing early signs of recovery.

    04

    Operational Efficiency and Modernization

    Dell achieved a 4% reduction in operating expenditures in FY25 while growing revenue, attributing this to a modernization strategy focused on simplifying, standardizing, and automating workflows. This approach involves deploying AI internally for use cases like content creation, support assistance, and document automation, which is expected to drive durable efficiencies and enable investments in innovation while reducing overall spend.

    05

    Capital Allocation and Shareholder Returns

    The company demonstrated confidence in its business by increasing its annual dividend by 18% to $2.10 per share and approving a $10 billion increase in its share repurchase authorization. Since the start of FY23, Dell has returned $10.8 billion to shareholders through buybacks and dividends, reflecting a commitment to its capital allocation framework.

    06

    AI Market Opportunity and Differentiation

    The AI hardware and services TAM is projected to nearly double to $295 billion by 2027, growing at a 33% CAGR. Dell positions itself to capture this growth through its end-to-end solutions, engineering capabilities, global service footprint, financing options, and ability to rapidly deploy complex AI clusters, differentiating itself from ODMs and other OEMs.

    AI-generated summary of the company’s earnings call. Not investment advice.