DELL
Earnings call · Oct 2025 (Q3 FY26)

Dell Technologies Q3 FY26 earnings call DELL

Nov 25, 2025 Source

Executive summary

Dell Technologies Q3 FY26 — Record Revenue & EPS Driven by Exceptional AI Server Momentum

Dell Technologies delivered record Q3 FY26 revenue and EPS, primarily fueled by exceptional momentum in AI server orders and shipments, alongside strong performance in its ISG and commercial CSG segments. The company is navigating an unprecedented environment of rising commodity costs by leveraging its supply chain and direct model to mitigate impacts and maintain profitability. Management expressed strong conviction in its AI business and the ongoing PC refresh cycle, expecting continued EPS growth through strategic execution and capital returns.

Highlights

5

  • Total revenue reached a Q3 record of $27 billion, up 11%.

  • Diluted EPS increased 17% to a Q3 record of $2.59.

  • AI server orders reached a record $12.3 billion in the quarter, bringing year-to-date orders to $30 billion.

  • ISG revenue grew 24% to a Q3 record of $14.1 billion, marking 7 consecutive quarters of double-digit growth.

  • Commercial CSG revenue grew 5% to $10.6 billion, marking 5 consecutive quarters of growth.

Concerns

3

  • Storage revenue declined 1% year-over-year, despite strong demand for Dell-IP portfolio.

  • Consumer revenue declined 7% year-over-year, though demand returned to growth.

  • Commodity costs (DRAM, NAND, hard drives) are rising, creating an "extraordinary" environment, which will impact all product categories.

Guidance & targets

CategoryTargetConfidence
AI server shipments
roughly $9.4 billion
high materiality
High
Full-year AI server shipments
roughly $25 billion
high materiality
High
Q4 Revenue
between $31 billion and $32 billion
high materiality
High
Q4 ISG and CSG combined growth
34% at the midpoint
medium materiality
High
Q4 ISG growth
mid-60s
medium materiality
High
Q4 CSG growth
low to mid-single digits
medium materiality
High
Q4 Operating expenses
flat sequentially
medium materiality
High
Q4 Operating income
up roughly 21%
high materiality
High
Q4 ISG operating income rate
continued sequential improvement
medium materiality
High
Q4 Diluted share count
roughly 672 million shares
low materiality
High
Q4 Non-GAAP tax rate
18%
low materiality
High
Q4 Diluted non-GAAP EPS
$3.50, plus or minus $0.10
high materiality
High
FY26 Revenue
$111.7 billion
high materiality
High
FY26 Non-GAAP EPS
$9.92
high materiality
High
FY27 EPS growth
mid-teens
high materiality
Medium

Segment performance

SegmentRevenueYoYQoQMargin
ISG
Q3 record revenue, 7 consecutive quarters of double-digit growth. Operating income was a Q3 record, marking 6 consecutive quarters of double-digit growth, driven by higher revenue, improved AI server margins, and stronger profitability from Dell-IP storage.
Operating income rate: 12.4% of revenueServers and networking revenue: $10.1 billionServers and networking growth: 37%Storage revenue: $4 billionStorage growth: -1%
$14.1 billion24%—$1.7 billion
CSG
Commercial revenue grew for the fifth consecutive quarter. Commercial profitability was stable due to steady pricing and demand for rich-configured, AI-ready devices. Consumer demand returned to growth, and profitability improved year-over-year.
Operating income rate: 6% of revenueCommercial revenue: $10.6 billionCommercial growth: 5%Consumer revenue: $1.9 billionConsumer growth: -7%
$12.5 billion3%—$0.7 billion

Operational metrics

Non-GAAP gross margin
$5.7 billion up 4%
Q3 FY26

Gross margin rate was driven primarily by a mix shift to AI servers with shipments doubling year-over-year, partially offset by improved profitability in storage.

Non-GAAP operating expense
$3.2 billion down 2%
Q3 FY26

As we continue to drive scale within the P&L.

Non-GAAP operating income
$2.5 billion up 11%
Q3 FY26

Increase driven by higher revenue and lower operating expenses, partially offset by a decline in our gross margin rate.

Non-GAAP net income
$1.8 billion up 11%
Q3 FY26

Primarily driven by stronger operating income.

Non-GAAP EPS
$2.59 up 17%
Q3 FY26

A Q3 record.

Cash and investments balance
$11.3 billion up $1.6 billion sequentially
Q3 FY26 end

Ended the quarter with $11.3 billion in cash and investments.

Core leverage ratio
1.6x
Q3 FY26 end
Capital returned to shareholders
$1.6 billion
Q3 FY26

Including stock repurchases and dividends.

Shares repurchased
8.9 million
Q3 FY26
Dividend per share
$0.53
Q3 FY26

Approximately.

Total capital returned year-to-date
$5.3 billion
YTD Q3 FY26
Total shares repurchased year-to-date
39 million
YTD Q3 FY26
PowerStore demand growth
double-digit growth 7 consecutive quarters of growth, 6 of those double-digit
Q3 FY26
All-flash array portfolio demand growth
double-digit growth 2 consecutive quarters
Q3 FY26
PC installed base (older than 4 years)
500 million
current

Cannot run Windows 11.

PC installed base (capable of Windows 11, not upgraded)
500 million
current
Traditional server installed base (older generation)
70%
current
Consumer demand growth
growth first time in 3 years
Q3 FY26

Demand environment turned to growth as we refocused on expanding where we play in the market.

Commodity cost recovery rate (normal times)
2/3
90-day period

Historically, Dell can recover roughly 2/3 of cost increases in a 90-day period.

Inventory value
down $300 million sequentially roughly flat year-on-year
Q3 FY26 end

Despite $12.3 billion in AI orders in Q3 and $19 billion YTD demand.

Industry KPIs

MetricValueDetails
Capital return FCF$1.6 billion (Q3 capital return); $5.3 billion (YTD capital return) USD
Gross margin drivers21.1% %
Component supply constraintsDRAM, NAND, hard drives, leading-edge nodes
Installed base refresh runway1.5 billion units (total PC installed base) units
Ai server orders revenue backlog$12.3 billion (orders), $5.6 billion (shipments), $18.4 billion (backlog) USD
Revenue mix by end market segmentISG: $14.1 billion; CSG: $12.5 billion USD

Orderbook & backlog

AI server orders $12.3 billion Q3 FY26

record

Year-to-date orders: $30 billion.

AI server backlog $18.4 billion Q3 FY26 end

record

5-quarter pipeline remains multiples of backlog.

Risks & headwinds

Rising commodity costs (DRAM, NAND, HDDs) Q4 outlook largely unchanged, but dynamics to navigate next year

unprecedented

Mitigation:Leverage world-class supply chain, adjust pricing, reconfigure products, redirect demand, active real-time management, direct model flexibility.

Competitive environment in consumer and education CSG segments Q3 FY26

competitive

Mitigation:Refocusing on expanding market play, working on cost position, tuning products.

What to watch in Q4 FY26

AI server shipments

Q4 FY26 and FY27
Current $5.6 billion (Q3 FY26)
Target Progress towards FY26 target of $25 billion, and early FY27 trajectory

Why it matters

AI server growth is the primary driver of Dell's revenue and backlog, critical for investment thesis.

In ISG, we expect to ship roughly $9.4 billion of AI servers in Q4, a record, bringing full year shipments to roughly $25 billion or over 150% year-over-year.

Q&A highlights

How will Dell manage rising commodity costs across its portfolio, and is the mid-teens EPS growth target for FY27 still valid given memory headwinds?

Jeff Clarke stated that rising costs are unprecedented across all components (DRAM, NAND, HDDs) due to demand exceeding supply. Dell will leverage its direct model, supply chain, and pricing flexibility to mitigate impact, expecting to recover more than the usual two-thirds of cost increases. David Kennedy confirmed the Investor Day mid-teens EPS growth framework is a good starting point for FY27, supported by go-to-market engine, gross profit improvement, OpEx scaling, and share repurchases.

“We're in a very unique time. It's unprecedented. We have not seen costs move at the rate that we've seen. And by the way, it's not unique to DRAM. It's NAND. It is hard drives, leading-edge nodes across the semiconductor network. There is a -- if you will, I'd categorize it as demand is way ahead of supply.”

asked by Samik Chatterjee · answered by Jeffrey Clarke

2 min read 6 chapters

Detailed narrative

AI Momentum and Strategy

Dell reported record AI server orders of $12.3 billion in Q3 FY26, contributing to $30 billion in year-to-date orders and an exiting backlog of $18.4 billion. The company shipped $5.6 billion in AI servers during the quarter. Dell highlights its unique capability in designing, deploying, and maintaining large-scale AI factories, achieving rapid deployment within 24-36 hours and uptimes exceeding 99%. The customer base is expanding across Neoclouds, Sovereigns, and Enterprises, with a notable shift towards GB300 designs in the backlog.

Commodity Headwinds and Mitigation

Dell is confronting an unprecedented environment of rising costs for key components such as DRAM, NAND, and hard drives, driven by demand outstripping supply. The company plans to mitigate these impacts by leveraging its direct sales model, extensive supply chain expertise, and pricing flexibility. Historically, Dell recovers approximately two-thirds of cost increases within 90 days, but anticipates a more effective recovery this cycle due to proactive management and the prevailing scarcity of parts.

ISG Performance and Profitability

The Infrastructure Solutions Group (ISG) achieved a Q3 FY26 record revenue of $14.1 billion, representing a 24% increase and marking its seventh consecutive quarter of double-digit growth. Servers and networking revenue surged 37% to $10.1 billion. ISG operating income also hit a Q3 record of $1.7 billion, up 16%, with the operating income rate improving 360 basis points sequentially to 12.4%. This improvement was attributed to a favorable mix of AI servers, sequential enhancements in AI server margins, and stronger profitability from Dell's proprietary storage offerings.

Storage Portfolio Strength

Despite a 1% year-over-year revenue decline in storage, Dell's IP-driven storage portfolio demonstrated robust demand. All-flash arrays experienced double-digit growth for two consecutive quarters, while PowerStore demand grew for seven consecutive quarters, with six of those quarters showing double-digit growth. The company's strategic focus on Dell Private Cloud, AI and unstructured storage assets, and cyber resilience, all utilizing Dell-IP, is yielding positive results.

CSG Dynamics and PC Refresh

Client Solutions Group (CSG) revenue increased 3% to $12.5 billion. Commercial revenue grew 5% to $10.6 billion, marking its fifth consecutive quarter of growth. While consumer revenue declined 7%, demand in this segment returned to growth for the first time in three years. The PC refresh cycle is considered durable, supported by an aging installed base and a significant number of systems yet to be upgraded to Windows 11, alongside the emerging opportunity presented by AI PCs.

Capital Allocation and Financial Strength

Dell generated $1.2 billion in cash flow from operations during Q3 FY26, ending the quarter with a strong cash and investments balance of $11.3 billion. The company returned $1.6 billion to shareholders, including the repurchase of 8.9 million shares at an average price of $140 per share. Year-to-date, Dell has returned $5.3 billion to shareholders and repurchased over 39 million shares, demonstrating strong capital allocation discipline.

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