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    DELL
    Earnings call· Apr 2025(Q1 FY26)

    Dell Technologies Q1 FY26 earnings call DELL

    May 29, 2025 Source

    Executive summary

    Dell Technologies Q1 FY26 — Unprecedented AI Server Demand Drives Strong EPS Growth

    Dell Technologies reported strong Q1 FY26 results, driven by unprecedented demand for AI-optimized servers, with $12.1 billion in orders and a growing pipeline. While core markets like commercial PCs and storage showed growth, the company noted moderation in traditional servers and continued challenges in the consumer PC segment. Management reiterated full-year revenue guidance and raised EPS guidance, emphasizing AI momentum and disciplined capital allocation.

    Highlights

    6

    • Total revenue increased 5% to $23.4 billion.

    • Diluted EPS grew 17% to $1.55, outpacing revenue growth by 3x.

    • Record Q1 cash flow from operations of $2.8 billion.

    • AI-optimized server orders booked $12.1 billion in Q1, surpassing all of FY25 shipments.

    • ISG revenue grew 12%, with Servers and Networking up 16% and Storage up 6%.

    • Commercial PC revenue increased 9%, driving CSG growth.

    Concerns

    4

    • Gross margin declined 80 basis points due to competitive pricing in CSG and geographical mix in traditional servers.

    • Consumer revenue decreased 19%, with the market remaining challenged and competitive pricing.

    • Traditional server demand moderated compared to the previous quarter, with a lower mix of North America.

    • Q2 guidance anticipates sub-seasonal performance in traditional server and storage segments.

    Guidance & targets

    19
    CategoryTargetConfidence
    Q2 Revenue
    $28.5 billion to $29.5 billion
    high materiality
    High
    Q2 ISG and CSG combined growth
    19% at the midpoint
    medium materiality
    High
    Q2 ISG growth
    significantly
    medium materiality
    High
    Q2 CSG growth
    low-to-mid single digits
    medium materiality
    High
    Q2 Operating Expense growth
    down low single digits
    medium materiality
    High
    Q2 Operating Income growth
    up roughly 8%
    high materiality
    High
    Q2 Diluted Share Count
    roughly 685 million shares
    medium materiality
    High
    Q2 Diluted Non-GAAP EPS
    $2.25 plus or minus $0.10
    high materiality
    High
    FY26 Revenue
    $101 billion to $105 billion
    high materiality
    High
    FY26 ISG growth
    high-teens
    medium materiality
    High
    FY26 AI server shipments
    over $15 billion
    high materiality
    High
    FY26 CSG growth
    low-to-mid single digits
    medium materiality
    High
    FY26 ISG and CSG combined growth
    10% at the midpoint
    medium materiality
    High
    FY26 Operating Expense growth
    down low single digits
    medium materiality
    High
    FY26 Operating Income growth
    up roughly 9%
    high materiality
    High
    FY26 I&O
    $1.4 billion and $1.5 billion
    medium materiality
    High
    FY26 Diluted Non-GAAP EPS
    $9.40 plus or minus $0.25
    high materiality
    High
    FY26 Non-GAAP Tax Rate
    18%
    low materiality
    High
    Q2 AI server shipments
    roughly $7 billion
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Total Company
    Total revenue for Q1 FY26.
    		$23.4 billion5%——
    Infrastructure Solutions Group (ISG)
    Strong performance driven by higher revenue, slightly lower operating expense, and higher mix of Dell IP storage. Operating rate was down quarter-over-quarter due to seasonality and lower North America mix in traditional servers.
    		$10.3 billion12%—$1 billion operating income (up 36% YoY), 9.7% operating income rate (up 170 bps YoY)
    Servers and Networking
    Q1 record revenue, driven by robust demand in AI servers and double-digit growth in traditional servers.
    		$6.3 billion16%——
    Storage
    Third consecutive quarter of growth, with strong demand in Dell IP portfolio, specifically PowerStore and Data Protection. Focus on increasing mix of Dell IP vs Partner IP storage.
    PowerStore demand: double-digitsData Protection demand: double-digits
    		$4.0 billion6%—Margin improvement year-over-year
    Client Solutions Group (CSG)
    Revenue growth driven by strong commercial performance, offset by consumer decline. TRUs remained stable sequentially. Profitability remains challenged in consumer.
    		$12.5 billion5%—$0.7 billion operating income, 5.2% of revenue
    Commercial Revenue (CSG)
    Strong performance, with demand strongest in North America, EMEA, and APJ.
    Demand growth: double-digits across small business, medium business, and large enterprise
    		$11.0 billion9%——
    Consumer Revenue (CSG)
    Demand environment remains soft and profitability challenged, with competitive industry pricing.
    		$1.5 billion-19%——

    Operational metrics

    18
    Non-GAAP Gross Margin
    21.6%down 80 bps YoY
    Q1 FY26

    Down due to a more competitive pricing environment, predominantly in CSG and geographical mix within traditional servers.

    Non-GAAP Operating Expenses
    $3.4 billiondown 2% YoY
    Q1 FY26

    Down as the company continues to unlock efficiency and modernize processes.

    Non-GAAP Operating Income
    $1.7 billionup 10% YoY
    Q1 FY26

    Driven by higher revenue and lower operating expenses.

    Non-GAAP Net Income
    $1.1 billionup 13% YoY
    Q1 FY26

    Primarily driven by stronger operating income.

    Non-GAAP Diluted EPS
    $1.55up 17% YoY
    Q1 FY26

    Growing 3x faster than revenue.

    Cash and investments balance
    $9.3 billionup $4.2 billion sequentially
    Q1 FY26

    Balance at the end of the quarter.

    Core leverage ratio
    1.6xup sequentially
    Q1 FY26

    Up sequentially given recent debt issuance.

    Capital returned to shareholders
    $2.4 billion
    Q1 FY26

    Returned through stock repurchases and dividends.

    Shares repurchased
    22.1 million
    Q1 FY26

    Reflects continued confidence in the business and opportunistic action during price dislocation.

    Dividend paid per share
    $0.53
    Q1 FY26

    Roughly $0.53 per share paid as dividend.

    Total capital returned since FY23
    $13.2 billion
    Since beginning of FY23

    Through stock repurchases and dividends since the capital return program began.

    AI server shipments
    $1.8 billion
    Q1 FY26

    AI server shipments in the first quarter.

    Traditional servers demand growth streak
    6
    Q1 FY26

    Six consecutive quarters of year-over-year demand growth.

    PowerStore demand growth streak
    5
    Q1 FY26

    PowerStore demand rose double-digits for five consecutive quarters.

    Commercial PC demand growth streak
    5
    Q1 FY26

    Five consecutive quarters of demand growth in commercial PCs.

    Commercial PC revenue growth streak
    3
    Q1 FY26

    Three consecutive quarters of P&L growth in commercial PCs.

    Enterprise AI customers
    over 3,000grew sequentially
    Q1 FY26

    Number of enterprise customers buying various forms of Dell AI factories.

    Digital Service Assistant impact
    —
    Q1 FY26

    Increased diagnostic and resolution ability while increasing customer satisfaction.

    Industry KPIs

    9
    MetricValueDetails
    Capital return FCF$2.4 billion capital returned, $2.8 billion cash flow from operationsUSD
    Unit shipments ASPASPs relatively stable in Commercial PCs, uplift in ASPs for AI PCs
    Gross margin drivers21.6%%
    Company specific kpisOver 3,000 enterprise AI customerscustomers
    Services peripheral attachModest improvement in storage and networking attach, significant improvement in deployment and installation services attach
    Component supply constraints—
    Installed base refresh runwayHalf of traditional server installed base is 14G or older
    Ai server orders revenue backlog$12.1 billion orders, $1.8 billion shipped, $14.4 billion backlogUSD
    Revenue mix by end market segmentISG: $10.3 billion; CSG: $12.5 billion; Commercial Revenue: $11.0 billion; Consumer Revenue: $1.5 billionUSD

    Orderbook & backlog

    3
    AI-optimized server orders booked$12.1 billionQ1 FY26

    Surpassed the entirety of shipments in all of FY25.

    AI-optimized server backlog$14.4 billionEnd of Q1 FY26

    Reflects orders that will be shipped in future periods.

    AI-optimized server 5-quarter pipelinemultiples of backlogQ1 FY26

    grew sequentially

    Includes sovereign AI customers, growing faster in enterprise than CSP.

    Product announcements

    10
    ProductTypeDetails
    Copilot+ capable AI PCslaunch
    Dell Pro Max notebooks and desktopslaunch
    Dell Pro Max with GB10 and GB300launch
    Dell Pro Max notebook with discrete NPUlaunch
    XE9780 and XE9780L serverslaunch
    XE9712 serverlaunch
    XE7745 serverlaunch
    PowerCool platformlaunch
    Dell AI Data Platformlaunch
    Dell Private Cloud and Dell Automation platformlaunch

    Deals & partnerships

    5
    NVIDIAKey partner for AI-optimized servers and co-engineering Project Lightning.

    Ecosystem partner for AI, co-engineered Project Lightning, and future platforms like NERSC-10.

    AMDKey partner for processors in new Dell Pro Max notebooks and desktops.

    Ecosystem partner for AI and computing solutions.

    Hugging Face, Cohere, Meta, Mistral, GoogleEcosystem partners for AI solutions.

    Key partners in the AI ecosystem, enabling Dell's AI Factory.

    GoogleCollaboration to bring Gemini on-prem exclusively for Dell customers.

    Industry-first collaboration to offer Gemini on-premise for Dell customers.

    CoherePartnership to simplify the deployment of Agentic technology on-prem.

    Collaboration to make Agentic technology deployment easier for customers.

    Risks & headwinds

    5
    Competitive pricing environmentQ1 FY26

    Gross margin down 80 bps YoY

    Mitigation: Focus on Dell IP storage, new AI PC products stabilizing ASPs, deflationary input costs expected in CSG.

    Geographical mix impact on marginsQ1 FY26

    Lower mix of North America in traditional server impacted gross margin

    Mitigation: Focus on driving Dell IP mix and product profitability improvement within Storage business.

    Consumer market challengesQ1 FY26

    Consumer revenue declined 19%

    Mitigation: Leveraging leading go-to-market engine and broader portfolio to capture PC refresh, but demand remains soft.

    Moderation in traditional server and storage demandQ2 FY26

    Sub-seasonal performance expected in Q2

    Mitigation: Customers evaluating IT spend given dynamic macro environment; Dell expects to outperform market models and take share.

    Variability and nonlinear nature of AI server demand and shipmentsOngoing

    Inherent nonlinear nature of demand and associated shipments is likely to persist.

    Mitigation: Dependencies on data center builds, power, cooling infrastructure; orchestrating complex supply chain; focus on converting growing pipeline.

    What to watch in Q2 FY26

    5

    AI server revenue and backlog conversion

    Q2 FY26
    Current$1.8B shipped in Q1, $14.4B backlog, $12.1B orders in Q1
    Target$7B AI server shipments in Q2, continued growth in 5-quarter pipeline

    Why it matters

    AI server growth is the primary driver of revenue and EPS growth, and conversion of backlog/pipeline is key to meeting full-year targets.

    In ISG, we expect to ship roughly $7 billion of AI servers as we fulfill some of our large deals.

    Q&A highlights

    6

    Can you elaborate on the strong Q1 AI server performance, the $12.1 billion orders, and how to think about the FY26 AI server revenue target of $15 billion, especially with increased engagement from sovereign and neo-cloud customers?

    Jeff Clarke confirmed $12.1 billion in Q1 orders, a $14.4 billion backlog, and a growing 5-quarter pipeline that now includes sovereign AI. He stated they are 'on the plus side of $15 billion' for FY26 AI server revenue, acknowledging the complexity and dependencies of large deployments.

    “I can really tell you we're on the plus side of $15 billion and feel pretty good about it, but we'll update you on how the full year goes in another quarter.”

    asked by Amit Daryanani · answered by Jeffrey Clarke

    2 min read6 chapters

    Detailed Narrative

    01

    AI Server Momentum and Backlog Growth

    Dell experienced exceptionally strong demand for AI-optimized servers in Q1 FY26, booking $12.1 billion in orders, which surpassed the entirety of shipments in all of FY25. This led to a significant backlog of $14.4 billion. The company's 5-quarter pipeline for AI servers continues to grow sequentially, now including sovereign AI customers, and remains multiples of the current backlog, indicating strong future demand.

    02

    Traditional Server and Storage Performance

    Traditional server revenue increased double digits, marking six consecutive quarters of year-over-year demand growth, driven by data center consolidation and modernization. Storage revenue grew 6% for the third consecutive quarter, with strong demand in Dell IP portfolio products like PowerStore and Data Protection, contributing to margin improvement. However, traditional server demand moderated in Q1, particularly in North America, impacting geographical mix.

    03

    Client Solutions Group (CSG) Dynamics

    CSG revenue rose 5%, primarily driven by strong commercial revenue growth of 9%, with double-digit demand growth across small business, medium business, and large enterprise. The PC refresh cycle is gaining traction, with customers upgrading to new Windows 11 and AI PCs, leading to an uplift in ASPs for AI PCs. Conversely, the consumer market remains challenged, with revenue declining 19% and competitive pricing pressures persisting.

    04

    Innovation in Dell AI Factory

    Dell made significant advancements across its AI Factory, from industry-first Copilot+ capable AI PCs shipping since March, to edge and data center enhancements. Key announcements included new Dell Pro Max notebooks and desktops with NVIDIA RTX Pro Blackwell GPUs, Intel Core Ultra, and AMD Ryzen processors. The company also introduced high-density server platforms like the XE9780 and XE9712, and the PowerCool platform for efficient cooling.

    05

    Ecosystem Expansion and Solutions

    The company expanded its ecosystem with collaborations, including Google to bring Gemini on-prem exclusively for Dell customers, and Cohere to simplify the deployment of Agentic technology on-prem. Dell also introduced the Dell AI Data Platform, featuring PowerScale and ObjectScale enhancements, Project Lightning co-engineered with NVIDIA, and the Dell Data Lakehouse, alongside the Dell Private Cloud and Automation platform, defining future enterprise architecture.

    06

    Financial Performance and Capital Allocation

    Dell delivered strong Q1 financial results with total revenue up 5% to $23.4 billion and diluted EPS up 17% to $1.55. The company generated a record $2.8 billion in Q1 cash flow from operations and ended the quarter with $9.3 billion in cash and investments. Dell returned $2.4 billion to shareholders through stock repurchases and dividends, reflecting confidence in the business and commitment to disciplined capital allocation.

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