Dell reported record Q3 revenues of $27 billion, up 11 percent year-on-year, driven by explosive AI server demand. However, the quarter marked a sequential decline from Q2’s $29.8 billion, even as net profit jumped by almost a third annually to $1.55 billion.
Jeff Clarke, Dell’s vice chairman and COO, said: “AI momentum is accelerating in the second half of the year, leading to record AI server orders of $12.3 billion and an unprecedented $30 billion in orders year to date. Our five-quarter pipeline is multiples of our $18.4 billion backlog with a mix of neocloud, sovereign and enterprise customers.”
Financial Summary
- Gross Margin: 20.7 percent vs 22 percent a year ago
- Operating cash flow: $1.172 billion compared to $1.553 billion a year ago
- Adjusted free cash flow: $1.67 billion, up 133 percent year-over-year
- Total debt: $31.5 billion compared to $28.5 billion last quarter
- Diluted EPS: $2.28, up 39 percent year-over-year
It was a tale of two operating divisions for Dell’s Q3 ended October 31: the Infrastructure Solutions Group (ISG) bounced 24 percent year-over-year to $14.1 billion. Servers and networking brought in $10.13 billion, up 24 percent, while total storage revenues shrank to $3.98 billion, down 1 percent. For comparison, NetApp has just reported $1.71 billion in its latest quarterly report.
The Client Solutions Group – business and consumer PCs – posted $12.5 billion in revenues, up 3 percent.
ISG profitability increased sequentially to 12.4 percent, driven by both AI server and Dell IP-based storage sales. Despite flattish overall storage numbers, Dell confirmed double-digit growth for its all-flash array portfolio: PowerMax, PowerStore, PowerFlex and ObjectScale. PowerStore PowerStore has now posted seven consecutive growth quarters. This suggests the weakness lies in HDD-based and hybrid systems like PowerScale, PowerProtect (DataDomain), and PowerVault (entry-level) products.
Dell, citing Gartner research, expects more data generated over the next three years than all preceding history, with 80 percent of it unstructured. It notes that “disaggregated architectures modernize datacenters and optimize TCO.”
Dell said it is still the market leader in all major storage categories, citing IDC research.
During the earnings call with financial analysts, Clark talked up component cost inflation: “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. I’d categorize it as demand is way ahead of supply.”
Dell plans to manage the pressure through configuration adjustments, availability optimization, and product mix changes. These are strategies it has deployed in previous component cycles.
Q4 revenue guidance is $31.5 billion ± $500 million – 32 percent year-over-year growth at the midpoint. Within that, AI server shipments are forecast at roughly $9.4 billion, and Dell IP storage is expected to grow “above market” rates. The full FY 2026 year revenue guidance is $111.7 billion ± $500 million, up 17 percent at the midpoint.
Turning to the next financial year, CFO David Kennedy predicted: “FY 26 will be another record year, and we’re raising our AI shipment guidance to roughly $25 billion, up over 150 percent year-over-year, and revenue guidance to $111.7 billion, up 17 percent.”
Bootnote
Dell’s Q3 FY2022 revenues were $28.4 billion – larger than the current “record” quarter. The discrepancy stems from Dell’s divestiture of VMware to Broadcom in November 2022, which was included in FY2022 results but not current figures.
