Q1 2025 Dell Technologies Inc Earnings Call

Please standby.

Operator: Standby. Good afternoon and welcome to the Fiscal Year 2025 First Quarter Financial Results. I'd like to inform you that this call is being recorded.

Speaker Change: Good afternoon, and welcome to the fiscal year 2025 first quarter financial results Conference call for Dell Technologies, Inc.

Speaker Change: I'd like to inform all participants this call is being recorded at the request of Dell technologies.

Operator: At the request of Dell Technologies Inc. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or part, without prior written permission of Dell Technologies Inc. Following prepared remarks, we will conduct a question and answer session. If you have a question, simply press star, then 1 on your telephone keypad. I'd like to turn the call over to Rob.

Speaker Change: This broadcast is copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell technologies is prohibited following prepared remarks, we will conduct a question and answer session. If you have a question simply press star.

Speaker Change: Then one on your telephone keypad at any time during the presentation I'd like to turn the call over to Rob Williams.

Speaker Change: Of Investor Relations Mr. Williams, you may begin.

Rob: Thanks, everyone, and thanks for joining us. With me today are Jeff Clarke, Yvonne McGill, and Tyler Johnson. Earnings materials are available on our IR website, and I encourage you to review these materials and the presentation, which includes content to complement our discussion this afternoon. Guidance will be covered on today's call. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income, diluted earnings per share, and adjusted pre-cash. Reconciliation of these measures to their most directly comparable GAAP measures can be found on our web deck and our press release.

Robert L. Williams: Thanks, everyone and thanks for joining us.

Speaker Change: With me today are Jeff Clarke von Mcgill and Tyler Johnson.

Speaker Change: Our earnings materials are available on our IR website and I encourage you to review these materials and the presentation, which includes content to complement our discussion. This afternoon guidance covered on today's call.

Speaker Change: During this call unless otherwise indicated all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin operating expenses operating income net income diluted earnings per share and adjusted free cash flow.

Speaker Change: A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release growth percentages refer to year over year change unless otherwise specified statements made during this call that relate to future results and events are forward looking statements based on current expectations.

Rob: Those percentages refer to year-over-year change and not to otherwise specified. Statements made during this call that relate to future results and events are forward-looking statements based on current expectations. However, actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings. We assume no obligation to update our forward-looking statements.

Speaker Change: Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings, we assume no obligation to update our forward looking statements now ill turn it over to Jeff.

Jeff: Now I'll turn it over to Jeff. Thanks, Rob. And thanks, everyone, for joining us. We executed well in an improving demand environment. Revenue was $22.2 billion, up 6% with exceptional growth in servers and a return to growth in our commercial PC business. Operating income was $1.5 billion, diluted EPS was $1.27, and cash flow from operations was $1 billion.

Jeff: Thanks, Rob and thanks, everyone for joining us.

Jeff: I'm really proud of the team and our strong performance in Q1, we executed well in an improving demand environment.

<unk> was $22 2 billion up 6% with exceptional growth in servers and a return to growth in our commercial PC business.

Jeff: Operating income was $1 5 billion diluted.

Jeff: Diluted EPS was $1 27 in cash flow from operations was $1 billion.

Jeff: We are uniquely positioned to help customers with artificial intelligence, and our strong AI momentum continues in Q1, and ISG. Our AI optimized servers orders increased to $2.6 billion. With shipments up more than 100% sequentially to $1.7 billion, we have now shipped more than $3 billion of AI servers over the last three quarters. Our AI server backlog is $3.8 billion, growing sequentially by approximately $900 million. Our AI optimized server pipeline grew quarter over quarter again and remains a multiple of our backlog.

We are uniquely positioned to help customers with artificial intelligence and our strong AI momentum continued in Q1.

Jeff: And ISG AI optimized servers orders increased to $2 6 billion.

Jeff: With shipments up more than 100% sequentially to $1 $7 billion, we have now shipped more than $3 billion of AI servers over the last three quarters.

Jeff: Our AI server backlog is $3 $8 billion growing sequentially by approximately $900 million.

Jeff: Our AI optimized server pipeline grew quarter over quarter again and remains a multiple of our backlog.

Jeff: We've seen an expansion in the number of enterprise customers buying AI solutions, which remains a significant opportunity for us, given we are in the early stages of AI adoption. Traditional server demand remains strong in Q1. It grew for the second consecutive quarter year-over-year and the fourth consecutive quarter sequentially. However, storage demand has stabilized with revenue flat year-over-year. Moving to CSG, commercial PC demand has also stabilized, and we saw an improving demand environment as we moved through the quarter. CSG revenue is flat year-over-year with healthy operating profitability.

Jeff: We've seen an expansion in the number of enterprise customers by AI solutions, which remains a significant opportunity for us given we are in the early stages of AI adoption traditional server demand remained strong in Q1.

Jeff: For the second consecutive quarter of year over year, and the fourth consecutive quarter sequentially.

Jeff: Storage demand has stabilized with revenue flat year over year moving to CST commercial PC demand has also stabilized and we saw an improving demand environment as we move through the quarter.

Jeff: <unk> revenue was flat year over year with healthy operating profitability.

Jeff: We expect commercial PCs to continue to improve as the year progresses. We remain optimistic about the coming PC refresh cycle, driven by multiple factors. The PC install base continues to age, Windows 10 will reach end of life later next year, and the industry is making significant advancements in AI-enabled architectures and applications. We will continue to focus on commercial PCs, the high-end of consumer, and gaming. Driving a Strong Attached Motion, a strategy that has served us well across various economic cycles.

We expect commercial Pcs to continue to improve as the year progresses.

Jeff: We remain optimistic about the coming PC refresh cycle driven by multiple factors. The PC installed base continues to age Windows 10 will reach end of life later next year and the industry is making significant advancements in AI enabled architectures and applications. We will continue to focus on the commercial piece.

Jeff: High end consumer and gaming.

Jeff: Driving a strong attach motion a strategy that has served us well across various economic cycles.

Jeff: Last week, we held our annual Dell Technologies World customer event in Las Vegas, and artificial intelligence was front and center. There was tremendous excitement around our approach to Gen AI and the capabilities we're bringing to customers and partners as they set out on their AI journey. We highlighted our AI strategy to accelerate the adoption of AI, which is built on five core beliefs. The first is that data is the differentiator.

Jeff: Last week, we held our annual Dell technologies World customer events in Las Vegas, and artificial intelligence was front and center.

Jeff: There was tremendous excitement around our approach to ginnie and the capabilities, we're bringing to customers and partners as they set out on their AI journey with.

Jeff: We highlighted our AI strategy to accelerate adoption of AI, which is built on five core beliefs. The first data is the differentiator, 83% of all data on Prem and 50% of data is generated at the edge.

Jeff: 83% of all data is on-premises, and 50% of data is generated at the edge. Second, AI is moving to data because it's more efficient, effective, and secure, and AI inferencing on premises can be 75% more cost-effective than the cloud. Third, AI will be implemented in a wide range of ways, from locally on devices to massive data centers, depending on the use case. Fourth, you need an open, modular architecture to support rapid and sustainable innovation.

Jeff: AI is moving to the data because it's more efficient effective and secure.

Jeff: And AI inferencing on Prem can be 75% more cost effective and the cloud third.

Jeff: AI will be implemented in a wider range of ways from locally on devices to massive datacenters, depending on use case.

Jeff: You need an open modular architecture to support rapid and sustainable innovation and finally AI requires a broad an open ecosystem to take advantage of the latest advancements.

Jeff: And finally, AI requires a broad and open ecosystem to take advantage of the latest advances. We launched the Dell AI Factory to help accelerate AI innovation and provide an option. It combines our Dell solutions and services optimized for AI workloads with an open ecosystem for partners, including NVIDIA, Meta, Microsoft, and Hugging Face. The Dell AI Factory is the industry's broadest AI-optimized portfolio of solutions and services that can be designed and sized to meet the specific requirements of our customers.

Jeff: We launched the Dell AI factory to help accelerate AI innovation and an option.

Jeff: It combines our Dell solutions and services optimized for AI workloads with an open ecosystem partners, including Nvidia meta, Microsoft and hedging base.

Jeff: The Dell AI factory as the industry's broadest AI optimized portfolio of solutions and services that can be designed and sized to meet the specific requirements of our customers.

Jeff: We have also extended our engineering leadership with new features and capabilities across our portfolio, including the new PowerEdge XE9680L, an eight-way GPU server with 12 Gen5 PCIe slots and direct-to-chip liquid cooling that improves overall power efficiency by two and a half times. With its 4U form factor, customers can buy the densest rackable architecture in the industry with up to nine XE9680Ls and 72 high-wattage GPUs in one rack that can support performance up to 130 kilowatts straight from our factory.

We also extended our engineering leadership with new features and capabilities across our portfolio, including the new power edge exceed 96, ADL and <unk> GPU server with 12 Gen. Five pcie slots and directed chip liquid cooling that improves overall power efficiency by two five times.

Jeff: With its for you form factor customers can buy the densest racquetball architecture in the industry with up to nine <unk> 96 to <unk> 72 high Wattage Gpus and <unk> that can support performance up to 130 kilowatt straight from our factory.

Jeff: In storage, significant software updates to our PowerScale, which now includes the availability of QLC. Our PowerStore software updates give new and existing customers up to a 66% performance boost and native sync replication for file and block. We also added the PowerScale F910 to our AI-optimized portfolio, which has two times faster write performance than our competition.

Jeff: In storage significant software updates to our power scale, which now includes the availability of key youll see our power storage software updates give new and existing customers up to a 66% performance boost and native zinc replication for file and block. We also added the power scale F 910 to our AI.

Jeff: Optimized portfolio of hardware and software capabilities, two times faster right performance than our competition.

Jeff: We also broadened our networking portfolio with the new PowerSwitch Z9864 with 51 terabits per second of throughput for AI workloads. On the client side, we announced Dell's next generation AI PCs, the Qualcomm Snapdragon X Elite Powers, our upcoming XPS and Latitude 7455, available in June. These 45 plus top species can support 13 billion plus parameter models, which means customers can run popular models like LLAMA3 directly on their PCs. In closing, our strategy remains simple.

Jeff: We also broadened our networking portfolio with the new power switch Z 90, 864, with 51 Terabits per second of throughput for AI workloads.

Jeff: In client, we announced Dallas next generation AI Pcs, the Qualcomm Snapdragon ex elite powers, our upcoming xps and latitude $74 55 available in June.

Jeff: This 45, plus top species can support 13 billion plus parameter models, which means customers can run popular models like Mama three directly on their Pcs.

Yvonne: We're leveraging our strengths to extend our leadership positions and lean into new opportunities like AI driving incremental growth. We are giving customers more choices, flexibility, and control of how and where they build, train, run, and deploy AI closer to where the majority of their data exists on-premises, increasingly at the edge, on-device, and across clouds to help them accelerate AI adoption. We are partnering with customers on every step of their AI journey to make it easy with an open, modular solution and a broad ecosystem of AI models, tools, and partnerships. We are also applying AI internally across our own business for better customer and team member experiences. And now, over to Yvonne for the financials. Thanks, Jeff.

Jeff: In closing our strategy remains simple, we're leveraging our strengths to extend our leadership positions in the room into new opportunities like AI driving incremental growth.

Jeff: Giving customers more choices flexibility and control of how and where they.

Jeff: They build train run and deploy AI closer to where the majority of their data exists on prem increasingly at the edge on device and across clouds to help them accelerate adoption.

Jeff: We're partnering with customers on every step of their AI journey to make it easy with an open modular solutions in a variety of this system that AI models tools and partnerships.

Speaker Change: We are applying AI internally across our own business for better customer and team member experiences and now over to Ivan for the financials.

Yvonne: In Q1, we again demonstrated our ability to execute and deliver strong cash flow, and our traditional business has stabilized, with AI continuing to drive new growth. Our combined CSG and ISG revenue grew 8%, and our total revenue was $22.2 billion, up 6%. Gross margin was $4.9 billion and 22.2% of revenue, down 250 basis points, given a more competitive pricing environment and a higher AI-optimized server mix. Operating expense was $3.5 billion, or 15.6% of revenue, down 3%, and we will continue to be prudent in our cost management.

Ivan: Thanks, Jeff and Q1, we again demonstrated our ability to execute and deliver strong cash flow and our traditional business has stabilized with AI continuing to drive new breath.

Ivan: Our combined ESPN ISG revenue grew 8% and our total revenue was $22 2 billion.

Speaker Change: Up 6%.

Ivan: Gross margin was $4 9 billion and 22% of revenue down 250 basis points, given a more competitive pricing environment and a higher AI optimized server mix.

Ivan: Operating expense was $3 $5 billion or 15, 6% of revenue down 3% and we will continue to be prudent in our cost management.

Yvonne: Operating income was 6.6% of revenue and $1.5 billion, down 8%, driven by the decrease in our gross margin, partially offset by OPEC scaling. P1 net income was $923 million, down 4%, primarily driven by lower operating income. Diluted EPS was $1.27, down 3%.

Ivan: Operating income was six 6% of revenue and $1 $5 billion down 8% driven by the decrease in our gross margin, partially offset by Opex scaling.

Ivan: Q1, net income was $923 million down, 4%, primarily driven by lower operating income.

Ivan: Diluted EPS was $1 27 down 3%.

Yvonne: ISG revenue was $9.2 billion, up 22%. Server and networking revenue was a record $5.5 billion, up 42%. Server demand was even stronger with growth across traditional and AI, and our AI optimized mix of server demand increased again sequentially. We delivered storage revenue of $3.8 billion flat year over year with demand strength in HCI, PowerMax, PowerStore, and PowerScale. ISG operating income was 8% of revenue and $736 million, down 1%.

Ivan: ISG revenue was $9 2 billion up 22%.

February and networking revenue was a record $5 5 billion up 42%.

Ivan: Server demand was even stronger with growth across traditional and AI and our AI optimized mix of server demand increased again sequentially.

Ivan: We delivered storage revenue of $3 8 billion.

Ivan: Flat year over year with demand strength in HCI power Max power store in power scale.

Ivan: ESG operating income was 8% of revenue and $736 million down 1%.

Yvonne: Q1 is seasonally our lowest profitability quarter in ISG given storage seasonality, and we expect ISG operating margins to improve as the year progresses. Our CSG revenue was $12 billion, flat year over year. Commercial revenue was $10.2 billion, up 3%, while consumer revenue was $1.8 billion, down 15%. CSG operating income was $732 million, or 6.1% of revenue, down primarily due to a more competitive pricing environment. The commercial PC demand environment improved as we progressed through the quarter, and we remain bullish on the coming PC refresh cycle and the longer-term impact of AI on the PC market.

Ivan: Q1 is seasonally our lowest profitability quarter in ISG, given storage seasonality and we expect to ISG operating margin to improve as the year progresses.

Ivan: Our CSD revenue was $12 billion flat year over year <unk>.

Ivan: Commercial revenue was $10 2 billion up 3%, while consumer revenue was $1 8 billion down 15%.

Ivan: ESG operating income was $732 million or six 1% of revenue down primarily due to a more competitive pricing environment.

Ivan: The commercial PC demand environment improved as we progressed through the quarter and we remain bullish on the coming PC refresh cycle and the longer term impact of AI on the PC market.

Yvonne: Our Dell Financial Services originations were $1.9 billion in Q1, up 1% year-over-year, despite the exit of our VMware resale business and our sale of our consumer revolving portfolio in Q3 of last year. DFS managed assets exited the quarter at $14.2 billion.

Ivan: Our Dell financial services originations were $1 9 billion in Q1 up 1% year over year. Despite the exit of our Vmware resale business and our sale of our consumer revolving portfolio in Q3 of last year DFS managed assets exited the quarter at $14.

$2 billion.

Yvonne: Turning to our cash flow and balance, adjusted free cash flow was $5.5 billion on a trailing 12-month basis, well above our average of $4.8 billion over the last five years, as we continue to generate strong, consistent, and predictable cash flow over time. Q1 cash flow from operations was $1 billion, primarily driven by profitability, partially offset by our annual bonus payout. Our cash conversion cycle was negative 47 days, flat sequentially, with higher inventory related to our AI business offset by strong collections. We ended our quarter with $7.3 billion in cash and investments, down $1.7 billion sequentially, primarily driven by capital returns of $1.1 billion.

Ivan: Turning to our cash flow and balance sheet adjusted free cash flow was $5 $5 billion on a trailing 12 month basis, well above our average of $4 8 billion over the last five years as we continue to generate strong consistent and predictable cash flow over time.

Ivan: Q1 cash flow from operations was $1 billion, primarily driven by profitability, partially offset by our annual bonus payout.

Ivan: Our cash conversion cycle was negative 47 days flat sequentially with higher inventory related to our AI business offset by strong collections performance.

Ivan: We ended our quarter.

Ivan: With seven 3 billion in cash and investments down $1 $7 billion sequentially, primarily driven by capital returns of $1 1 billion.

Yvonne: In Q1, we purchased 6.7 million shares of stock at an average price of $108.38 and paid a $0.45 per share dividend. Since the inception of our capital return program at the beginning of FY23, we have now returned $8 billion, or 103% of our adjusted free cash flow to shareholders through stock repurchases and dividends. [inaudible] Our open and modular AI-optimized server solutions, coupled with a broad ecosystem of partners and our engineering and services expertise, are winning with customers.

Ivan: In Q1, repurchased six 7 million shares of stock at an average price of $108 38.

Ivan: We paid a <unk> 45 per share dividend.

Ivan: Since the inception of our capital return program at the beginning of FY 'twenty. Three we have now returned $8 billion or 103% of our adjusted free cash flow to shareholders through stock repurchase and dividends.

Ivan: Turning to guidance.

Ivan: Our open and modular AI optimized server solution, coupled with a broad ecosystem of partners and our engineering and services expertise, our winning with customers.

Yvonne: We expect the AI momentum we've seen over the past three quarters to continue driving incremental revenue for the year and our core businesses, while the macro environment is still dynamic. Our indicators point toward a stabilization with improvement as we progress through the year against FedFax. We expect Dell Technologies' FY25 revenue to be in the range of $93.5 and $97.5 billion, with a midpoint of $95.5 billion, or 8% growth.

Ivan: We expect to AI momentum, we've seen over the past three quarters to continue.

Ivan: Driving incremental revenue for the year.

Ivan: In our core businesses, while the macro environment is still dynamic.

Ivan: Our indicators point towards stabilization with improvement as we progress through the year.

Ivan: Against that backdrop, we expect Dell technologies FY 'twenty five revenue to be in the range of 93, 5% to $97 5 billion.

Ivan: With a midpoint of $95 5 billion or 8% growth.

Yvonne: We expect ISG to grow in excess of 20% fueled by AI and our CSG business to grow in the low single digits for the year. We expect the combined ISG and CSG business to grow 11% at the midpoint, and our other business to decline, as previously discussed on the Q4 call. Given inflationary input costs.

Ivan: We expect the ISG to grow in excess of 20% fueled by AI.

Ivan: And our CSD business to grow in the low single digits for the year.

Ivan: We expect the combined <unk> PSG business to grow 11% at the midpoint.

Ivan: In our other business to decline as previously discussed on the Q4 call.

Ivan: Given inflationary input costs.

Yvonne: The Competitive Environment and the Higher Mix of AI-Optimized Servers. We do expect our gross margin rate to decline roughly 150 basis points. So we expect both ISG and CSG operating margin rates to be within our long-term financial framework for the full year. We'll continue to be disciplined in our cost structure and expect OPEX to be down low single digits for the year. We expect IMO to be roughly $1.4 billion. Diluted non-GAAP EPS is expected to be $7.65, plus or minus $0.25, up 7% at the midpoint, assuming an annual non-GAAP tax rate of 18% for Q-tube for Fiscal 25.

Ivan: The competitive environment and a higher mix of AI optimized servers, we do expect our gross margin rate to decline roughly 150 basis points.

Ivan: So we expect both ISG and PSG operating margin rates to be within our long term financial framework for the full year.

Ivan: We will continue to be disciplined in our cost structure and expect opex to be down low single digits for the year.

Ivan: We expect <unk> to be roughly $1 4 billion.

Ivan: <unk> non-GAAP EPS is expected to be $7, 65, plus or minus 25.

Ivan: Up 7% at the midpoint, assuming an annual non-GAAP tax rate of 18%.

Ivan: For Q2.

Yvonne: We expect Dell Technologies revenue to be in the range of $23.5 and $24.5 billion, with a midpoint of $24 billion up 5%. We expect the combined ISG and CSG to grow 8% at the midpoint, with ISG up in the mid-20s. We expect OPEX to be down roughly 3% year over year. OPINC is expected to improve sequentially driven by quarter over quarter growth in ISG and sequential growth and margin rate expansion in our storage business. Q2's diluted share count should be between 723 and 727 million shares.

Ivan: Fiscal 'twenty five we expect Dell technologies revenue to be in the range of $23 five and $24 5 billion.

Ivan: With a midpoint of $24 billion up 5%.

Ivan: We expect the combined ISG in PSG to grow 8% at the midpoint with ISG up in the mid twenties.

Okay.

Ivan: We expect opex will be down roughly 3% year over year.

Ivan: I think rate is expected to improve sequentially driven by quarter over quarter growth in ISG and sequential growth and margin rate expansion in our storage business.

Ivan: Q2 diluted share count should be between $723 and 727 million shares.

Yvonne: Diluted non-GAF EPS is expected to be $1.65, plus or minus $0.10. In closing, we are optimistic about FY25 and beyond, with a number of tailwinds, including AI and the coming IT hardware refresh cycle, and no one in the industry is better positioned than Dell. Our unique operating model with reinforcing competitive advantages has been honed for over 40 years now and is perfectly designed for this moment to help customers accelerate their adoption of AI. We have the broadest end-to-end portfolio of solutions, with industry-leading positions across PCs, AI-optimized servers, traditional servers, and storage.

Ivan: <unk> non-GAAP EPS is expected to be $1, 65, plus or minus 10.

Ivan: In closing we are optimistic about FY 'twenty, five and beyond with a number of tailwind, including AI and the coming <unk> hardware refresh cycle and no one in the industry is better positioned than down.

Ivan: Our unique operating model with reinforcing competitive advantages has been honed for over 40 years now and is perfectly designed for this moment to help customers accelerate their adoption of AI.

Ivan: We have the broadest end to end portfolio of solutions with industry, leading positions across Pcs AI optimized servers traditional servers and storage.

Yvonne: We have the industry's leading supply chain in size and scale, and we have the industry's best go-to-market engine and an unmatched direct sales force supported by a strong channel partner network. All underpinned by our world-class services organization that can support customers across the globe. It's an exciting time to be in technology and hear it for yourself. And we are looking forward to a bright future. Now, I'll turn it back to Rob to begin the Q&A. Thanks, Yvonne.

Ivan: We have the industry's leading supply chain with size and scale and.

Ivan: And we have the industry's best go to market engine and an unmatched direct sales force supported by a strong channel partner network, all underpinned by our World Class services organization that can support customers across the globe.

Ivan: It's an exciting time to be in technology and here at <unk>.

Ivan: And we are looking forward to a bright future now I will turn it back to Rob to begin Q&A.

Ivan: Okay.

Rob: Let's get to Q&A. We ask that each participant asks one question to allow us to get to as many of you as possible. Now, let's go to the first question.

Robert L. Williams: Thanks, Bob let's get to Q&A, we are.

Robert L. Williams: Ask that each participant ask one question to allow us to get to as many of you as possible. Let's go to the first question.

Operator: Thank you. Let's take our first question. Transcription by Transcription Outsourcing, LLC. 2013 Transcription Outsourcing, LLC.

Speaker Change: Thank you, we'll take our first question from Krish Shankar with TD Cowen.

Robert L. Williams: Yeah.

Unknown Attendee: Hi, thanks for taking my question. Chef, I just wanted to find out a little bit about the AI server backlog. What are the lead times there?

Krish Shankar: Yeah, Hi, Thanks for taking my question.

Krish Shankar: Sure. So I just wanted to find a little bit about the AI silver backlog.

What are the lead times there how does it compare to the total silver backlog and can you talk a little bit about the pipeline you have for AI servers, and the breadth of the pipeline. Thank you.

Jeff: How does it compare with the total server backlog? And can you talk a little bit about the pipeline you have for AI servers and the breadth of the pipeline? Thank you. Now, I'll take that question.

Speaker Change: Sure I'll take that question look the lead times on our product.

Speaker Change: There is in this complicated we have product transitions from H 100, th 100 out selling GBP 200, and <unk> hundred.

Jeff: Look, the lead times on our product vary and are complicated. We have product transitions from H100 to H200, outselling GB200 and B200. Those are customer allocated. So to say that there's an average lead time for our product is very dependent on the customer, what technology we're talking about. But on average, if it was just looking at the availability of parts, the H100 lead time is better.

Speaker Change: Those are customer allocated so to say that there is an average lead time for our product is very dependent on the customer what technology, we're talking about but didn't.

Speaker Change: Average if it was just looking at the availability of cars. The H 100 sleep time this better those products are in full production and videos.

Jeff: Those products are in full production, meeting Demand, and they'll have availability of the H200 on schedule towards the second or the latter part of Q2. So it's in production, as is the B200.

Speaker Change: Meeting demand and they'll have availability of the H 200 on schedule towards the second or the latter part of Q2.

Jeff: So that's where the backlog slashes lead times are. When you look at the composition of our backlog, it's primarily NVIDIA-based. Our customers range from many enterprise customers to some large CSPs, so the composition is very much our customer composition. I'm excited about it continuing to build, continue to build every quarter. Our five-quarter pipeline continues to grow. There are lots of projects out there.

Speaker Change: So it's in production as is the <unk> hundred so thats, where the backlogs flash lead times are when you look at the composition of our backlog.

Speaker Change: It's primarily in video based.

Speaker Change: Customers range from many enterprise customers to some large csp's. So the composition is very much our customer composition.

Speaker Change: We're excited about continuing to build continue to build every quarter.

Our five quarter pipeline continues to grow.

Jeff: We're out competing for each and every one of them, and we'd expect growth in both going forward. Thanks, Krish. And our next question. Yes, thank you for the question. If I just look year over year at the ISG business, Storage was perfectly flat, AI servers went from zero to 1.7 billion. Transcripts provided by Transcription Outsourcing, LLC. Operating profit was flat.

Speaker Change: Theres lots of projects out there we're out competing for each and every one of them, we would expect growth in both going forward.

Speaker Change: Okay.

Speaker Change: Thanks, Chris Thank you.

Speaker Change: And our next question will come from Toni <unk> with Bernstein.

Toni <unk>: Yes. Thank you for the question if I just look year over year at the ISG business.

Speaker Change: Storage was perfectly flat.

Speaker Change: Servers went from zero to $1 7 billion, which sort of suggests that.

Speaker Change: Traditional servers were flat so really the only thing that changed was you added $1 7 billion.

My servers.

Speaker Change: And operating profit was flat.

Unknown Attendee: So does that suggest that operating margins for AI servers are effectively zero? And if that's not the case, how do you square the circle with what I just outlined? Thank you. Hey, Tony, I'll take that one.

So does that suggest that.

Speaker Change: Operating margins for AI servers were effectively zero.

Speaker Change: And if that's not the case.

Speaker Change: How do you square the circle with what I just outlined thank you.

Yvonne: So you know, when I look at the overall ISG performance from an operating income standpoint, you know, storage. I'll start with storage, right? Operating income was low in storage. You know, that Q1 seasonally is our lowest revenue quarter from a storage perspective. When revenue declines, the business scales down, and so we saw that evidenced in the Q1 results. And while OPEX remains unchanged, to the point you're making, OPEC rates decline.

Speaker Change: Hey, Danielle I'll take that one.

Speaker Change: When I look at the overall ISG performance from a.

Speaker Change: Operating income standpoint storage I'll start with storage REIT operating income was low in storage.

Speaker Change: You know that Q1 seasonally our lowest revenue quarter from a storage perspective.

Speaker Change: <unk>.

Speaker Change: When the revenue declines the business these scales and so we saw that evidenced in the Q1 results.

Yvonne: In traditional servers, we saw strength in large enterprises and large, large bid mix. So a shift there a bit, which, as you know, that drives lower margin rates. And when I look into Q2 and FY25, though, you know, I tell you that we expect ISG OPEC rates to improve, as we talked about in the guide, over the year and really deliver against our long-term framework, that 11 to 14%. So, you know, I think what we saw in the first quarter was multifaceted.

Speaker Change: While opex remained.

Speaker Change: Unchanged to the points, you're making I think rates decline in traditional servers, we saw strength in large enterprise and large large bid mix shift there at that which as you know that that drives lower margin rates.

Speaker Change: And when I look.

Speaker Change: Into Q2, and FY 'twenty five though tell.

Speaker Change: I'll tell you that we expect ISG op, Inc rates to improve.

Yvonne: But, but, you know, that we do continue to expect recovery as the year goes on. And those AI optimized servers, we've talked about being margin rate diluted, but margin dollar accretive. And so you'll, you'll continue to see that evidenced in the results also. Yeah, thanks.

Speaker Change: As we talked about in the guide over the year and really deliver against our long term framework that 11% to 14%. So I think what we saw in the first quarter was multifaceted, but but we.

Speaker Change: We do continue to.

Speaker Change: Expect.

Speaker Change: Recovery as the year goes on and those AI optimized servers we've.

Speaker Change: We've talked about being margin rate dilutive that margin dollar accretive and so youll continue to see that.

Speaker Change: Evidenced in the results also.

Unknown Attendee: Thanks for the question, Tony. And our next question. Hey guys, thanks a lot. Yvonne and Jeff, I want to take another stab at Tony's question, you know, in a different way.

Speaker Change: Yeah, Hi, thanks, Thanks for the question Tony.

Speaker Change: Yeah.

And our next question will come from Ben Reitzes with Melius research.

Speaker Change: Hey, guys. Thanks, a lot.

Speaker Change: Avon and Jeff I wanted to take another stab at Tony's question in a different way.

Unknown Attendee: There's the view that you guys have said in the past that for every dollar of AI server, there's $2 of services, storage, and other higher-margin things that come. And when you see storage kind of a little below expectations in the quarter, it seems like you're yet to get that. And a lot of us are looking at the strength in your AI servers and looking forward to that gross margin tailwind to come, you know, kind of like a razor and blade model. Do you still see that coming to fruition, Jeff and Yvonne?

Benjamin Alexander Reitzes: There's the view that you guys have said in the past that for every dollar of AI server, there's $2 of services storage and other higher margin things that come and when you see storage kind of a little below expectations in the quarter. It seems like youre yet to get that.

Speaker Change: And a lot of us are.

Speaker Change: Looking at the strength in your AI servers, and looking forward to that gross margin tailwind to come.

Kind of like a razor and blade model do you still see that coming to fruition, Jeff in Avon and and how will that play out in the model I know you don't guide beyond this year, but.

Jeff: And how will that play out in the model? I know you don't guide beyond this year, but you know, it really should help next year, you know, over the three to five-year, you know, life of those contracts. So I'm just wondering if you still believe that and how you want us to keep that in perspective when we see margins like this. Thanks.

Speaker Change: It really should help next year over the three to five year life of those contracts. So I. Just wondering if you still believe that and how you want us to keep that in perspective, when we see margins like this thanks.

Jeff: No, but then I look, our view of the broad opportunities hasn't changed around each and every AI server that we sell. I think we talked last time, but maybe to revisit that, we think there's a large amount of storage that sits around these things. Models that are being trained require lots of data, and that data has got to be stored and fed into the GPU at a high bandwidth, which ties in networking.

Speaker Change: No.

Speaker Change: Look our view of the broad opportunity hasnt changed around each and every AI server that we sell.

Speaker Change: I think we talked last time, but maybe you could revisit that we think there is a large amount of storage that sits around these things. These <unk>.

Speaker Change: The models that are being trained require lots of data that data has got to be stored and fed into the GPU at a high bandwidth, which ties in network use the opportunities around.

Jeff: So the opportunities around unstructured data are immense here, and we think that opportunity continues to exist. We think the opportunity around NICs and switches and building out the fabric to connect individual GPUs to one another is, Take each node, rack, racks of racks across the data center to connect that high bandwidth. Fabric is absolutely there and needed. We think the opportunity to extend in doing deployment of the rack itself is an opportunity, installing whether that's cables, heat exchangers, rear door heat exchangers, cooling units, power units, etc.

Speaker Change: Unstructured data is immense here and we think that opportunity.

Speaker Change: She needs to exist, we think the opportunity around mix and switches and building out the fabric to connect individual gpus to one another to take.

Speaker Change: Take each node racks racks of racks across the datacenter to connect.

Speaker Change: High bandwidth fabric.

Speaker Change: Fabric is absolutely there and needed.

Speaker Change: We think the opportunity to extend and doing deployment of the rack itself as an opportunity installing whether thats cables heat exchangers rear door heat exchangers cooling units power units et cetera. The cabling, we think the deployment of this gear in the data center is an huge opportunity.

Jeff: The cabling, we think the deployment of this gear in the data center is a huge opportunity, and specifically around services. There are four types of services that we're building through our own and through our partner network. They basically hit the categories of helping our customers with their AI strategy, how they implement AI, which is all about data and getting the data prepared to be consumed and ingested, adopting or putting the AI infrastructure in place, and getting AI adopted inside an enterprise. And then, lastly, how do we help them scale it?

And specifically around services Theres four types of services that we're building through our own and through our partner network.

Speaker Change: Basically hit the categories of helping our customers with their AI strategy, how they implement AI, which is all around the data and get into the data prepared to be consumed in congested.

Speaker Change: <unk> is putting the AI infrastructure in place and getting AI adopted inside an enterprise.

Speaker Change: And then lastly, how do we help them scale and when you look at the broad range of services that we have.

Jeff: And we look at the broad range of services that we have. We're pretty excited about the full stack opportunities we have. A great example of that would be last week with the Dell AI Factory with the NVIDIA stack, which is a full stack opportunity with partners like Huggy Face to help customers deploy on premises. So nothing's really changed.

Speaker Change: We're pretty excited about the full stack opportunities. We have a great example of that would be last week with the Dell AI factory with the Nvidia and video stack, which is a full stack opportunity with partners like <unk> face to help customers deploy on Prem So nothing's really changed there.

Jeff: And I think if I were to take the question that Tony asked, and yours is in there as well, and I'll let Yvonne add to this, we can do better in terms of margins on both our traditional servers and our storage products. We had a makeshift in storage, that was from our Dell IP to partner IP, that impacts us.

I think if.

Speaker Change: I wish to take the question that Tony asked through the years is in there as well and <unk> add to this.

We can do better in both our traditional servers and our storage products in terms of margins, we had a mix shift in storage that.

Speaker Change: That was from our del IP to partner IP.

Jeff: We had a customer shift and a geographic shift that pushed margins down. Our most profitable segment is Dell IP, sold in North America to the largest customers. They value the capabilities of our products, and we get a return for that. That was a lower mix this past quarter, and then the traditional server business; the margins were down as well. That was really driven home, I think Yvonne hit it, but I really wanted to make sure that we got this point across.

Speaker Change: That impacts us, we had a customer shift and a geographic shift that.

Speaker Change: Pushed margins down.

Speaker Change: Profitable segment as Dell IP.

Speaker Change: In North America to the largest customers they value the capabilities of our products and we get a return for that that was a lower mix. This past quarter and then a traditional server business. The margins were down as well and that was really driven I think <unk> hit it but I really wanted to make sure that we get this point across we had good growth in our tradition.

Jeff: We had good growth in our traditional server business. But it's an enterprise, and that's a competitive market for large bids, and we acquired several new large customers during the quarter. We'll take that deal every time because we know that over time, winning a new customer, we can sell the breadth of our portfolio over time. That's exactly what we did, and we'll continue to look for those opportunities to grow our customer base. Yvonne?

Speaker Change: Server business.

Speaker Change: But as it's been in enterprise and that is a competitive market in large bids and we acquired several new large customers during the quarter.

We will take that deal every time, because we know over time, winning a new customer we can sell the breadth of our portfolio over time.

Speaker Change: Exactly what we did and we will continue to look for those opportunities to grow our customer base.

Yvonne: Yeah, and I think just in addition to Jeff's what you said, I just want to remind everyone that we're at the beginning of this AI business, if you will. We're finishing up our fourth quarter, and we've been building the balance sheet, right? So it's going to take time for you to start seeing that reflected in the P&L as we're deferring services and support associated with the transactions that we're doing. And so, again, you'll see that build over time and start seeing it more reflected in our financial space. Thanks for the question, Ben. And our next question will come from Erik. Great, guys. Thank you so much for taking the time to join us.

Speaker Change: Yeah, and I think just in addition to Jeff with what you said.

Speaker Change: Just to remind everyone that we are at the beginning of this AI.

Speaker Change: Business. If you will we're finishing up our fourth quarter and we've been building the balance sheet right. So it's going to take time for you to start seeing that reflected in the P&L, let's we're deferring services and support associated with the transactions that we're doing so again, you'll see that build over time and start seeing it more reflected in.

Speaker Change: In our financial statements.

Speaker Change: Okay, great. Thanks, Thanks for the question Ben.

Speaker Change: And our next question will come from Erik Woodring with Morgan Stanley.

Erik William Richard Woodring: Great guys. Thank you so much for taking the question.

Unknown Attendee: I'm going to kind of hit on a similar topic that everyone has, but, you know, Yvonne, you're talking about improving ISG operating margins through the year. Obviously, it seems like the strength and momentum you have in AI servers means that will continue to become an increasing mix of revenue. You also have commodity costs headwinds to contend with. And so, you know, again, I know we've kind of talked about this topic, but maybe at a bit more detailed level, can you just help us understand what are the most significant factors that we should be thinking about that would support ISG operating margin expansion as we work through the year? Is that pricing? Is that a mix?

Erik William Richard Woodring: I'm going to kind of hit on it a similar topic that everyone has but.

Speaker Change: Youre talking about improving ISG operating margins through the year.

Speaker Change: Obviously, it seems like the strength and momentum you have in AI servers.

Speaker Change: <unk> means that we will continue to become an increasing mix of revenue you also have commodity cost headwinds to contend with.

Speaker Change: So.

Speaker Change: But again I know, we've kind of top talked about this topic, but maybe on a bit more detailed level can you just under help us understand what are the most significant factors that we should be thinking about that would support ISG operating margin expansion as we work through the year is that pricing is that mix is that.

Yvonne: Is that the storage mix? Just help us understand what the most important factors are there again, as we look through the year. Thanks. Sure. You know, I think it's all of the things that you mentioned, actually, but you know, we talked about storage already that we did not perform or mix at the level that we would have expected in the first quarter. Jeff talked about, you know, having more of our Dell IP storage solutions, and we're expecting that as we go through the year. You know, ISG, and storage in particular, the lowest quarter sequentially or seasonally is our first quarter.

Speaker Change: Storage mix, just help us understand what the most important factors there again as we look through the year. Thanks, so much.

Speaker Change: Sure.

Speaker Change: I think it's all of the things that you mentioned actually but we talked about storage already that we did not perform or mix at.

Speaker Change: The level that we.

Speaker Change: Would have expected in the first quarter.

Speaker Change: Jeff talked about having more of our <unk> IP storage solutions and we're expecting that as we go go through the year ISG and.

Speaker Change: And in storage in particular, the lowest the lowest quarter sequentially or seasonally is our first quarter and so we're expecting that to continue to improve as the year progresses.

Yvonne: And so we're expecting that to continue to improve as the year progresses. We will be in a growth, a year over year growth standpoint in, you know, we're expecting that in the second half. So when I think of ISG growth, holistically, that we've guided to across the year of 20% Plus, you know, obviously, there's the AI server component to that. But it's also, you know, in storage, the expected growth in the second half, traditional servers continuing to grow, etc. So it just adds up, it's additive as the year progresses.

Speaker Change: We will be in a growth year over year growth standpoint.

Speaker Change: We're expecting that in the second half so when I think of ISG growth.

Speaker Change: Holistically that we've guided to across the year of 20%.

Speaker Change: Plus obviously, there's the AI server component to that.

Speaker Change: But it's also in storage.

Speaker Change: Expected growth in the second half as traditional servers, continuing to grow et cetera. So it just it's added to that as the year progresses and that would be what we do see normally also in our traditional storage and I'm, sorry in our storage and our traditional server.

Yvonne: And, you know, that would also be what we normally see in our traditional storage and, I'm sorry, in our storage and our traditional server performance. And then on top of it, we've got the AI momentum. So that's, that's a great adder to the portfolio. And as I already mentioned, that balance sheet build, we'll start to see that reflected in the services and support in our financial results. Maybe Eric, maybe a couple of things to add to that.

Speaker Change: Performance and then on top of that we've got the AI momentum. So that's that's a great adder to to the portfolio and as I already mentioned that balance sheet builds we will start to see that reflected with the services and support and are in our financial results and Eric maybe a couple of things to add.

Eric: Is that.

Jeff: We've talked, I think, a lot through this down cycle about the storage recovery lags. We expect the storage market to return to growth in the second half of the year, and for us, to outperform the market. I want to mention Dell IP.

Eric: We've talked I think much through this down cycle, that's the storage recovery lags.

Eric: Servers.

Speaker Change: We expect the market to storage market to return to growth in the second half of the year and for us outperformed the marketplace.

Jeff: Specifically, I would call out PowerStore Prime. The addition of QLC allows us to become more competitive, our performance and have a native REC, excuse me, native, native sync replication, get my words correct here, allow us to be more competitive in the largest portion of the storage market, and our storage margins need to improve and will improve over the course of the year. And then, as we look at the traditional server marketplace, we mentioned that much of our growth was driven by enterprise.

Ron: Ron mentioned del IP, specifically, I would call out power store prime.

Ron: The addition of <unk> allows us to become more competitive.

Ron: Our performance in having a native Rex.

Excuse me.

Ron: Natus zinc replication.

Speaker Change: Correct here.

Speaker Change: How us to be more competitive in the largest.

Speaker Change: A portion of the storage marketplace, and our storage margins need to improve and will improve over the course of the beer.

Jeff: And as the rebound continues to play out, we'll see commercial, medium business, and small business, which are better margin profiles across that customer set. Yeah, and the one thing I don't think I called out specifically is the storage margins will continue to improve also because we will scale. We talked about the optics, we talked about that level of SEND that we have. But as we scale that business, we will get that. And I'll reiterate that we do expect IHT.Inc. to finish FY25 within our long-term framework, so 11 to 14. All right.

Speaker Change: And then as we look at the traditional server marketplace. We mentioned that much of our growth was driven by enterprise and as the rebound continues to play out we'll see commercial medium business and small business, which are better margin profiles across that customer set.

Yeah, and the one thing I don't think I called out specifically the storage margins will continue to improve also because we will scale right. We talked about the opex, we talked about that that level of.

Speaker Change: Spend that we have but as we scale that business, we will get that and I'll reiterate that we do expect IC Op, Inc. To finish FY 'twenty five within our long term framework, so 11% to 14%.

Yvonne: Next question, please. Thank you so much, guys. Our next question will come from Wamsi Mohan. Unknown Speaker Yes, thank you so much.

Speaker Change: Alright next question. Thanks, so much guys.

Speaker Change: Our next question will come from <unk> Mohan with Bank of America.

Unknown Attendee: You mentioned competitive pricing a few times in your prepared remarks. Do we think that Dell is driving that? More competitive pricing for share gains to get there.

Speaker Change: Yes. Thank you so much.

Speaker Change: You mentioned the competitive pricing a few times in your prepared remarks that it.

Speaker Change: Should we think that Dallas driving that.

Speaker Change: More competitive pricing for our share gains to get that.

Unknown Attendee: Incremental Full Stack Opportunity that Jeff alluded to, or are you doing this more in response to the competitive what the competitors are doing? And, and when we think about that 50 bps of incremental gross margin pressure, is that just coming from an incremental AI server mix? Or is there another moving piece here? Wamsi, the first part of your question got flipped off. If you wouldn't mind repeating it so Yvonne and I can make sure we answer the question that you really want us to answer. Yeah, sure, Jeff.

Jeff: Incremental full stack opportunity that Jeff you alluded to or are you doing this more in response to the competitive what the competitors are doing and when we think about that 50 bps of incremental gross margin pressure is that just coming from incremental AI server mix or are there other moving.

Speaker Change: Pieces over there thank you.

Speaker Change: Well, obviously the first part of your question you got.

Speaker Change: Off if you wouldn't mind repeating it so volatile and I can make sure. We answer the question that you really want us.

To answer.

Jeff: I was just wondering if the competitive pricing that you called out is really from Dell in order to take share in the marketplace because you have this full stack opportunity that you spoke about? Or is this more in response to what other competitors are doing in the market? So, let me take a stab at that. And then Yvonne can certainly layer in on top of that.

Jeff: Yes, sure Jeff I was just wondering if like the competitive pricing that you called out is that coming really from Dow in order to take share in the marketplace. Because you have this full stack opportunity that you spoke about or is this more in response to what.

Jeff: Other competitors are doing in the market.

Speaker Change: So let me take a stab at that and then our volume can certainly layer in on top of that so I think there is various forms of competitiveness that we talked about.

Jeff: So I think there are various forms of competitiveness that we talked about. One clearly is that the PC business has been in a down cycle for two years, and now it's beginning to stabilize and look for growth. It's a competitive market. The consumer portion of the PC market is competitive in pricing. The strong promotions that we saw through the holiday season continued into Q1. The large deals in commercial PCs are quite competitive.

Speaker Change: One clearly is the PC business has been in a down cycle for two years is beginning to stabilize look for growth, it's a competitive market out there.

Speaker Change: The consumer portion of the PC market is competitive in pricing the strong promotions that we saw through the holiday season continued into Q1.

Speaker Change: The large deals in commercial Pcs are quite competitive.

Jeff: And as I mentioned, SB&MB is lagging in its rebound compared to large enterprises, and that's a source of margin in both our PC business and our server business. I think we made comments that the performance has been largely driven by enterprise, large accounts, large bids, acquisition, and those are competitive environments. Again, we look at the long-term view of them and win new customers in the data center services as well over the course of a customer's life cycle.

Speaker Change: And as I mentioned.

Speaker Change: And in beer lagging in their rebound compared to large enterprise and that's a source of margin in both our PC business in our server business.

Speaker Change: And servers.

Speaker Change: I think we made comments that the performance has been largely driven by enterprise.

Speaker Change: Large accounts large bids acquisition and those are competitive environments.

Speaker Change: Again, we look at the long term view of them and winning new customers in the data center serves us well over the course of a customer's life cycle with us.

Jeff: And then specifically in AI, we're not the price leader in AI. The engineering and the delta we have in the capabilities of our product time and time again, we are not the low-cost provider, the low pricer in the AI deals that I'm involved in, which are most of them. We are getting a premium for our engineering in the marketplace. We're getting an advantage.

Speaker Change: And then specifically in AI, we are not the price leader in AI.

Speaker Change: The engineering and the Delta, we have and the capabilities of our product time and time again, we are not the low cost provider the low pricer in the AI deals im involved in which are most of them.

Speaker Change: We are getting a premium for our engineering in the marketplace, we're getting an advantage.

Jeff: But these large deals, when you're talking clusters of tens of thousands, hundreds of thousands of GPs, are a competitive environment, but we're not the ones running the price. We are again getting a premium for the value that we've generated or created in our product. And then conversely, I would tell you in the smaller deals, our margins are substantially better, as you would expect. So in enterprise deployments that are smaller deals, our margin rates are significantly better, then they are in a very, very large opportunity. And as Enterprise continues to deploy, I think that bodes well for us over the long term. I hope that that helps.

Speaker Change: But these large deals when you are talking clusters of tens of thousands hundreds of thousands of Gpus are our competitive environment.

Speaker Change: But we're not the one running the price now.

We are again getting a premium for the value that we've <unk>.

Speaker Change: Generation are created into our products and then Conversely, I would tell you in the smaller deals are margins are substantially better as you would expect.

Speaker Change: So in enterprise deployments that are smaller deals our margin rates are significant significantly better.

Speaker Change: And then they are in the very very large opportunities.

Speaker Change: And as enterprise continues to deploy I think that bodes well for us over the long term I hope that helped.

Yvonne: And let me add a little bit just to specifically on that 50 basis point question. So that incremental gross margin headwind that we talked about of 50 basis points, it's really two factors. One of them is, you know, half of it is a margin impact, rate impact, and then half of it's mixed related.

Speaker Change: Let me add a little bit and just specifically on that the 50 basis point question. So the incremental gross margin headwind that we talked about 50 basis points. It's really two factors one as it is.

Speaker Change: Half of it is.

Speaker Change: The margin impact rate impact and then half of it is mix related so we talked about.

Speaker Change: We're seeing more AI mix et cetera, so is seeing that competitive dynamics that we've already talked about.

Speaker Change: And after the inflationary cost environment is certainly having an impact on our gross margin rates.

Yvonne: So we talked about, you know, that we're seeing more AI in the mix, etc. So it's experiencing that competitive dynamics that we've already talked about. And, you know, also the inflationary cost environment is certainly having an impact on our gross margin rates. And, you know, given the AI server strength that we've seen, right, we're shipping more than we expected. So that's great news. And, you know, we are, but it's leading to some margin rate dilution. I hope that was helpful. Yeah, yeah. Thank you so much. Next question. Hey, good afternoon.

Speaker Change: And given our AI server strength that we've seen right we're shipping more than we expected. So that's great news.

Amber: And amber, but it's leading to some margin rate dilution.

So I hope that was helpful.

Speaker Change: Yes. Thank you so much.

Speaker Change: Next question.

Speaker Change: Next question will come from Michael <unk> with Goldman Sachs.

Unknown Attendee: Thank you for the question. I wanted to ask about the value-added services. Working Capital Financing and longer-term DFS financing that Dell provides to its AI server customers. Is this a point of differentiation when you think about your competitive positioning relative to ODMs or less well-capitalized competitors? And would that answer be different when you're thinking about an AI CSP customer versus an enterprise customer? Thank you. So, you know, let me take a take a run at that.

Michael Saul Dell: Hey, good afternoon, and thank you for the question I wanted to ask about the value added services.

Speaker Change: Working capital financing and longer term DFS financing that Dell provides to its AI server customers.

Speaker Change: Is this a point of differentiation when you think about your competitive positioning relative to Oems or less well capitalized competitors.

Speaker Change: And would that answer would be different.

Speaker Change: When youre thinking about NII CSP customer versus an enterprise customer. Thank you.

Yvonne: And, you know, we do have Dell Financial Services, and we are seeing that as a differentiator right now. And in our working capital solutions that we're providing to our customers, we're able to put together what we're calling payment solutions for them, which is giving them, you know, different ways to manage their capital also. And so, you know, I think it's a differentiated advantage that we have that's enabling us, especially with some of these new tier two hyperscalers, if you will, to leverage our capabilities and our, our, our solutions also. So both from a financing and from a product solution standpoint. Great, thank you, Yvonne.

Speaker Change: So yes.

Speaker Change: Yes, let me, let me take a take a run at that and we do have Dell financial services, and we are seeing that being a differentiator right now in our working capital solutions that we're providing to our customers.

Speaker Change: We're able to put together over calling payment solution for them, which is giving them different in different.

Speaker Change: Ways too.

Speaker Change: Manage their capital also and so I think it is a differentiated advantage that we have that's enabling us, especially with some of these new.

Speaker Change: Tier two hyperscale SQL to leverage our capabilities and our our solutions also so both financing and from a product solution standpoint.

Yvonne: Great. Thank you Yvonne.

Yvonne: Thank you.

Unknown Attendee: We'll take a question from Amit. Thanks for taking my question. You know, I guess when we think about the IST growth of over 20% for the year, can you just talk about how much of that is AI servers versus the core IST? If you could parse it out in a different bucket, that'd be really helpful.

Speaker Change: And we'll take a question from Amit <unk> with Evercore.

Yvonne: And then, Yvonne, could you also just clarify the inventory was up? Transcripts provided by Transcription Outsourcing, LLC. Sure. So, you know, let me start with inventory, because I think that's pretty straightforward. So inventory was up, and I would say slightly to 25 days, really representing, you know, about a $1.2 billion increase quarter over quarter. You know, we mentioned inventory was up slightly as we ramp our AI server business. So, you know, I think it's nothing substantial. I don't know, Jeff, if you have anything to add to the inventory.

Amit Jawaharlaz Daryanani: Yes. Thanks for taking my question I guess, when we think about the ISG growth of over 20% for the year.

Amit: Can you just talk about how much of that is AI servers versus the core ISC, just if you could parse it out into different buckets.

Speaker Change: Really helpful. And then <unk> could you also just clarify the inventory was up dramatically in the quarter and it's somewhat unusual for it to be up in this quarter. So just talk about what's driving that and AI rebuild the strategic inventory and that would be great as well. Thank you.

Speaker Change: Sure.

Speaker Change: So let me let me start with inventory because I think that's pretty straightforward so inventory was up.

Speaker Change: And I would say slightly to 25 days.

Speaker Change: And really representing.

Speaker Change: About a $1 2 billion increase quarter over quarter.

Speaker Change: We mentioned inventory was up slightly.

Speaker Change: As we ramp our AI server business. So I think it's nothing substantial.

Speaker Change: Just a few of them.

Speaker Change: None that we didn't go out and make any strategic purchases.

Jeff: Some of the terms of the AI gear we need to deploy mean we take ownership of it. We did. And we have it in the backlog. We'll ship it as those customer orders are fulfilled. That was the driver.

Speaker Change: Some of the terms of the.

Speaker Change: AI gear, we need to deploy means we take ownership of it we did.

Jeff: We weren't out buying strategic or making strategic investments in inventory across the large component base. And then, Amit, in relation to your ISG question, right, you're asking about the GPU and, you know, and non-GPU servers. Is that, basically? Unknown Speaker. Yeah.

Speaker Change: And we have it in backlog will ship it as those customer orders are fulfilled.

Speaker Change: That was the driver, we werent out buying strategic or making strategic investments of inventory across the large component base.

Speaker Change: And then for Europe.

Speaker Change: In relation to your ISG question, right, you're asking about.

Speaker Change: GPU.

Speaker Change: Non GPU servers is that.

Speaker Change: Basically.

Speaker Change: Yeah, just a clarification.

Speaker Change: Thinking about storage.

Unknown Attendee: [inaudible] you know, x86 servers and then AI servers on top of it. If you just kind of give us a sense of how you feel about those three buckets in the context of that over 20% growth, that'll be, So, obviously, we're having really significant growth in the GPU servers. We obviously didn't sell those all last year. So we're really it's even hard to have a full year comparison on that since since they weren't available all last year.

Speaker Change: X 86, or rhythm and AI servers on top of it. If you just kind of give us a sense of how you think about three buckets in the context of that over 20% growth that would be helpful.

Speaker Change: Okay.

Unknown Attendee: But that is, you know, hype, hyper growth, as we've been talking about from an overall server standpoint, XGPU servers, if you will. We're, we're expecting somewhere in the mid single digits for the year for server growth and revenue growth. And, you know, from a storage perspective, again, we talked about returning to growth in the second half. And so you'd see that sequential improvement as the quarters progress. So, you know, growth, sequential growth in the second quarter and then both sequential and year-over-year growth in the second half. Thank you very much, and our next.

Speaker Change: So obviously we are having.

Speaker Change: Not really.

Speaker Change: Significant growth in the GPU servers, we obviously didn't sell those all last year. So we're.

Speaker Change: Really it's even hard to have a full year compare on that.

Speaker Change: Since they weren't available all last year, but that is.

Speaker Change: Hyper growth as we've been talking about from a from an overall.

Speaker Change: Server standpoint.

Speaker Change: Ex GPU servers, if you will.

Speaker Change: We're expecting somewhere in the mid single digits for the year.

Speaker Change:

Speaker Change: For server growth revenue growth.

Speaker Change: And.

Speaker Change: From a storage perspective again, we talked about returning to growth in the second half and so you can see that sequential improvement as the as the quarters progress so growth sequential growth in the second quarter, and then both sequential and year over year growth in the second half.

Speaker Change: Thank you very much.

Speaker Change: And our next question comes from Simon Leopold with Raymond James.

Yvonne: Thank you very much for taking the question. I know, Jeff, I think you sort of alluded earlier to some of the customer aspects of the AI platforms. And I guess what I want to make sure I understand here is the nature or concentration of who are the customers for your AI platforms? Because we know a number of years ago, Dell had moved away from selling servers to hyperscalers due to limited profitability.

Simon Matthew Leopold: Thank you very much for taking the question I know, Jeff I think you sort of alluded earlier to some of the customer aspects.

Simon Matthew Leopold: Of the AI platforms, and I guess, what I want to make sure I understand here is the nature of concentration.

Simon Matthew Leopold: Who are the customers for your your AI platforms, because we know a number of years ago Dell had moved away from selling servers to the Hyperscale is due to the limited profitability I would like to get an update on what the customer mix looks like today and if there's any kind of new concentration.

Unknown Attendee: I'd like to get an update on what the customer mix looks like today and if there's any kind of new concentration or what the exposure is to hyperscale versus tier two. And in that context, I'm referring to companies like CoreWeave as well as sort of large enterprises. If you could help us with the buckets,

Simon Matthew Leopold: Or what the exposure is to.

Simon Matthew Leopold: The hyperscale versus tier two and in that context, I'm, referring to companies like <unk>.

Simon Matthew Leopold: As well as sort of large enterprise if you could help us with the buckets. Thank you.

Jeff: Thank you. You know, I think we talked about this last time as well. But we talked about our mix of businesses between tier two CSPs and enterprises. I can tell you quarter over quarter the number of enterprise customers grew, the percent of revenue increased, and the amount of dollars we sold to enterprise customers for AI servers and AI gear increased. Is it still in the balanced, or is it Tier 2 CSPs?

Speaker Change: I think we've talked about this last time as well, but we've talked about our mix of businesses between tier two CSP as an enterprise.

Speaker Change: I can tell you quarter over quarter, the number of enterprise customers grew 2% our revenue increased and the amount of dollars, we sold to enterprise customers of AI servers, and AI gear increased.

Speaker Change: Is it still in the balance towards the tier two csp's, yes, those are the largest opportunities.

Jeff: Yes, those are the largest opportunities. They tend to be very project-based or nonlinear, if you will. Those do come in as they come in, build out occurs next opportunity, and then we pursue that, pursue that, and we are involved in, I think, every one of those opportunities that are out. We believe the opportunity for us long term, given our footprint and, obviously, our customer base is the deployment of AI at scale in the enterprise.

Speaker Change: <unk> tend to be very project based or.

Speaker Change: Non linear if you will.

Speaker Change: Those deals come in as they come in.

Speaker Change: Build out occurs next opportunity and then we pursue pursue that and we are involved in.

Speaker Change: I think every one of those opportunities.

Speaker Change: That are out there.

Jeff: We continue to be encouraged by the growing number of customers. The number of customers that are repeat buyers increased quarter over quarter, indicating they're moving from more proof of concept into deployment. And then the long-term opportunity in the enterprise for us is inference, which you might recall from the remarks I made last week at PTW. Long-term inference will be the largest use case, or what I like to call AI in production, over the course of the decade. So the opportunity for us remains immense. We're excited about it.

Speaker Change: We believe the opportunity to for us long term, given our footprint and obviously our customer base is the deployment of AI at scale in the enterprise, we continue to be encouraged by the growing customers.

Speaker Change: <unk> customers that are repeat buyers increased quarter over quarter.

Speaker Change: Indicating there and moving from more proof of concept into deploying.

Speaker Change: And then the long term opportunity in enterprise for US is influence where you might recall from the remarks I made last week W.

Speaker Change: Long term infants will be the largest use case or an ILEC to call.

And in production.

Speaker Change: Over the course of the decade, so the opportunity for us remains immense.

Speaker Change: We're excited about it clearly the near term opportunity in training.

Jeff: Clearly, the near-term opportunity in training is with the Tier 2 CSP. And the opportunity to take, build expert systems, the ability to use open source models, and the ability to use your own data on premises is clearly what we believe is happening. The opportunity, and we're there. And just one item you didn't mention is this concept of sovereign networks. Do you consider those tier two, or is that something different in your?

Speaker Change: Is with the tier two CSP and the opportunity to take it build expert systems the ability to use open source models the ability to use your own data on Prem is clearly what we believe is happening the opportunity and where there.

Speaker Change: And just one item you Didnt mentioned is this concept of Sabra networks do you consider those tier two or is that something different in your mind.

Jeff: It's something different. And I normally get the questions all anticipated about what's the opportunity? Is this going to gap out?

Speaker Change: It's something different and.

Sal: I normally get good question Sal anticipated of whats the opportunity is this going to gap out and we haven't even scratched the surface of that so if you think about the tier two CSP opportunities.

Jeff: And we haven't even scratched the surface of that. So if you think about the tier two CSP opportunities, our line of sight through the end of next year remains robust. A growing enterprise customer base deploying across increasingly more use cases, heading towards inference. And then, as you just described, Simon, the sovereign opportunities that are in their early stages of development are tremendous. Thank you very much, and Ardex. Hey, thanks, guys. Thank you for taking the time to answer the question. I really appreciate it.

Our line of sight through the end of next year remains robust.

Our growing enterprise customer base deploying across increasingly more use cases heads.

Speaker Change: Heading towards <unk> and then as you just described.

Simon Matthew Leopold: Simon the sovereign opportunities that are in their early stages of development are a tremendous opportunity.

Speaker Change: Thank you very much.

Speaker Change: And our next.

Speaker Change: And our next question will come from Ananda Baruah.

Speaker Change #100: With loop capital.

Ananda Prosad Baruah: Hey, Thanks, guys. Good afternoon. Thanks for taking the question really appreciate it.

Unknown Attendee: Jeff, I actually wanted to ask you something on imprinting. I'm going to pick up where you just left off. How would you describe your enterprise customer, generally speaking? They are on their inference journey right now, and when do you think it's good for us to begin to expect? You know, you're a typical enterprise customer to begin to really win. And that's it for me.

Speaker Change #102: Jeff I actually wanted to ask you a question.

Speaker Change #103: On air France, So so I'll just pick up where you just left off how would you describe.

Speaker Change #103: Kind of where they are.

Speaker Change #103: Yes.

Speaker Change #104: Enterprise customers generally speaking are on their journey right now and when.

Speaker Change #105: Like why do you think is good for us.

Speaker Change #104: Again.

Speaker Change #104: Jack.

Speaker Change #104: Typical enterprise customer.

Speaker Change #104: To begin to really lean into air France.

Speaker Change #106: And Thats definitely appreciate it thanks.

Jeff: Appreciate it. I mean, I start back with enterprises, large and small, and everything in between, continuing to work through what their strategy is for AI. And we continue to work with them with our professional services to help them understand their strategy. What use cases are they trying to solve for? Consistently across enterprises, there are six use cases that make their way to the top of most every discussion.

Speaker Change #107: Sure I mean, I start back with enterprises.

Speaker Change #107: Large and small and everything in between continue to work through what their strategy is for AI.

Speaker Change #107: And we continue to work with them with our professional services to help them understand their strategy. What use cases are they trying to solve for.

Jeff: It's around content creation. Support Assistance, Natural Language Search, Design and Data Creation, Code Generation, and Document Automation, and helping customers understand their data, how to prepare their data for those use cases, are what we're doing today. And then once you do that, you begin to build a set of capabilities that implement. And how do they implement?

Speaker Change #107: Consistently across enterprise there are six use cases that make their way to the top most every discussion.

Speaker Change #107: And content creation.

Speaker Change #107: Support assistance natural language search design and data creation cogeneration and document automation.

Speaker Change #107: And helping customers understand their data how to prepare the data for those use cases are.

Speaker Change #107: What we're doing today and then once you do that you begin to go build a set of capabilities that implement.

Jeff: Well, typically, they're using information retrieval systems, whether that's RAG or vector databases or other techniques that are used to build these expert systems along with large language models to protect their data and keep their data on-premises, and to utilize their unique information to get the outcomes they're looking for. A customer's request. I mean, it's a large customer base, and as you would imagine, they're in various stages of that. And we've just scratched the surface.

Speaker Change #107: And how they implement will typically they are using information.

Speaker Change #107: Retrieval systems, whether thats rag or vector databases or other techniques that are used to building. These expert systems, along with large language models to protect their data and to keep their data on prem.

Speaker Change #107: And to utilize through unique information to get the outcomes, they're looking for at.

Speaker Change #107: And customers who are chronic.

Speaker Change #107: <unk> made some large customer base as you would imagine they are in various stages of that and we've just scratched the surface.

Jeff: The number of customers we have versus the number of customers that are buying AI gear from us. We have a lot of opportunities. And that's what we believe the promise is long term, is that to be competitive in your respective industries, you have to deploy this technology. I think I've said it publicly: it's changing, it's disruptive, it changes the base of competition, and it drives tremendous productivity gains. There's not a single customer engagement I'm involved in where those awards don't get mentioned. It's how we help them get there.

Speaker Change #107: The number of customers, we have versus the number of customers that are buying AI gear from us we have a lot of opportunity.

Speaker Change #107: And that's what we believe the promises long term is that to be competitive in your respective industries you have to deploy this technology I think I've said it publicly it's changing it's disruptive it changes the basic competition it drives tremendous productivity gains.

Speaker Change #107: There's not a single customer engagement Im involved in where those awards don't get mentioned, it's how to help them get there and they are in various stages of the journey and I guess, that's my long winded way of saying, we're really early on in inference and have a big big opportunity in front of us.

Jeff: And they're in various stages of the journey. And I guess that's my long winded way of saying we're really early on in inference and have a big, big opportunity in front of us. And I'll reemphasize again, since it's been a subject of the call, we see in smaller deals, we're adding greater value across our deployment services, our VASTA capabilities around networking and around storage, and margins improve across AI deployed in those environments. Thanks so much. I really appreciate it.

Speaker Change #107: And I'll reemphasize again since it's been a subject of the call we see in smaller deals, where we're adding greater value across our deployment services.

Speaker Change #107: Our best.

Speaker Change #107: Capabilities around networking and around storage margins improve across AI deployed in those environments.

Speaker Change #108: Thanks, everybody, we really appreciate it.

Speaker Change #107: Yeah.

Speaker Change #109: Now, we'll take a question from <unk> merchant with Citigroup.

Unknown Attendee: Great, thank you for taking my question. Regarding the backlog, how do you think about, you know, the conversion of this backlog of 3.8 billion into revenues as the quarter progresses? And at some point, as you know, more chips that come on board here, are we expecting this, you know, for you guys to have the supply? Or are you expecting there's going to be another? Transcription by Trans-Expert at Fiverr.com. See if I can try to parse that. The backlog is, similar to the lead time question, somewhat difficult to parse because the backlog is across multiple technologies. H100, 200, B 200, etc., and even other alternatives.

Speaker Change #110: Great. Thank you for taking my question.

Speaker Change #111: The backlog how should we think about conversion of fish.

Speaker Change #112: Backlog of $3 8 billion into revenues as the quarter progresses and at some point as you know more checks that come in.

Speaker Change #113: On board here are we expecting this.

Speaker Change #114: You guys do hockey supply are you expecting there's going to be again.

Speaker Change #115: Why that's going to be.

Speaker Change #116: Falling short.

Speaker Change #117: And backlog continuing to grow as a result of that in terms of lead time. Thank you.

Speaker Change #118: Let's see if I can try to parse that the backlog is similar to the lead time question somewhat difficult to parse because the backlog is across multiple technologies.

Speaker Change #118: Each 180 to 200.

Speaker Change #118: 200 et cetera, even all other alternatives.

Jeff: They have different customer commits and delivery dates, depending on the prior, and the backlog clears as we go through that priority list. We've tried to reflect the best of our knowledge of the availability of supply versus the priority, our time through the factories, and the guidance and outlook that Yvonne provided. That's about the best I can do with where the state of the backlog is. Our job is to continue to sell more. Our five quarter pipeline continues to look strong. It's been built again.

Speaker Change #118: They have different customer commits in delivery dates depending on the priority and the backlog clears as we go through that priority list.

Speaker Change #118: We've tried to reflect the best of our knowledge of the availability of supply versus the priority or time to the factories and the guidance and outlook that <unk> provided.

That's about the best I can do with where the state of the backlog is our job is to continue to sell more or five quarter pipeline continues to look strong built again.

Jeff: We're going to take POs, so that means backlog bills as we wait for parts. That's what we'll do. Okay, thanks, Asiya, and we have Fox. With Fox. With Fox. Hi, good afternoon.

Speaker Change #118: We are in <unk>, so that means backlog builds as we wait for parts as well.

Speaker Change #118: Yeah.

Speaker Change #119: Thank you Sir.

Speaker Change #120: And we have a question from Steven Fox with Fox Advisors.

Unknown Attendee: I guess I was just curious on the inflation question on the component side. The path through new GPUs within the servers, are you seeing it develop as you thought 90 days ago, or is there anything you would call out as maybe incremental pressure on the gross margins, et cetera, and any other thoughts on just the supply chain for the rest of the year? Thanks.

Steven Bryant Fox: Hi, Good afternoon, I guess I was just curious on the inflation.

Speaker Change #122: <unk> on the components side and the pass through.

Speaker Change #123: New Gpus within the servers is it are you seeing it develop as you thought 90 days ago or is there anything you would call out as maybe incremental pressure on the on the gross margins et cetera.

Any other thoughts on just the supply chain for the rest of the year.

Jeff: Sure. 2-1 was the deflationary period when we looked at all of our input costs, and I think that's the last one for the year. We expect our costs to go up in Q2. All forms of costs are freight costs or component costs.

Speaker Change #123: Sure.

Speaker Change #124: Q1 was the deflationary period, when we look at all of our input costs.

And I think that's the last one for the year.

Speaker Change #124: We expect our cost to go up in Q2.

All forms of costs or freight costs, our component costs and then we see a step function in cost in the second half of the year.

Jeff: And then we see a step function and cost in the second half of the year, driven primarily by DRAM and SSD. I'm sure you've done your checks, but if you look at what's happening there, you're seeing SSD derandom in the second half of the year up mid-teens to the 20th percentile quarter on quarter. That's what we think happens. Every indication the... Lack of capital expenditure.

Speaker Change #124: Driven primarily by DRAM and SSD.

I'm sure you've done your checks, but if you look at what's happening there youre seeing SSD and DRAM in the second half of the year up mid teens to the 20% <unk> quarter on quarter on quarter.

Speaker Change #124: That's what we think happens every indication the.

Speaker Change #124: Lack of capital expenditure.

Jeff: Low factor utilization, and not a lot of wafer starts are going to lead to less supply than the market demand that will be out there. And the demand for AI servers, and putting high bandwidth memory in them, high performing DRAM in them, and lots of storage is consuming lots of parts. The backlog we just talked about gets built, and we're going to be consuming lots of material in the second half of the year.

Speaker Change #124: Low factory utilization.

Speaker Change #124: And not a lot of wafer starts are going to lead to less supply than the market demand that will be out there and the demand for AI servers.

Speaker Change #124: And putting high bandwidth memory and these high performing DRAM in these.

Speaker Change #124: And lots of storage is consumed in lots of parts.

Speaker Change #124: And as the.

Speaker Change #124: Backlog, we just talked about.

Speaker Change #124: It's built we're going to be consuming once material in the second half of the year.

Jeff: So that's what I think happens in terms of we're going from the last quarter of deflation to now three quarters of inflation, a step function in the second half, it does put margin pressure on us. Again, we've tried to reflect that to the best of our ability and our outlook. We've talked about this before. We generally recover about two thirds of the cost over a 90 day period.

Speaker Change #124: So that's what I think happens in terms of we're going from the last quarter of deflation to.

Speaker Change #124: Now three quarters of inflation, a step function in the second half it does.

Speaker Change #124: Place margin pressure on us.

Speaker Change #124: Again, we tried to reflect that to the best of our ability and our outlook. We've talked about this before we generally recover about.

Speaker Change #124: About two thirds of the cost over a 90 day period.

Jeff: We have begun to reprice things. Part of our server recovery as we increase prices, not too long ago, and we'll be looking at the cost structures of SSDs and DRAMs across our entire product portfolio and adjust accordingly. Great, thank you. You're welcome.

Speaker Change #124: We have begun to reprice things part of our <unk>.

Speaker Change #124: Server recovery as we increased price.

Speaker Change #124: Not too long ago, and we will be looking at the cost structures of ssds in DRAM DRAM across our entire product portfolio and adjust accordingly.

Speaker Change #125: Great. Thank you.

Speaker Change #126: Youre welcome.

Speaker Change #126: Yeah.

Unknown Attendee: And we have a question from Samik Chatterjee with JP Morgan. Hi, thanks for taking the question. Maybe if I change gears and sort of go to the CSG segment, you sounded more optimistic about commercial client growth through the rest of the year. Maybe just share what you're seeing or hearing from your customers in that regard. How much of this is private? How do you, how, what do you.

Speaker Change #127: And we have a question from Sonic chatter with J P. Morgan.

Speaker Change #128: Hey, Bill Thanks for taking the question maybe Jane Skus.

Speaker Change #129: Go to the CST segment.

Speaker Change #129: And more optimistic about commercial client improving.

Through the rest of the yield maybe just shared what are you seeing or hearing from your customers in that regard this.

Brian: This is Brian.

Speaker Change #131: Prioritization of the replacement of BPC installed base or even sort of acceleration of.

Vishal: Thanks, Vishal the replacement before the Windows end of life and how do you. What are you hearing in terms of enterprises evaluating cibc's in that decision, making cycle as well thank.

Speaker Change #132: Thank you.

Jeff: Sure. Look, glad you detected a bit of excitement after two years of decline. Having the business grow again was good. Yvonne and I often joke about this one data point does not make a trend. We need a few more dots on the old chart to see a trend that we can call a recovery, but we're encouraged. And that's a good sign.

Speaker Change #132: Sure.

Speaker Change #134: Im glad you detected a bit of excitement after two years of decline to have the business grow again was was good.

Speaker Change #135: Lon and I often joke about this one data point does not make a trend we need a few more dots on the old chart to see a trend that we can call a recovery, but we're encouraged.

Jeff: Some other things that we talked about, but I think are worth noting are that demand improved over the course of the quarter. The pipeline grew over the course of the quarter. We haven't had that in two years.

Speaker Change #135: And that's a good sign.

Speaker Change #135: Some other things that we I think talked about but I think are worth noting.

Speaker Change #135: Is that demand improved over the course of the quarter.

Speaker Change #135: The pipeline grew over the course of the quarter, we haven't had that in two years.

Jeff: We saw more activity in large business. That was encouraged. We still have an opportunity to see SB and MB pull along with that. So you can't call it a recovery until you see MB and SBs pull along with it. But we remain encouraged by the three indicators that I called out in our remarks. The install base has never been older. Four years ago today, we were all home, working remotely, trying to mobilize our employee base to be remote. Those products are all four years old now, and that is typically when things get replaced, and that's built up, will be the same through calendar 25, our fiscal 26, and that is a reason for belief that there is a refresh coming because the install base has never been older and it needs to be updated. You have the additional component of there being an End of Life for a Version of Windows.

Speaker Change #135: We saw more activity and large businesses that was encouraging.

Speaker Change #135: We saw an opportunity to see SB and the pull along with that so you can't color recovery until you see in the Nsp's pull along with it.

Speaker Change #135: But we remain encouraged and the three indicators that I called out in our remarks are what we see.

Speaker Change #135: The installed base has never been older four years ago to today, where all home.

Speaker Change #135: Working remote trying to mobilize our employee base to be.

Speaker Change #135: Remote those products are all four years old now and.

Speaker Change #135: And that is typically when things get replaced and Thats built up.

Speaker Change #135: Will be the same through 'twenty or calendar 'twenty five our fiscal 'twenty six.

Speaker Change #135: And that is a reason for belief that there is a refresh coming because the installed base hasnt been older and it needs to be updated you had the additional component of there is a.

Jeff: History says when there's an end of life, or history indicates when there's an end of life of an operating system, there is a buying pattern to get refreshed and updated. And then we have the promise of what you said about AIPCs. You know, we launched our first AIPCs much earlier this year with Meteor Lake across our entire corporate portfolio. We just announced a handful of new ones last week at the Dell Technology Awards.

Speaker Change #135: End of life of a version of Windows history said when there is the end of life or history has indicated when there is an end of life of operating system. There is a buying pattern to get update refreshed and updated.

Speaker Change #136: And then we have the promise of what you said.

Speaker Change #137: <unk>, we launched our first AIP sees much earlier this year with media lake across our entire corporate portfolio.

Speaker Change #137: We just announced a handful of new ones last week at Dell Technology World.

Jeff: There's more coming. The application base is building against that, whether that be what Adobe is doing, CrowdStrike is doing, what Zoom is doing, where you're getting more performance or more capability, or the announcement from Microsoft last week with CoPilot Plus, where you can do things like Search, Recall, Live Caption, and other exciting new capabilities that we think will drive ultimate demand for PCs. So that's the backdrop.

Speaker Change #137: There is more coming.

Speaker Change #137: The application basis building against that whether that be what Adobe is doing crowd strike is doing with zoom is doing where you're getting more performance or more capability or.

Speaker Change #137: Or the announcement from Microsoft last week will co pilot plus we can do things like search recall live caption and other exciting new capabilities that we think will drive ultimate demand for Pcs. So that's the backdrop.

Jeff: I'd be remiss if I didn't tell you that IDC, if you hadn't seen, took down the forecast for the year. Our internal model took it down a little bit as well. But we believe we will continue to grow. As we said, a low suitable budget.

Speaker Change #137: I'd be remiss, if I didn't tell you that <unk> took down the forecast for the year, our internal models that will get done a little bit as well.

Speaker Change #137: But we believe we continue to grow.

Speaker Change #137: As we said low single digits.

Unknown Attendee: Org To Do, we plan to take share and outperform the marketplace. Okay, thanks. Thanks, Samik. We've got time for one more question, and then we'll turn it over to Jeff for some final thoughts. Great. Thanks, Bob, for squeezing me in. Yvonne, this is a question for you.

Speaker Change #137: Work to do we plan to take share and outperform the marketplace.

Speaker Change #138: Okay. Thanks, Thanks, Amit we've got time for one more question and then we'll turn it over to Jeff for some final thoughts.

Speaker Change #139: Thank you, we'll take our final question from David Loeb with UBS.

Unknown Attendee: If I take your and Jeff's comments around the AI server, it appears that there's a modest linear ramp in sort of the AI server revenue recognition as we go through TQ in the second half of this year. If that's right, what is the gating factor?

David Loeb: Great. Thanks, Rob for squeezing me in this is a question for you if I take your comments and Jeff's comments around AI servers.

David Loeb: It appears that Theres, a modest linear ramp in sort of the AI server revenue recognition as we go through <unk> in the second half of this year.

Yvonne: I know you talked about it earlier, and Jeff talked about different sorts of customer priorities and timelines. But you know, I'd imagine that you would have seen a stronger ramp in 2Q, 3Q, and 4Q. And if that's the case, are you seeing stronger demand in 2Q that's impacting gross margins that affects sort of the guide for this particular quarter? So, you know, I'll start on that from a P&L perspective, but I really do think it's about the demand and just hit on the, you know, the dynamic environment and supply environment that we are experiencing there.

David Loeb: If that's right what is the gating factor I know you talked about it earlier and just talked about different sort of customer priorities and timelines, but I would imagine that you would have seen a stronger ramp in <unk> and <unk> and if that's the case are you seeing a stronger demand in <unk>, that's impacting gross margins that affects sort of the <unk>.

Speaker Change #141: For this particular quarter. Thank you.

Yvonne: And the backlog that continues to build right now. So, you know, when I was talking about AI and how we recognize server margins, you know, talking about them being rate dilutive but margin dollar accretive, talking about building the balance sheet up. So we're deferring, you know, we're selling these solutions with, with, with services, and that services gets recognized over time. And so we'll continue to build that up. So when we look at the deal, holistically on how we're negotiating with customers, what the, what the benefit we'll, we'll receive over time, these are, these are favorable deals for us.

Speaker Change #142: So I'll start on that from P&L perspective that I really do think it's about the demand and just hit on.

Speaker Change #143: On the.

Speaker Change #144: The dynamic environment and supply environment that we are experiencing there.

Speaker Change #145: And the backlog that continues to build right now so when I was talking about AI and how we recognize server margin and we're talking about something right dilutive margin dollar accretive talking about building the balance sheet up so we're deferring we're selling days and.

Speaker Change #145: Solutions with with with services and that services gets recognized over time and so we'll continue to build that up so when we when we look at the deal Holistically on on how we are negotiating with customer or what but.

Speaker Change #145: But the benefit will receive over time.

Speaker Change #145: These are these are favorable deals for us, but again in the P&L you have to build up that balance sheet, we have significant balance sheet strength across our entire portfolio and where we're building thats. The element of it as this is a new I'll call. It a new start up business for us.

Yvonne: But again, in the P&L, you have to build up that balance sheet; we have significant balance sheet strength across our entire portfolio. And we're, you know, we're building this element of it, as this is a new, I'll call it a new startup business for us. I don't know, Jeff, is there anything you'd add to that?

Speaker Change #146: Jeff is there anything you'd add to that.

Jeff: No, I mean, we think the demand is there. I mean, you can look at many external sources, and you can see demand for AI broadly deployed. The industry is optimistic, whether that's token growth, whether that's data growth, whether that's the flops required to process it. What's happening is we build up these megaclusters to train next-generation AI models and applications. This is a demand driver for the course of the decade, and we'll build up the balance sheet as demand expansion and enterprise, and it will manifest itself in the panel. Definitely.

Speaker Change #145: No.

Speaker Change #145: We think the demand is there I mean, you can look at many of the external sources and you can see demand for AI broadly deployed.

Speaker Change #145: The industry is optimistic whether thats token growth, whether thats data growth, whether thats the swaps required to process. It.

Speaker Change #145: Whats happening as we build out these mega clusters to train next generation AI models and applications.

Speaker Change #145: This is a demand driver for the course of the decade.

Speaker Change #145: And we will build up will build up the balance sheet as the demand and the expansion in the enterprise and it will.

Speaker Change #145: Manifest into the P&L.

Jeff: Thank you guys. It's awesome. Thanks, everyone. We're leveraging our engineering expertise to deliver open, modular, and comprehensive AI solutions for our customers, from the largest hyperscaler data centers to enterprise customers across the globe. That's something no other company in the industry can do as well as us. We've gained tremendous traction with our AI solutions over the past three quarters. And as you can see from our announcements at Dell Technology World, our innovation engine is humming, and we're just getting started. Thanks for your time today. This concludes today's conference call. We appreciate it.

Speaker Change #147: Alright, Thank you turn it over to you to alternate thanks, everyone.

Speaker Change #148: Leveraging our engineering expertise to deliver open modular and comprehensive AI solutions for our customers from the largest hyperscale datacenters to enterprise customers across the globe.

Speaker Change #149: That's something no other company in the industry can do as well as us.

Speaker Change #149: We've gained tremendous traction with our AI solutions over the past three quarters.

Speaker Change #149: As you can see from our announcements at Dell Technology World. Our innovation engine is humming and we're just getting started thanks for your time today.

This concludes today's conference call. We appreciate your participation you may disconnect at this time.

Speaker Change #149: Okay.

Speaker Change #149: [music].