Q1 2026 Dell Technologies Inc Earnings Call
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Unknown Executive: Good afternoon, and welcome to the Fiscal Year 2026 First Quarter Financial Results Conference Call for Dell Technologies.
Good afternoon, and welcome to the fiscal year 2026 first quarter financial results Conference call for Dell Technologies, Inc. I'd like to inform all participants. This call is being recorded at the request of Dell technologies. This broadcast is copyrighted property of Dell technologies.
Unknown Executive: I'd like to inform all Call is being recorded at the request of Dell Technologies.
Unknown Executive: This broadcast is the copyrighted property of Dell Technologies. Any rebroadcast of this information, in whole or part, without the prior written permission of Dell Technologies is prohibited.
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 then one on your telephone keypad at any time.
Unknown Executive: Following prepared remarks, we will conduct a question and answer session. If you have a question, please use the Q&A feature.
Unknown Executive: Star then one on your telephone keypad at any time during the I'd like to turn the call over to Paul.
Speaker Change: During the presentation I'd like to turn the call over to Paul France head of Investor Relations. Mr. Franz you may begin.
Paul Franz: Head of Investor Mr. Franz. You may be seated. Thanks everyone for joining us.
Speaker Change: Thanks, everyone for joining us with me today are Jeff Clarke Avant Mcgill empowered dancing.
Jeff Clarke: With me today are Jeff Clarke, Yvonne McGill, and Tyler Johnson. Our earnings materials are available on our IR website, and I encourage you to review these materials. Also, please take some time to review the presentation, which includes additional 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, free cash flow, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release.
Speaker Change: Our earnings materials are available on our IR website and I encourage you to review these materials.
Speaker Change: So please take some time to review the presentation, which includes additional content to complement our discussion this afternoon.
Guidance will be 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.
The earnings per share free cash flow and adjusted free cash flow a reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release.
Jeff Clarke: 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. 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: Growth percentages refer to year over year change unless otherwise specified.
Things made during this call that relate to future results and events are forward looking statements based on current expectations.
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.
Speaker Change: Assume no obligation to update our forward looking statements now ill turn it over to Jeff.
Jeff Clarke: Now, I'll turn it over to Jeff. Thanks, Paul. And thanks, everyone, for joining us. This quarter, we executed very well, achieving growth across our core markets and experiencing unprecedented demand for our AI-optimized servers. Our revenue reached $23.4 billion, up 5%. Driven by growth across all of our core markets, ISG and CSG were up 8%. Earnings per share increased by 17% to $1.55, growing three times faster than revenue. This resulted in a record cash generation for the first quarter and shareholder returns exceeding $2 billion.
Jeff Clarke: Thanks, Paul and thanks, everyone for joining us this quarter, we executed very well achieving growth across our core markets and experiencing unprecedented demand for our AI optimized servers.
Speaker Change: Our revenue reached $23 4 billion up 5% driven by growth across all of our core markets I S T and C. S two up 8%.
Speaker Change: Earnings per share increased by 17% to $1 55, growing three times faster than revenue.
Speaker Change: This resulted in a record cash generation for the first quarter and shareholder returns exceeding $2 billion turning to AI.
Jeff Clarke: Turning to AI. We experience exceptionally strong demand for AI-optimized servers, building on the momentum discussed in February, and further demonstrating that our differentiation is winning in the marketplace. We booked $12.1 billion in orders in the first quarter, surpassing the entirety of shipments in all of FY25. We've shipped $1.8 billion, leaving us with a backlog of $14.4 billion. Our five-quarter pipeline continues to grow sequentially across both Tier 2 CSPs and private and public enterprise customers and remains multiples of our backlog. Enterprise AI customers grew again sequentially, with good representation across key industry verticals, including web tech, financial services industry, manufacturing, media and entertainment, and education.
Speaker Change: We experienced exceptionally strong demand for AI optimized servers building on the momentum discussed in February and further demonstrating that our differentiation is winning in the marketplace.
We booked $12 1 billion in orders in the first quarter, surpassing the entirety of shipments in all of FY 'twenty five.
Chip for $1 8 billion, leaving us with a backlog of $14 4 billion.
Our five quarter pipeline continue to grow sequentially.
Across both tier two CSP and private and public enterprise customers and earnings multiples of their backlogs.
Speaker Change: Enterprise AI customers grew again sequentially with good representation across key industry verticals, including financial services industry manufacturing media and entertainment and education.
Jeff Clarke: AI momentum continues to remain strong. That said, given the scale of these opportunities, variability in timing, and choices around technology, the inherent nonlinear nature of demand and associated shipments is likely to persist. This quarter is a clear indicator the Dell offering resonates with customers. We are innovating at breakneck speed, designing bespoke custom solutions for customers while being agile to respond quickly to evolving next generation architectures. Our ecosystem in this space is unmatched, with key partners such as NVIDIA, AMD, Hugging Face, Cohere, Meta, Mistral, and Google, and so many others. Our execution continues to be a key differentiator.
Speaker Change: AI momentum continues to remain strong that said given the scale of these opportunities variability in timing and choices around technology, we inherit nonlinear in nature of demand and associated shipments is likely to persist. This quarter is a clear indicator that.
Speaker Change: Dell offering resonates with customers, we are innovating at breakneck speed designing bespoke custom solutions for customers, while being agile to respond quickly to evolving next generation architectures. Our ecosystem in this space is unmatched with key partners such as Nvidia AMD has been faced cohere meta Mistral and Google and so much.
Speaker Change: The others are.
Our execution continues to be a key differentiator, we built a strong reputation for deploying large scale clusters quickly and reliably significantly reducing the time to first token and accelerating time to value for our customers beyond deployment, we provide ongoing comprehensive support including managed services that ensure sister.
Jeff Clarke: We've built a strong reputation for deploying large-scale clusters quickly and reliably, significantly reducing the time to first token and accelerating time to value for our customers. Beyond deployment, we provide ongoing comprehensive support, including managed services that ensure systems reliability and performance in customer data centers. And finally, our ability to offer flexible financing solutions enables customers to scale their AI infrastructure with confidence and efficiency.
Speaker Change: <unk> reliability and performance in customer data centers and finally.
Speaker Change: Our ability to offer flexible financing solutions enables customers to scale their AI infrastructure with confidence and efficiency.
Jeff Clarke: Looking ahead, we remain focused on expanding our leadership in this space by continuing to invest in innovation, deepening customer partnerships, and delivering the infrastructure and software solutions within our AI factories that will power the next wave of AI transformation. In traditional servers, revenue increased double digits, and we now have six consecutive quarters of year-over-year demand growth. TRUs increased alongside the mix of our 16th generation servers as customers prioritized consolidation and modernization of their data centers. A significant portion of the installed base remains on 14th generation servers or older, presenting a substantial refresh opportunity with our 16 and 17G servers.
Speaker Change: Looking ahead, we remain focused on expanding our leadership in this space by continuing to invest in innovation deepening customer partnerships and delivering the infrastructure and software solutions within our AI factories that will power. The next wave of AI transformation.
In traditional servers revenue increased double digits, and we now have six consecutive quarters of year over year demand growth Tru's increased alongside the mix of our 16th generation servers as customers prioritize consolidation and modernization of their data centers a.
Speaker Change: A significant portion of the installed base remains on 14th generation servers are older presenting a substantial refresh opportunity with our 16 and 17 gene servers and storage.
Jeff Clarke: In storage. Revenue increased 6%, making it the third consecutive quarter of P&L growth, along with margin improvement year-over-year. We continue to execute in our areas of focus, Dell IP in the mid-range, software-defined, unstructured, and data protection, as more and more customers move to disaggregated architecture. PowerStore demand rose double digits going for five consecutive quarters. customers value our 5 to 1 data reduction guarantee, and we are integrating more security into PowerStore using advanced AI analytics. We're gaining traction and data protection with demand of double digits in both our next generation target appliance as well as our software Our mix of Dell IP storage continues to grow, and we are capturing more value from our platforms, expanding the margin rates within our products.
Speaker Change: Revenue increased 6%, making it the third consecutive quarter of P&L growth along with margin improvement year over year, we continue to execute on our areas of focus wip in the midrange software defined unstructured and data protection as more and more customers move to disaggregated architectures.
Speaker Change: Power store demand rose double digits growing for five consecutive quarters.
Speaker Change: Customers value, our five to one data reduction guarantee and we are integrating more security in the Paris store using advanced AI analytics, we are gaining traction in data protection with demand up double digits in both our next generation target appointments as well as our software.
Speaker Change: Our mix of Delek storage continues to grow and we are capturing more value from our platform is expanding the margin rates within our products.
Jeff Clarke: In CSG, momentum increased in commercial PCs, where demand strengthened. Overall, CSG revenue rose by 5%, driven by strong commercial revenue growth of 9%. We now have three consecutive quarters of P&L growth and five consecutive quarters of demand growth in commercial. We saw double-digit demand growth across small business, medium business, and large enterprise. Commercial demand was strongest in North America, with EMEA and APJ up double-digit. While the PC refresh remains behind prior cycles, we are seeing indicators that the install base is upgrading to new Windows 11 PCs, many of them AI PCs.
Speaker Change: <unk> momentum increased in commercial Pcs, where demand strengthened.
Overall, CSD revenue rose by 5% driven by strong commercial revenue growth of 9%.
Speaker Change: We now have three consecutive quarters of P&L growth in five consecutive quarters of demand growth in commercial we saw double digit demand growth across small business medium business and large enterprise commercial demand was strongest in North America, with EMEA and AP J up double digits.
Speaker Change: While the PC refresh remains behind prior cycles, we're seeing indicators.
Speaker Change: The installed base is upgrading to new Windows 11, Pcs many of them AIP sees.
Jeff Clarke: The consumer market remains challenged. Consumer revenue declined 19% and the industry pricing remained competitive. Over the past three months, we've made significant advancements to the Dell AI factory, from industry-first AI PCs to the edge and data center enhancements. We are pushing the boundaries with a dense, powerful, energy-efficient AI infrastructure, leading the industry in pace of innovation, some examples of our recent end-to-end AI announcement. We lead the industry with the broadest portfolio of co-pilot-plus-capable AI PCs shipping since March, strategically timed with the Windows 11 refresh. This allows our customers to move to the latest technology and future-proof on-device AI workloads.
Speaker Change: The consumer market remains challenged consumer revenue declined 19% in the industry pricing remains competitive.
Speaker Change: Over the past three months, we've made significant advancements to the Dell AI factory.
Speaker Change: An industry first AIP sees to the edge data center enhancements, we are pushing the boundaries with.
Speaker Change: Against powerful energy efficient AI infrastructure, leaving the industry pace of innovation. Some examples of our recent end to end AI announcements, we lead the industry with the broadest portfolio of co pilot plus capable ait's fees shipping since March strategically timed with the Windows 11, a refreshed this allows our customers to.
Speaker Change: Move to the latest technology and future proof on device AI workloads we.
Jeff Clarke: We announced new Dell Pro Max notebooks and desktops equipped with the NVIDIA RTX Pro Blackwell GPUs, Intel Core Ultra processors, and AMD Ryzen and Threadripper processors. At GTC, we announced the future of desk-side AI development with the Dell Pro Max with the GB10 and GB300, with the latter touting 784 gigabytes of unified system memory and the power to run a trillion parameter model. At DTW, we announced the Dell Pro Max notebook with the industry's first enterprise grade discrete NPU, capable of running 109 billion parameter models, setting a new bar for edge inference in a mobile form factor.
Speaker Change: We announced new Dell Pro Max notebooks, and desktops are equipped with the Nvidia RPX Pro Blackwell Gpus, Intel core Altra processors, ANV rising and thread River processors at GTC, we announced the future of desk side AI development with the Dell Pro Max with the GBP 10, GBP 300.
Speaker Change: With the latter touted 784 gigabytes of unified system memory, and the power to run a trillion parameter model.
Speaker Change: At <unk>, we announced the Dell Pro Max notebook with the industry's first enterprise grade discrete GPU capable of running a 109 billion parameter model setting a new bar for edge inference, and a mobile form factor.
Jeff Clarke: On the server side, the XE9780 and 9780L are air-cooled and liquid-cooled platforms, supporting up to 256 NVIDIA HGX B300 GPUs per rack. The XE9712, supporting NVIDIA GB300 NVL72, which we had the world's first sled at GTC in March. The XE7745, supporting the NVIDIA RTX Pro 6000 Blackwell GPUs, with support for up to 8 GPUs in a 4U chassis. The launch of our power-cooled platform, starting with our rear-door heat exchanger, that captures, cools, and recirculates 100% of the rack heat, reducing the cooling energy cost by up to 60%. We introduced the Dell AI Data Platform, which showcases fast, powerful, scalable storage with significant software and hardware enhancements to power scale and object scale.
Speaker Change: On the server side, <unk>, 90, 780, and $97 ABL or air cooled and liquid cooled platforms supporting up to 256 and <unk> hundred Gpus correct.
Speaker Change: <unk> hundred 90, 712, supporting Nvidia GBP 300.
Speaker Change: The <unk> 72, which we had the world's first sled at GTC in March the <unk> 70, 745, supporting the Nvidia RPX Pro 6000, Blackwell Gpus with support for up to eight Gpus in a <unk> chassis the launch of our power core platform, starting with our rear door.
Speaker Change: Exchanger that captures cools and research weights, 100% of the rack keep reducing cooling energy cost by up to 60%.
Speaker Change: We introduced the del AI data platform, which showcases fast powerful scalable storage was significant software and hardware enhancements to power scale, an object scale that also features cutting edge technologies like project Lightning, a large scale caching solution co engineered with Nvidia and David.
Jeff Clarke: It also features cutting-edge technologies like Project Lightning, a large-scale caching solution co-engineered with NVIDIA, and end-to-end data management with the Dell Data Lake. We expanded our ecosystems of partners and announced our collaboration with Google to bring Gemini on-prem exclusively for Dell customers and industry first. And additionally, we announced our partnership with the innovative Cohere to simplify the deployment of agentic technology on-prem. We also announced the Dell Private Cloud and the Dell Automation Platform designed to make deploying, managing, and scaling private cloud environments simple.
Speaker Change: Management with the del data Lake House, we expanded our ecosystem of partners and announced our collaboration with Google to bring Gemini on Prem exclusively for Dell customers, an industry first and Additionally, we announced our partnership with the innovative coherence has simplified the deployment and Egencia technology on Prem.
Speaker Change: We also announced the Dell private cloud and the Dell automation platform designed to make deploying managing and scaling private cloud environment simple, we're not only innovating today, we are defining the future architecture of the intelligent enterprise.
Jeff Clarke: We are not only innovating today, we are defining the future architecture of the intelligence enterprise. In closing, I'm confident in our position and ability to execute, we are leading in AI and pushing the boundaries of innovation. We had over $12 billion in AI orders this quarter alone, which will drive significant revenue growth and EPS We are enabling data center modernization and consolidation with our 16th and 17th generation servers, enabling lower TCO while reducing physical footprint. Our Dell IP storage portfolio targets faster-growing, higher-margin segments of the market. Our commercial PC portfolio is ideally suited for enterprises with a wider range of offerings and AI-capable devices.
Speaker Change: In closing I'm confident in our position and ability to execute we are leading in AI and pushing the boundaries of innovation, we had over $12 billion in orders this quarter alone, which will drive significant revenue growth and EPS.
Speaker Change: We are enabling data center modernization and consolidation with our 16th and 17th generation servers, enabling lower tcl, while reducing physical footprint, our Dell IP storage portfolio targets faster growing higher margin segments of the market. Our commercial PC portfolio is ideally suited for enterprises with a wide.
Speaker Change: Our range of offerings in AI capable devices, our industry, leading supply chain is a unique advantage in the dynamic environment. We are operating in today, we are leveraging the agility and resilience we have built over the past four decades, enabling us to navigate numerous challenges over the years.
Jeff Clarke: Our industry-leading supply chain is a unique advantage in the dynamic environment we are operating in today. We are leveraging the agility and resilience we have built over the past four decades, enabling us to navigate numerous challenges over the years. and allows us to minimize the impact on our customers and shareholders. We are using Gen AI internally to increase the competitiveness and capability of the company. For example, our digital service assistant has increased our diagnostic and resolution ability while increasing customer satisfaction. We are well positioned today as AI accelerates and becomes more pervasive in all of our lives.
Speaker Change: And allows us to minimize the impact on our customers and shareholders.
Speaker Change: Using gen AI internally to increase the competitiveness and capability of the company. For example, our digital services system has increased our diagnostic and resolution ability, while increasing customer satisfaction, we are well positioned today as AI accelerates and becomes more pervasive in all of our lives. There is so much more to come and we will.
Jeff Clarke: There is so much more to come, and we will be leading.
Yvonne McGill: Now over to you, Yvonne, for more details on Q1. Thanks, Jeff. Let me begin with an overview of our Q1 performance, then I'll move to ISG, CSG, CACHE, and Geiger. In the first quarter, we saw continued P&L growth across all of our core markets and record Q1 cash flow from operations. Our total revenue was up 5% to $23.4 billion. Our combined ISG and CSG business grew 8%. Gross margin was $5.1 billion, or 21.6% of revenue. This was down 80 basis points due to a more competitive pricing environment. predominantly in CS. and geographical mix within traditional servers.
Yvonne: Now overview Yvonne for more details on Q1.
Speaker Change: Thanks, Jeff Let me begin with an overview of our Q1 performance then I'll move to ISG DSG cash and guidance.
Yvonne: In the first quarter, we saw continued P&L costs across all of our core markets and record Q1 cash flow from operations.
Speaker Change: Our total revenue was up 5% to $23 $4 billion.
Speaker Change: Combined ISG in PSG business grew 8%.
Speaker Change: Gross margin was $5 1 billion or 21, 6% of revenue. This is down 80 basis points due to a more competitive pricing environment.
Speaker Change: Predominantly in PSG and geographical mix within traditional servers.
Yvonne McGill: Operating expense was down 2% to $3.4 billion, or 14.5% of revenue, as we continue to unlock efficiencies and modernize our process.
Speaker Change: Operating expense was down 2% to $3 4 billion or 14, 5% of revenue as we continue to unlock efficiencies and modernize our processes.
Yvonne McGill: Now, let's look at operating. We delivered a 10% increase to $1.7 billion, or 7.1% of revenue. This was driven by higher revenue and lower operating Q1 net income was up 13% to $1.1 billion, primarily driven by stronger operating income. And our diluted EPS is up 17% to $1.55, growing three times faster than revenue.
Speaker Change: Now, let's look at operating income.
Speaker Change: We delivered a 10% increase to $1 7 billion or seven 1% of revenue. This was driven by higher revenue and lower operating expenses Q.
Speaker Change: Q1, net income was up 14% to $1 $1 billion, primarily driven by stronger operating income and our diluted EPS was up 17% to $1 55.
Speaker Change: Growing three times faster than revenue.
Yvonne McGill: Now, let's move to ISG, where we delivered another quarter of strong performance. ISD revenue was $10.3 billion, up $12 million. Service and Networking Revenue was a Q1 record of $6.3 billion, up 16%. We saw very robust demand in AI servers with $12.1 billion of orders in the first quarter, and we shipped $1.8 billion of AI servers. In traditional servers, we saw continued P&L growth, but the demand environment moderated compared to the last quarter. Additionally, we saw a lower mix of North America in traditional server, which is a higher margin geography. Storage revenue was up 6% to $4 billion.
Speaker Change: Now, let's move to ISG, where we delivered another quarter of strong performance.
Speaker Change: ISG revenue was $10 3 billion up 12%.
Speaker Change: Servers and networking revenue was a Q1 record of $6 3 billion up 16%.
Speaker Change: We saw very robust demand in AI servers with $12 $1 billion of orders in the first quarter.
Speaker Change: And we shipped one $8 billion of AI servers.
Speaker Change: The traditional servers, we saw continued P&L craft.
Speaker Change: Demand environment moderated compared to the last quarter.
Speaker Change: Additionally, we saw lower mix of North America, and traditional server, which is a higher margin geography.
Speaker Change: Storage revenue was up 6% to $4 billion, our third consecutive quarter of growth.
Yvonne McGill: Our third consecutive quarter. We saw strong demand in our Dell IP portfolio, specifically. with PowerStore and Data Protection.
Speaker Change: We saw strong demand in our del IP portfolio, specifically with.
Speaker Change: With power store and data protection.
Yvonne McGill: We had ISG operating income of $1 billion up 36%. This was driven primarily by higher revenue. Our ISG operating income rate was up year over year to 9.7% of revenue. The rate improvement of approximately 170 basis points was driven by revenue scaling and slightly lower operating expense and higher mix of Dell IPs.
Speaker Change: We had ISG operating income of $1 billion up 36%.
Speaker Change: This was driven primarily by higher revenue.
Speaker Change: Our ISG operating income rate was up year over year to nine 7% of revenue.
Speaker Change: The rate improvement.
Speaker Change: Approximately 170 basis points was driven by revenue scaling and slightly lower operating expense and higher mix of IP storage.
Yvonne McGill: As Jeff mentioned, we are focused on further increasing our mix of Dell IP versus partner IP storage and are also driving continued product profitability improvement within our storage Now, let's turn to CSU. CSG revenue was up 5% to $12.5 billion. Commercial revenue was up 9% to $11 billion. while consumer revenue was down 19% to $1.5 billion. CSG operating income was $0.7 billion or 5.2% of revenue. Peer use remains stable sequentially, and we continue to see customers prioritize richly configured AI-ready devices. As Jeff mentioned, we saw strong performance across small and medium business and large enterprises.
Speaker Change: As Jeff mentioned, we are focused on further increasing our mix of Dell IP versus partner IP storage and are also driving continued product profitability improvement within our storage business.
Speaker Change: Wow.
Speaker Change: Let's turn to CST.
Speaker Change: <unk> revenue was up 5% to $12 5 billion.
Speaker Change: Commercial revenue was up 9% to $11 billion.
Speaker Change: While consumer revenue was down 19% to $1 5 billion.
Speaker Change: ESG operating income was <unk> 7 billion.
Speaker Change: Or five 2% of revenue.
Speaker Change: <unk> remained stable sequentially and we continue to see customers prioritize richly configured AI ready devices.
Jeff Clarke: As Jeff mentioned, we saw strong performance across small and medium business and large enterprise.
Yvonne McGill: In consumer, the demand environment remains soft and profitability remains challenged. We are focused on executing within CSG, leveraging our leading go-to-market engine and broader portfolio of offerings to capture the PC resources.
Speaker Change: In consumer the demand environment remains soft and profitability remains challenged.
Speaker Change: We are focused on executing within ESG, leveraging our leading go to market engine and broader portfolio of offerings to capture the PC refresh.
Yvonne McGill: Now, let's move to cash flow and the balance. We had a strong cash quarter with record Q1 cash flow from operations of $2.8 billion. This was primarily driven by profitability and working capital improvements. We ended the quarter with $9.3 billion in cash and investments, up $4.2 billion. Our core leverage ratio was up sequentially to 1.6x given our recent debt issue. We returned $2.4 billion of capital to shareholders with 22.1 million shares of stock repurchased at an average price of $90 per share and paid a dividend of roughly $0.53 per share. Our significant Sherry purchases this quarter reflect our continued confidence in the business.
Speaker Change: Now, let's move to cash flow and the balance sheet.
Speaker Change: Had a strong cash quarter with record Q1 cash flow from operations of $2 8 billion.
Speaker Change: This was primarily driven by profitability and working capital improvement.
Speaker Change: We ended the quarter with $9 3 billion in cash and investments up $4 2 billion sequentially.
Speaker Change: Our core leverage ratio was up sequentially to $1 six X given our recent debt issuance.
Speaker Change: We returned $2 $4 billion of capital to shareholders with $22 1 million shares of stock repurchased at an average price of $90 per share.
Speaker Change: And paid a dividend of roughly <unk> 53 per share or.
Speaker Change: Our significant share repurchases this quarter reflect our continued confidence in the business our ability to act opportunistically during periods of price dislocation and commitment to disciplined capital allocation.
Yvonne McGill: Our ability to act opportunistically during periods of price dislocation and commitment to disciplined capital allocation. Since our capital return program began at the beginning of FY23, we've returned $13.2 billion to shareholders through stock repurchases and dividends.
Speaker Change: Our capital return program began at the beginning of FY2023 we have returned $13 $2 billion to.
Speaker Change: Orders through stock repurchases and dividends.
Yvonne McGill: Turning to Q2 Guidance. In CSG, we expect the PC refresh cycle to continue as the install base upgrades to new devices, resulting in improved profitability sequentially. In ISG, we expect to ship roughly $7 billion of AI servers as we fulfill some of our large deals. We are expecting sub-seasonal performance and traditional server and storage are larger profit pools that provide scale as customers evaluate their IT spend for the year given the dynamic macro environment. Given that backdrop, we expect Q2 revenue to be between $28.5 and $29.5 billion, up 16% at the midpoint of $29 billion.
Speaker Change: Turning to Q2 guidance and CFC respect the PC refresh cycle to continue.
Speaker Change: As the installed base upgrades to new devices, resulting in improved profitability sequentially in <unk>.
Speaker Change: We expect to ship roughly $7 billion of AI servers, as we fulfill some of our large deals.
Speaker Change: We are expecting some seasonal performance in traditional server and storage are larger profit pools that provides scale as customers evaluate their spend for the year given the dynamic macro environment.
Speaker Change: Given that backdrop, we expect Q2 revenue to be between 28, 5% and $29 5 billion.
Speaker Change: At 16% at the midpoint of $29 billion.
Yvonne McGill: ISG and CSG combined are expected to grow 19% at the midpoint, with ISG growing significantly and CSG up low to mid-single digits. OpEx will be down low single digits year over year. We expect operating income to be up roughly 8%. We expect our diluted share count to be roughly 685 million shares, and our diluted non-GAAP EPS is expected to be $2.25, plus or minus $0.10, up 15% at the midpoint.
Speaker Change: ISG and CST combined are expected to grow 19% at the midpoint with ISG growing significantly and PSG up low to mid single digits.
Speaker Change: Opex will be down low single digits year over year.
Speaker Change: We expect operating income to be up roughly 8%.
Speaker Change: We expect our diluted share count to be roughly 685 million shares and our diluted non-GAAP EPS is expected to be $2 25.
Speaker Change: Plus or minus 10.
Speaker Change: Up 15% at the midpoint.
Yvonne McGill: Moving to the full year. It is early in what has been a very dynamic year. We're optimistic on our portfolio and our ability to execute. However, we want to be thoughtful on how customers think through their IT spend relative to the macro environment. Against that backdrop, we are reiterating our full-year revenue guidance and expect FY26 revenue to be between $101 billion and $105 billion, with a midpoint of $103 billion, up 8%. We expect ISG to grow high teams driven by over $15 billion in AI server shipments and continued growth in traditional server and storage. And we expect CSG to grow low to mid-single business.
Speaker Change: Moving to the full year.
Speaker Change: It is early and what has been a very dynamic here where.
Speaker Change: We're optimistic on our portfolio and our ability to execute however, we wanted to be thoughtful on how customers think through their IP stand relative to the macro environment.
Speaker Change: Against that backdrop, we have.
Speaker Change: Reiterating our full year revenue guidance and expect FY 'twenty six revenue to be between $101 million and $105 billion with a midpoint of 103 billion up 8%.
Speaker Change: We expect ISG to grow high teens, driven by over $15 billion in AI server shipments and continued growth in traditional server and storage.
Speaker Change: And we expect <unk> to grow low to mid single digits, we expect the combined ISG and <unk> to grow 10% at the midpoint.
Yvonne McGill: We expect the combined ISG and CSG to grow 10% at the midpoint. Given what we expect for the first half, the full year guide reflects slightly lower profitability expectations within CSG, traditional server, and storage. As our modernization efforts continue, we expect the operating expense to be down low single digits year-over-year. We've set the operating income to be up roughly 9%. We expect I&O to be between $1.4 and $1.5 billion. We are increasing our diluted non-GAAP earnings per share guidance to $9.40, plus or minus $0.25, up 15% at the midpoint, assuming an annual non-GAAP tax rate of $8.40.
Speaker Change: Given what we expect for the first half the full year guide reflects slightly lower profitability expectation within <unk> traditional server and storage.
Speaker Change: As our modernization efforts continue we expect operating expense to be down low single digits year over year.
Speaker Change: We expect operating income to be up roughly 9%.
Speaker Change: We expect <unk> to be between one four and $1 5 billion.
Speaker Change: We are increasing our diluted non-GAAP earnings per share guidance to $9 40.
Speaker Change: Plus or minus 25.
Speaker Change: Up 15% at the midpoint assuming.
Speaker Change: And annual non-GAAP tax rate of 18%.
Yvonne McGill: In closing, we have another strong quarter with EPS growth significantly outpacing revenue and record Q1 cash generation. We are focused on executing our strategy, expanding our lead in AI, and modernizing our business, all driving increased EPS. This will be an exciting year, and I look forward to the growth we see above our long-term framework and the value we will continue to deliver to our customers and our shareholders.
Speaker Change: At closing, we had another strong quarter with EPS growth significantly outpacing revenue and record Q1 cash generation.
Speaker Change: We are focused on executing our strategy expanding our lead in AI and modernizing our business all driving increased EPS growth.
Speaker Change: This will be an exciting year and I look forward to the growth we see above our long term framework and the value. We will continue to deliver to our customers and our shareholders now I'll turn it back to Paul to begin Q&A.
Paul Franz: Now I'll turn it back to Paul to begin Q&A. Thanks, Yvonne. In order to ensure we get to as many of you as possible, please ask one concise question.
Paul France: Thanks demand in order to ensure we get to as many of you as possible. Please ask one can say its question, let's go to the first question.
Amit Daryanani: Let's go to the first question. We'll take our first question from Amit Daryanani with Evercore ISI. Thanks a lot for taking my question. You know, I guess my question was just on the AI server revenues. You folks had some really impressive performance in Q1. I think the backlog at $12.1 billion was up over $3 billion from 90 days ago.
Speaker Change: We will take our first question from Amit <unk> with Evercore ISI.
Speaker Change: Thanks, a lot for taking my question I guess my question was just on the AI server revenues you folks had some really impressive performance in Q1, I think the backlog of $12 1 billion was up over 3 billion from 90 days ago can you just touch on kind of what are you seeing and how should we think about the fiscal 2006.
Jeff Clarke: Can you touch on kind of, you know, what are you seeing and how should we think about the fiscal 26 AI server revenue target, which I think was $15 billion before, especially as you've seen a bigger uptick in engagement from the solvent side, and also some of the new clouds that are raising the capex. So just any framework on how to think about the AI server market as you go forward would be really helpful.
Speaker Change: So our revenue target, which I think it was 15 billion before.
Speaker Change: Especially as you see the bigger uptick in engagement from the sovereign side and I'll just hold the neo cloud that raising the capex or just any framework of how to think about it.
Speaker Change: AI solar market as we go forward would be really helpful.
Jeff Clarke: Sure. Thanks for the question. First of all, we're 91 days into the year. We've got 273 more to go, but I like the start. $4.1 billion of orders in Q1. More than all of last year. We're off to a good start, but we have much in front of us. The customer deployments that we have in front of us are large, they're complex, they have very detailed scheduled deliveries, there's lots of dependencies on this. We've talked about this business being lumpy and nonlinear. The dependencies in this business are waiting for data centers to be built, power to be provided, direct liquid cooling infrastructure put in place.
Speaker Change: Sure on.
Speaker Change: Thanks for the question.
Speaker Change: First of all were 91 days in the year, we've got 273 more to go but I would like to start.
Speaker Change: $4 $1 billion of orders in Q1 more.
Speaker Change: More than all of last year, we're off to a good start but we have much in front of us.
Speaker Change: We look customer deployments that we have in front of us are large they're complex. They have very detailed schedule deliveries theres lots of dependencies on this we've talked about this business being lumpy and non linear.
Speaker Change: The dependencies in this business are waiting for data centers to be built power to be provided.
Speaker Change: Direct liquid cooling infrastructure put in place.
Jeff Clarke: We're orchestrating a highly complex supply chain. You've probably seen reference that a GB200 NVL72 rack has 1.2 million parts in it. Coordinating and orchestrating that across our value add, whether that be CDUs, cold plates, the racks themselves, power shelves, what have you, that's what we're working through. It's driven the backlog. We love where the backlog is. It's healthy. It's reflective. I believe the backlog is $14.4 billion on top of that $12.1 billion in orders.
Speaker Change: Orchestrating a highly complex supply chain, you probably seen referenced that a GBP two GBP 200, and deals 72 rack has $1 2 million parkman coordinating and orchestrating that across our value add whether that be in situ use coal plates. The wax themselves power shelf would have you.
Speaker Change: That's what we're working through its driven in the backlog, what where the backlog is healthy it's reflective I believe the backlog was $14 4 billion on top of that $12 $1 billion of orders.
Jeff Clarke: And probably the interesting thing, what I think is the most interesting thing, is that we converted our five-quarter pipeline, obviously, to generate the $12.1 billion in the growing backlog, and the five-quarter pipeline grew. It grew sequentially. It's up significantly year over year. It's filled through lots of multiple types of technology, versions of Blackwell, and it now contains Sovereign. You may have seen an announcement earlier today from the Department of Energy around the NERSC-10 and our design wind there, an example of Sovereign AI. We're very excited about that. Also, we've got lots to go. Three quarters in front of us.
Speaker Change: And probably the interesting thing what I think is the most interesting thing is that we converted our five quarter pipeline, obviously to generate the $12 1 billion and the growing backlog and the five quarter pipeline grew it.
Speaker Change: It grew sequentially, it's up significantly year over year.
Speaker Change: Build through lots of multiple types of technology versions of black oil and it now containment sovereign you may have seen the announcement earlier today from the department of energy around the <unk> 10, and our design win there. An example, sovereign AI, we're very excited about that.
Speaker Change: Also got lots to note three quarters in front of us.
Jeff Clarke: I can really tell you we're on the plus side of $15 billion and feel pretty good about it, but we'll update you now before a year goes and another quarter.
Speaker Change: I can really tell you where on the plus side of $15 billion and feel pretty good about it but we'll update you on our full year goes in another quarter.
Speaker Change: Okay got it.
Speaker Change: Okay.
Ben Reitzes: And our next question will come from Ben Reitzes. Call the 0-833-933-8873. 8 billion in the first half for AI servers. That implies, I don't know, three and a half billion each. in the back half. And I think Amit was getting at this, that, you know, that.
Speaker Change: And our next question will come from Ben Reitzes with Melius research.
Speaker Change: Okay.
Speaker Change: Make this concise from Paul there so I'll do my best Jeff.
Speaker Change: Hum.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Wanted to talk about second half guidance I mean, Amit went there a little bit, but if you do the $15 billion.
Speaker Change: Plus let's call it and including $8 billion in the first half for AI servers that implies I don't know three 5 billion each quarter.
Speaker Change: In the back half and I think Amit was getting at this.
Speaker Change: That.
Jeff Clarke: Is that indicative of demand and Yvonne and Jeff, do you mind just talking about... is that the kind of lumpiness we're really getting, you know, seven going to three and a half, or, you know, are you just being conservative?
Speaker Change: Is that indicative of demand and.
Speaker Change: Yvonne and Jeff do you mind, just talking about.
Speaker Change: Is that the kind of Lumpiness, we're really getting seven going to three and a half or.
Speaker Change: Are you just being conservative and then.
Yvonne McGill: And then, you know, just sorry for the multi-part, but Yvonne, do you mind just saying again what you're looking for in ISG? You know, what level of moderation for the second half of demand, you know, in both ISG? really significant in order to kind of keep your guys.
Speaker Change: Sorry for the multipart, but.
Speaker Change: On <unk>.
Speaker Change: Do you mind, just saying again when youre looking at before in ISG, what level of moderation for the second half of demand.
Speaker Change: And both ISG and CST is really significant.
Speaker Change: In order to in order to kind of keep your guidance.
Yvonne McGill: You know, we actually have to slow down AI. I'm not so sure street numbers for the other two segments go down very much. Thanks.
Speaker Change: We actually have to slowdown AI servers, but I'm not so sure street numbers for the other two segments go down very much in the back half I mean.
Speaker Change: Thanks.
Jeff Clarke: Let's see if we can parse our way through that. So I believe, first of all, Yvonne made a reference that we expect to ship $7 billion of AI servers. On top of the 1.8 billion that I referenced, we're closer to nine in the first half. I've made the reference that the five-quarter pipeline continues to grow and grow significantly. It remains multiples of our backlog. The enterprise component of that continues to grow. In fact, it's growing at a faster rate than the CSP part of that pipeline, and we're optimistic. It's early in the year. We're 91 days in.
Speaker Change: Let's see if we can parse our way through that so I believe first of all of our major reference that we expect to ship $7 billion of AI servers.
Speaker Change: On top of a $1 8 billion that I referenced that were closer to 9% in the first half.
Speaker Change: I've made reference of the five quarter of pipeline continues to grow and grow significantly it remains multiples of our backlog.
Speaker Change: Enterprise component as that continues to grow in fact is growing at a faster rate than the CSP part of that pipeline and we're optimistic. It's early in the year were 91 days and we have a couple of technology shifts from in front of US we're very excited about that.
Jeff Clarke: We have a couple of technology shifts in front of us. We're very excited about that. We continue to win and differentiate ourselves with our engineering and innovation, our ability to deliver and deploy, deliver and deploy, and turning on our racks in 24 hours when they're operating and in business for our customers. We continue to focus on what differentiates us. I like our prospects of converting more pipeline in the second half, but at this point, we're on the 15-plus side.
Speaker Change: <unk> to win and differentiate ourselves with our engineering and innovation, our ability to deliver and deploy delivering deploy and turning on our racks in 24 hours and they're operating in.
Speaker Change: In business for our customers, we continue to focus on what differentiates us I like our prospects of converting more pipeline in the second half, but at this point.
Speaker Change: We are in the $15 15, plus side our annual guidance.
Yvonne McGill: Our annual guidance. that we just delivered suggest that's exactly where we are, and I'll let Yvonne work her way through the ISG question that you had. Yeah, so, you know, from an ISG perspective, as I think through the full year guide, you know, we are early, early on, right? And so we have been thinking that, you know, as we are, I'd say, historically a bit conservative in how we look at the year, we have really held holistically on the year right now, given what we're seeing in the dynamic environment. I am really excited about the AI opportunity.
Speaker Change: That we just delivered honest suggests that's exactly where we are in a world of one work our way through the ISG question, but yet yes.
Speaker Change: 90 perspective, as I think through the full year guide and we are early early on right and so we have.
Speaker Change: Then thinking that.
Speaker Change: As we are I would say historically a bit conservative and how we look at the year we have.
Speaker Change: Really held.
Speaker Change: Holistically on on the on the year right now.
Speaker Change: Given what we're seeing and that the dynamic environment I am really excited about the AI opportunity. Obviously, we have a significant backlog already in and that will.
Yvonne McGill: Obviously, we have a significant backlog already, and that will continue to expand. But at this juncture, we think we should remain on what we have put out for the guide and not do any dynamic increases there. All right.
Speaker Change: <unk> continued to expand but at this juncture, we think we should remain on but we have put out for the guide and not do any dining.
Speaker Change: Dynamic increases there.
Speaker Change: Thanks.
Ben Reitzes: Thanks, Ben.
Speaker Change: Alright, Thanks, Dan.
Erik Woodring: And the next question comes from Erik Woodring with Morgan Stanley. Hey, guys. Thank you. Thank you so much for taking my question. Jeff, obviously, Ben and Amit have touched on it, really strong commentary on AI servers. I would love to just get a little bit more color from you on the potential for the storage and services attach opportunity alongside AI servers. Obviously, there was commentary more than a year ago about a pretty big opportunity there. And I'm just wondering, as you've kind of seen this market evolve with CSP customers, enterprises, sovereigns, you know, when can we think about that attach opportunity really starting to materialize?
Speaker Change: And the next question comes from Erik Woodring with Morgan Stanley.
Erik Woodring: Hey, guys. Thank you. Thank you so much for taking my question.
Speaker Change: Jeff obviously.
Speaker Change: Brandon I'm going to touch on it really strong commentary on AI servers, I would love to just get a little bit more color from you on the potential for the storage and services attach opportunity alongside AI servers. Obviously, there was commentary more than a year ago about a pretty big opportunity there and I'm just wondering as you've as you've kind of seen this market.
Speaker Change: <unk> with CSP customers enterprises sovereigns.
Speaker Change: When can we think about that that attach opportunity really starting to materialize any way to size how to think about the attach.
Jeff Clarke: Any way to size how to think about the attach? Anything that you could help us understand for margin impact there? Just some more context would be helpful there. Thanks so much.
Speaker Change: I think that you could help us understand for margin impact there just some more context would be helpful. There. Thanks, so much.
Jeff Clarke: Sure, and I think part of it is part of the answer lies in what we announced at Dell Technology World, which is an expansion of our storage portfolio, the storage capability, our data management platform, the Dell automation platform. Those things are all important as we're building out the portfolio of pluses around the specific AI server node and the rack. We made reference to Project Lightning last week, continue to be excited about the opportunities there. We've made, I would probably cast it as modest improvement in our storage and networking attach. We've made significant improvement in our deployment and installation services attach.
Speaker Change: Sure and I think part of it is part of the answer lies in neutral.
Speaker Change: What we announced at Dell Technology World, which is an expansion of our storage portfolio the storage capability, our data management platform the Dell automation platform.
Speaker Change: Those things are all important as we're building out the portfolio of pluses around these specific AI server node and rack.
Speaker Change: We made reference to project Lightning last week continue to be excited about the opportunities there.
Speaker Change: We've made I would probably cast it is modest improvement in our storage and networking attached.
Speaker Change: We've made significant improvement in our deployment and installation services attach.
Jeff Clarke: It is what's actually differentiating us in the marketplace, our ability to do the L11, L12, get it deployed, installed, and ultimately operational in a short period of time. That continues to differentiate. It's being valued by our customers. And if I extrapolate that to what can be done in enterprise, it's the same sort of opportunity. In fact, we think the opportunity to attach storage. Particularly as the data structure moves to more object storage and our assets in the unstructured space, we have a differentiated advantage. We're going to continue to invest in that portfolio. The opportunity in networking is there.
Speaker Change: It is what's actually differentiating us in the marketplace our ability to do so.
Speaker Change: 11, or 12 did it deployed installed and ultimately operational.
Speaker Change: A short period of time.
Speaker Change: <unk> to differentiate its being valued by our customers.
Speaker Change: And if I extrapolate that to what can be done in enterprise. It's the same sort of opportunity in fact, we think the opportunity to attach storage.
Speaker Change: Particularly as the data structure moves to more object storage.
Speaker Change: Our assets in the structured space, we have a differentiated advantage, we're going to continue to invest in that portfolio the opportunity networking is there.
Jeff Clarke: And obviously the services that I just mentioned are equally important in enterprises. They are in the largest clusters in the world. So we remain optimistic. We have work to do. I would not be, I think, truthful if I said we were satisfied. We are not satisfied with the attached to date. I think that is all upside and opportunity. Our sales team is focused on that. And we continue to find opportunities to differentiate our portfolio, look at some of the subsystems in our performance and the attributes that it brings to what's being done in these modern workloads.
Speaker Change: And obviously the services that I just mentioned are equally important in enterprise as they are in the largest clusters in the world.
Speaker Change: So we remain optimistic we have work to do.
Speaker Change: I'd be.
Speaker Change: I would not be truthful.
Speaker Change: <unk> as I said, we were satisfied we are not satisfied with the attached today.
Speaker Change: That is all upside and opportunity for our sales team is focused on that and we continue to find opportunities to differentiate our portfolio look at some of the sub systems and our performance in the attributes of that brings to what's being done in these modern workloads and we're very optimistic about that I think I've made reference in the past is these modern work.
Jeff Clarke: And we're very optimistic about that. I think I've made reference in the past as these modern workloads evolve. It's clear that this aggregated storage architecture is the path of the future. And I think we have the best portfolio in that. And we'll continue to focus on that with our customers.
Speaker Change: Those evolve it's clear that the disaggregated storage architecture is the path to the future and I think we have the best portfolio in that and we will continue to focus on that with our customers.
Unknown Executive: Alright, thank you.
Unknown Executive: Awesome, thank you, Jeff. Good luck, guys. You're welcome. Thanks.
Speaker Change: Alright, Thank you Jeff Good luck guys.
Speaker Change: You're welcome thanks.
Wamsi Mohan: And the next question will come from Wamsi Mohan. Bank of America. Yes, thank you so much. Maybe a quick clarification. Are you assuming any impact from tariffs in your numbers at all? And for my question, given the significant ramp of AI servers, and sort of what you're guiding incrementally for next quarter, I'm calculating a low single digit operating margin on the AI servers. Would you agree with that? And how should we think about the progression?
Speaker Change: And the next question will come from <unk> Mohan with.
Mohan: Bank of America.
Speaker Change: Thank you so much maybe a quick clarification are you assuming any impact from tariffs in your numbers.
Speaker Change: At all.
Speaker Change: For my question, given the significant ramp up afterwards.
Speaker Change: And sort of what youre guiding incrementally for next quarter.
Speaker Change: I'm calculating a low single digit operating margin on the AI servers would you agree with that and how should we think about the progression of gross margin. Thank you.
Speaker Change: Yes.
Jeff Clarke: Well, maybe a couple of sound bites and then Yvonne can add to this. Our guidance for the year and for Q2 includes everything that we know about tariffs as of today. We were able to navigate that, I believe, successfully. I think we viewed the input cost to our business as deflationary in Q2. That's inclusive of tariffs. And we're very confident that what we conveyed in the form of our outlook is very inclusive of our costs associated with tariffs. We did not make any price moves in the quarter. We were steady. We have been through this before and I think we weathered the storm quite well and ultimately took care of our customers and served them quite well.
Speaker Change: Well, maybe a couple of sound bites and then Avanti.
Speaker Change: Add to this.
Speaker Change: Our guidance for the year and for Q2 includes everything that we know about tariffs as of today.
Speaker Change: We were able to navigate that I believe successfully.
Speaker Change: I think we viewed the input cost to our business is deflationary in Q2, that's inclusive of tariffs.
Speaker Change: And we're very confident that what we conveyed in the form of our outlook is very inclusive of our costs associated with tariffs, we did not make any price moves in the quarter we were steady.
Speaker Change: We have been through this before and I think we weathered the storm quite well and ultimately took care of our customers and serve them quite well.
Yvonne McGill: When I think about AI and the numbers that we gave to the $7 billion of incremental revenue. When you look at it, I believe it's roughly $4 billion on a year-over-year basis. It's roughly $5 billion on a quarter-over-quarter basis, and it drives significant gross margin dollar growth on both a year-over-year and quarter-over-quarter basis, and it drives significant operating income dollar growth on a quarter-over-quarter and year-over-year basis. Yeah, I'd say embedded within the guide is a 10% quarter-over-quarter increase in gross margin dollars. You know, as Jeff mentioned, we're seeing, you know, what we're seeing a nice G quarter-over-quarter is.
Speaker Change: When I think about AI in the numbers that we gave.
Speaker Change: The $7 billion of incremental revenue.
Speaker Change: When you look at it I believe it's roughly $4 billion on a year over year basis, it's roughly $5 billion on a quarter over quarter basis, and it drives significant gross margin dollar growth on both a year over year and quarter over quarter basis, and it drives significant operating income dollar growth on our core.
Speaker Change: During the quarter and year over year basis.
Speaker Change: I'll turn it over to vantage you can add more I'd say embedded within the guide is a 10% quarter over quarter increase in gross margin dollars.
Speaker Change: As Jeff mentioned, we're seeing.
Speaker Change: We're seeing a nice quarter over quarter is.
Yvonne McGill: choosing about $5.3 billion more revenue, with roughly half a billion dollars more in operating income, which is being driven by AI server profitability, and to a lesser extent, improvement in the profitability within our storage portfolio.
Speaker Change: Excuse me about $5 3 billion more revenue with roughly half a billion dollars more in operating income, which is being driven by AI server profitability.
Speaker Change: And to a lesser extent improvement.
Speaker Change: Improvement in that.
Speaker Change: Profitability within our storage portfolio.
Unknown Executive: Excellent. Thank you, Wamsi.
Speaker Change: Excellent. Thank you Avi.
Michael Ng: And the next question will come from Michael Ng with Goldman Sachs. Hi, good afternoon. Thanks for the question. I just have two on AI servers. I was just wondering if you could comment on the AI server profit outlook for the full year. I think you reiterated the revenue and OpEx outlook despite the lower profit assumptions on CS3 traditional servers and storage. So does that imply that the AI server profit outlook was raised? Are you still expecting ISG margins to be flat year-over-year in fiscal 26? And then, secondly, I was just wondering if you could talk a little bit about some of the AI server orders that happened in the last two months after you gave that update at the end of February.
Michael: And the next question will come from Michael <unk> with Goldman Sachs.
Michael: Hi, good afternoon, and thanks for the question just have.
Michael: Two on AI servers I was just wondering if you could comment on the AI server profit outlook for the for the full year.
Michael: I think you reiterated the revenue and Opex outlook. Despite the lower profit assumptions on C history traditional servers and storage. So does that imply that the AI server profit outlook was was raised.
Michael: Are you still expecting.
Michael: ISG margins to be flat.
Michael: That year over year.
Michael: 26.
Michael: And then secondly, I was just wondering if you could talk a little bit about some of the.
Michael: AI server orders that happened in the last two months after.
Michael: You gave the update at the end of February.
Michael Ng: You know, were there any kind of key customer types or kind of texture to the orders that you could just help to characterize?
Speaker Change: Were there any kind of key customer types or.
Michael: Kind of texture to the orders that.
Michael: If you could just help to characterize thank you.
Yvonne McGill: Thank you. Why don't I start with the, you know, the guidance and the ISG profitability, you know, so for the for the full year, you know, I just talked on it where we are expecting rates. to be down rolling forward. But we're seeing that reflective of what we saw in the first half, right? So what we saw in the first quarter, plus what we're expecting in the second quarter. And overall, it's driven by lower profitability and traditional service and CSG. So holistically, when we're talking about AI, we're seeing those dollars being accretive and into our P&L.
Michael: Why don't I start with.
Michael: The guidance in ISG profitability.
Michael: Yes, so for the for the full year.
Michael: Just talked on it were.
Michael: We are expecting rates.
Michael: It can be down.
Michael: Going forward, but we're seeing that.
Michael: Reflective of what we saw in the first half right. So what we saw in the first quarter plus what we're expecting in the second quarter and overall driven by lower profitability in traditional service in CSA. So holistically. So when we're talking about AI, we're seeing those dollars being accretive and into our P&L and storage.
Yvonne McGill: Storage margins are also improving nicely. And we expect that to continue over the year as we lean more into our Dell IP mix. And so that's good to expect also. So IST margins will expand throughout the year as we see the typical seasonality within that part of the portfolio.
Michael: Margins are also.
Michael: Improving nicely and we expect that to continue over the year as we lean more into our Dell IP.
Michael: Mix and so that's that's good too.
Michael: Expect offset and so margins will expand throughout the year as we.
Michael: See the typical seasonality within within that part of the portfolio.
Jeff Clarke: So I don't Jeff, is there anything you'd add to that? I would reemphasize the point that you made that it's the driving behavior in our AI business. It's driving gross margin dollar accretion and operating income. Does a sizable AI business dilute the overall rate? Of course it does. We're looking at it in absolute dollars in every scenario that we've now conveyed to you in our guidance for both the quarter and the year. Authorized Operating Income Dollar Growth and Gross Margin Dollar Growth. So I think it's something we continue to focus on. That's important to us.
Michael: I don't know.
Jeff Clarke: Jeff anything you'd add to that I would reemphasize the point that we've made.
Jeff Clarke: It has to be the driving behavior in our AI business, it's driving gross margin dollar accretion in operating income dollar accretion.
Jeff Clarke: There is a sizeable AI business dilute the overall rate of course it does.
Jeff Clarke: We're looking at in absolute dollars in every scenario that we've now conveyed to you on our guidance for both the quarter and.
Jeff Clarke: For the year.
Jeff Clarke: <unk> operating income dollar growth and growth gross margin dollar. So I think it's something we continue to focus on.
Jeff Clarke: That's important to us.
Jeff Clarke: And that is the driving behavior of how we're running this business.
Jeff Clarke: And that is the driving behavior of how we're running this business in terms of orders clearly I won't talk about specific customers we saw.
Jeff Clarke: In terms of orders, clearly, when we talk about specific customers, we saw CSP customers, we saw enterprise customers, the number of enterprise customers grew, the number of repeat enterprise customers grew as well.
Jeff Clarke: CSP customers, we saw enterprise customers the number of enterprise customers grew the number of repeat enterprise customers.
Jeff Clarke: Our enterprise growth is exciting with over 3000 customers now buying various forms of our Dell AI faculties. We saw a mix from Hopper Technology and Blackwell Technology across those. We saw it with Worm and X86, so a great cross-representation there.
Jeff Clarke: <unk> grew as well.
Jeff Clarke: Our enterprise growth.
Jeff Clarke: Citing with over 3000 customers now buying various forms of our factories.
Jeff Clarke: You saw a mix from Hopper technology, and Blackwell technology across those we saw it with warm and X 86, So a great cross representation there I mean, that's the color on <unk>.
Michael Ng: I mean, that's the color and context, I guess, texture I'm going to leave that part with. And what we saw in. Thank you. That's very helpful. Thank you.
Speaker Change: Context, I guess texture.
Speaker Change: With what.
Jeff Clarke: What we sold in Q1.
Jeff Clarke: Great. Thank you very helpful. Thank you.
Jeff Clarke: But.
Samik Chatterjee: And moving on to Samik Chatterjee with J.P. Morgan. Great, hi, thanks for taking my question.
Speaker Change: And moving onto Samekh chatter G with J P. Morgan.
Jeff Clarke: Great. Thanks.
Speaker Change: Thanks for taking my question and then maybe just more broadly.
Jeff Clarke: And maybe just more broadly, in terms of your customer behavior, just curious if you've seen any sort of pull forward. I know you're managing the tariff environment pretty well, but not so much as everyone in the industry.
Jeff Clarke: In terms of your customer behavior, just curious if you've seen any sort of pull forward I know youre managing with that if no environment pretty well, but not so much as everyone in the industry. So have you seen customers pulled forward.
Jeff Clarke: So have you seen customers pull forward some demand, and particularly when we think about the caution that you have related to traditional servers and CSG, are you treating that more as customers just being cautious about the macro, or more being in digestion after a pull forward of demand from your customers? I'm certain we had some customers pulling them in. They certainly saw what was happening in the marketplace and how dynamic things were. And there's no way to say that that didn't happen. I'm sure it did. To what degree, I don't know.
Jeff Clarke: Our total demand and particularly when we think about the caution that you have related to traditional silvers in PSG are you treating that more or less customers just being cautious about the macro or more being in digestion. After a pull forward of demand from your customers. Thank you.
Jeff Clarke: Sure I am certainly had some customers pulling demand.
Jeff Clarke: They certainly saw what was happening in the marketplace and how dynamic things were and theirs.
Jeff Clarke: No way to say that.
Jeff Clarke: That doesn't happen I am sure it to what degree I don't know.
Jeff Clarke: What we know is that, for example, they separate the businesses. We're in the middle of a race to refresh. We have the windows. 10 Exploration in the PC Business, we've seen good traction. We're clearly in the refresh cycle. It's certainly behind others. But indications are we are seeing good growth. I think I mentioned in my remarks at North American and me and APJ, all the double digits from a demand perspective.
Jeff Clarke: Will be known as <unk> for example, they separate the businesses. We're in the middle of a race to refresh the windows.
Jeff Clarke: 10 exploration in the PVC business, we see good traction with.
Jeff Clarke: Clearly in the refresh cycle, it's certainly behind others.
Jeff Clarke: But indications are we are seeing good growth I think I mentioned in my remarks in North America, and EMEA regions, all grew double digits from a demand perspective.
Jeff Clarke: We did see a slowdown in month three. Month one was greater than January. Month two was greater than February. Month 3 slowed in weeks 10 through 12, and actually all three U.S. businesses, commercial PCs, traditional servers, and storage. So clearly there is a bump along the journey there.
Jeff Clarke: We did see.
Jeff Clarke: A slowdown in month three month, one was greater than January month to as greater than February.
Jeff Clarke: Amongst three slowed in weeks 10 through 12.
Jeff Clarke: Then actually all three U S businesses commercial Pcs trigger.
Jeff Clarke: Traditional servers and storage. So clearly there was a bump along the maturity there along made reference to that with a slowdown in our traditional server business.
Jeff Clarke: Yvonne made reference to that with a slowdown in our traditional server business. So, I'll pull ahead. We are still optimistic about the year. We have all of the businesses growing. We are maybe a little more muted in what we think in those businesses. They may be down a point in terms of their absolute market growth. I don't think anyone knows. But when you look at traditional servers, you look at storage, the other two businesses that I was referring to. Again, both were going nicely.
Jeff Clarke:
Jeff Clarke: So pull ahead.
Jeff Clarke: We are still optimistic about the year.
Jeff Clarke: We have all of the business has grown.
Jeff Clarke: We are maybe a little more.
Jeff Clarke: Needed and what we think in those businesses, where maybe down a point in terms of the absolute market growth I don't know.
Jeff Clarke: Anyone.
Jeff Clarke: But when you look at traditional servers, you look at storage. The other two businesses that I was referring to.
Jeff Clarke: And again, both were growing nicely.
Unknown Executive: North America Speed Bump Week 10-3. 12 and 3. worked our way through that. We now have that reflected in our guidance in Q2. Okay, thank you.
Jeff Clarke: North America speed bump with 10 through.
Jeff Clarke: 12 month three.
Jeff Clarke: Worked our way through that.
Jeff Clarke: Now have that reflected in our guidance in Q2.
Eric: Okay. Okay. Thanks, Eric.
Asiya Merchant: And the next question comes from Asiya Merchant with Citi. Great. Thank you for taking my question.
Speaker Change: And the next question comes from <unk> merchant with Citi.
Speaker Change: Great. Thank you for taking my question.
Jeff Clarke: You know, if you could just talk a little bit about the competitive dynamics, just given the macro environment, a little bit of slowdown that you're seeing here, the fact that you didn't raise prices, just help us understand, you know, how the competitive responses were, and if some of the guidance that you're providing, you know, reflects maybe a heightened competitive intensity, or is this more just macro and, you know, just being prudent given your customer behavior that you just outlined? Thank you. Here, let me take a look at that. And CSG specifically commercial PC. Look, ASPs remain relatively stable in the marketplace.
Speaker Change: You could just talk a little bit about the competitive dynamics just.
Jeff Clarke: Just given the macro environment will get a slowdown that youre seeing here.
Jeff Clarke: But you didn't raise prices just help us understand how the competitive responses were and as some of the guidance that you're providing.
Jeff Clarke: Reflects maybe a heightened competitive intensity or is this more just macro and just being prudent given your customer behavior that you just outlined thank you.
Jeff Clarke: Yes, let me take a run at that.
Jeff Clarke: And <unk>, specifically commercial Pcs.
Jeff Clarke: <unk> remained relatively stable in the marketplace.
Jeff Clarke: There are some certainly some complications or some dynamic behavior associated with tariffs that we certainly have weathered through. We did not raise the list price. We saw an actual increase of AI PCs as we're ramping our new products to help us stabilize our AS. I talked about the speed bump that we had in month, excuse me, weeks 10 through 12 and month 3 of the quarter. That was really the United States. Commercial Bids. They're no different than they were in Q1 or they were in a lot of part of last year. Large bids are typically aggressive.
Jeff Clarke: There are certainly some complications or some dynamic behavior associated with tariffs that we certainly whether through we did not raise list price.
Jeff Clarke: We saw and actually increase of Ait's eases, we're ramping our new products to help us stabilize our ASP.
Jeff Clarke: I talked about the speed bump that we had in months or excuse me weeks 10 through 12 and month three of the quarter that was really the United States.
Jeff Clarke: Commercial bids.
Jeff Clarke: There are no different than they were in Q1 or they were in the latter part of last year large bids are typically aggressive.
Jeff Clarke: We see transactional pricing much more stable and disciplined. Consumer PCs remains aggressive with a promotional bent to it. So a high percentage of consumer PCs remain in the promotional pricing on the price bands. and that's kind of what business is. I don't see it changing in the Q2.
Jeff Clarke: We see transactional pricing much more stable and disciplined consumer Pcs remains aggressive with promotional bent to it so a high percentage of commercial excuse me consumer Pcs remain in promotional pricing.
Jeff Clarke: <unk>.
Jeff Clarke: And that's.
Jeff Clarke: Our business is.
Jeff Clarke: I don't see changing in Q2.
Jeff Clarke: We are in this race to refresh in commercial PCs. We launched a whole new series of products that are AI PCs that we're excited about. We're actually seeing an uplift in those customers that buy AI PCs and uplift in ASPs. As I mentioned, it's stabilized overall ASPs. And the cost environment we're going to operate in, we believe, is deflationary inside our CSP.
Jeff Clarke: We are in this ratio reached to refresh in commercial Pcs, we've launched a whole new series of products that our AIP sees that we're excited about we're actually seeing an uplift in those customers that buy.
Jeff Clarke: By AIP season uplift in Asp's as Ed mentioned that stabilized overall asp's.
Jeff Clarke: And the cost environment, we're going to operate and we believe as the deflationary inside our CLC business.
Jeff Clarke: If I move over to AYA's... Again, large deals, large customers, they're aggressive. It's not different. It's always been the case, it continues to be the case. There might have been a slight increase of some of the more aggressive deals, but nothing really... to write home about, if you will, core. Poor server margins were relatively stable. The issue we had that Yvonne and I both tried to talk about is the slowdown of that traditional server business in North America in the quarter. We didn't see any change from our side or our competitor's behavior. We did not make a list price move.
Jeff Clarke: If I move over to ISG.
Jeff Clarke: Oh, I think large deals large customers to request or what's not different.
Jeff Clarke: It's always been the case continues to be the case.
Jeff Clarke: Some of the what might have been a slight increase of some of more aggressive deals, but nothing really.
Jeff Clarke: To write home about if you will core.
Jeff Clarke: Core server margins were relatively stable. The issue we had that <unk> tried to talk about is the slowdown of that traditional server business and in North America in the quarter.
Jeff Clarke: But we didn't see.
Jeff Clarke: Any change from our side of our competitive our competitors behavior, we did not make a mispriced mute.
Jeff Clarke: All of the tariff work, all the tariff work that we mitigate and when others did and in storage, no major price moves. been pretty benign, pretty consistent. Big names are aggressive. That's not unusual. So that's the competitive environment.
Paul France: All of the tariff work Paul.
Paul France: Paul the tariff.
Jeff Clarke: To mitigate and when others did and then storage no major price means it's been pretty benign pretty consistent.
Jeff Clarke: Wins are aggressive that's not unusual.
Speaker Change: What's the competitive environment.
Unknown Executive: Thanks, Asiya. That's great. Thank you. Thank you for the call.
Assia: Thanks, Assia that's great. Thank you. Thank you for the color.
Krish Sankar: And we'll take a question. Krish Sankar with Kedie Cowan. Yeah, hi. Thanks for taking my question. Jeff, I just want to follow up on an earlier question on the storage attachment. Last week at Dell Technologies, well, you introduced the object scale platform, which can do up to 1,000 nodes. I'm kind of curious.
Speaker Change: And we'll take a question from Krish Shankar with TD Cowen.
Speaker Change: Yeah, Hi, Thanks for taking my question, Jeff I, just wanted to follow up on the earlier question on the historic attach rate.
Jeff Clarke: Last week at Dell Technologies World, you introduced the objects scale platform.
Jeff Clarke: Can do up to 1000 nodes.
Jeff Clarke: Curious.
Jeff Clarke: A, number one, do you think some of these private storage companies, which have higher nodes, are kind of eating share from the legacy storage companies? And number two, do you need to be designed in on AI training to get the AI inference business? Or do you think they're kind of like agnostic to each other?
Jeff Clarke: Number one do you think some of these private storage companies, which have higher nodes all trying to eating share from the legacy storage companies and number two do you need to be designed in on AI screening because the AI insulin business.
Jeff Clarke: Thank you and kind of agnostic to each other.
Jeff Clarke: I'll start with the latter one first. You know, they're two different use cases or two different applications in AI. Clearly we're trying to win both. When you look at. I think I even made references on this call before that AI devours data. and train large models to Bowers data. And quite frankly, even the example that I was on stage last week at DTW talking about our digital service assistant, it consumes a lot of data inside our company around five specific data sources, our repair data, our dispatch data, our telemetry data, our knowledge base, and our call logs.
Jeff Clarke: I'll start with the latter one first no there are two different.
Jeff Clarke: Two different use cases are two different applications and AI.
Jeff Clarke: Clearly, we're trying to win both when you look at.
Jeff Clarke: I think I've made references on this call before that AI if hours data.
Jeff Clarke: Training large models to power its data and quite frankly, even the examples that I was on stage last week at <unk> talking about our digital service assistant that consumes a lot of data inside our company around five specific data sources are preparing data our dispatch days, our telemetry data.
Jeff Clarke: Knowledge base and our call logs, that's very representative of the enterprise class use case lots of data in that case. It is an object file system.
Jeff Clarke: That's very representative of a enterprise class use case. Lots of data. In that case, it is an object file system and serving up that information quite fast to the computational engines to make the recommendation. And I think the same thing happens when we talk about large data sets and enterprises being consumed. by AI Inference, which ultimately becomes AI Inference Reasoning, which ultimately becomes Engentic Technology going forward. So I'm very optimistic about the storage opportunities on enterprise.
Jeff Clarke: Serving up that information quite fast to the computation engines to make the recommendation.
Jeff Clarke: And I think the same thing happens when we talk about large datasets and the enterprises being consumed.
Jeff Clarke: By AI difference, which ultimately becomes AI inference reasonably relatively becomes intrinsic technology going forward. So I'm very optimistic about the storage opportunities on enterprise and then these fast subsystems, whether that's a true parallel file system like <unk>.
Jeff Clarke: And then these fast subsystems, whether that's a true parallel file system like Project Lightning that's designed for AI first. What we've done with our power scale, object scale, building up the portfolio. Remember the announcements we made last week? We are building the high-performance file systems and storage systems in this disaggregated storage world. where it is really new to a flexible, agile, high performance storage system to meet the needs of these AI workloads. That's what we're building. That's what we're focused on.
Jeff Clarke: Project Lightning Thats designed for AI first.
Jeff Clarke: What we've done with our power scale objects scale building up the portfolio a number of announcements. We've made last week. We are building a high performance file systems and storage systems and this disaggregated storage world.
Jeff Clarke: Where it has really moved to a flexible agile high performance storage system to meet the needs of these AI workloads, that's what we're building and that's what we're focused on we've got a big gone so that last week at Dell technology World in.
Jeff Clarke: You got a big glimpse of it last week at Dell Technology World and back to the attached conversation. We think that's the bridge for us to continue to improve our attach rate going forward.
Jeff Clarke: Back to the attach conversation, we think Thats the bridge for us to continue to improve our attach rate going forward.
Krish Sankar: Thanks, Krish.
Speaker Change: Thanks, Craig.
David Vogt: And we'll take a question from David Vogt with UBS. Great. Thanks, guys, for taking my question. So, Jeff, on AI, to keep it very simple, what is the type of demand that you're seeing in the quarter from an order perspective and what you're shipping? And the reason I'm asking is you've got this fairly well-documented GPU transition out there that has sort of plagued maybe some of your competitors. So, you know, what are you doing differently? What are you seeing from customers? And when you think about that backlog that you're sitting at at 14 spot 4, how would you characterize sort of the flavor of that backlog from a technology perspective?
Speaker Change: And we will take a question from David vote with UBS.
David: Great. Thanks, guys for taking my question, so Jeff on AI.
Speaker Change: Keep it very simple what is the type of demand that youre seeing in the quarter from an order perspective, and what Youre shipping and the reason I'm asking is you have got this fairly well documented GPU transition out there that are sort of players maybe some of your competitors. So what are you doing differently. What are you seeing from customers and when you think about that backlog that youre sitting at at <unk>.
Speaker Change: <unk> spot for how would you characterize sort of the flavor of that backlog from a technology perspective. Thank you.
Jeff Clarke: Thank you. Well, the backlog is primarily Blackwell. and it has a combination of GD or ARM based Blackwell with x86 Blackwell. It has some hopper and it is And yes, these systems are complex. They're not for the faint-hearted. This is where engineering, I believe, matters, where innovation matters. The custom design nature in some of these very large deployments are unique, pushing the envelope, working with our partner, NVIDIA, and specifically our customers, to design a custom solution that meets the needs. And not only designing it, delivering it and having it work at volume or at scale is equally as difficult.
Speaker Change: Well the backlog is primarily Blackwell.
Speaker Change: And it has a combination of GB or arm based Blackwell with tax 86 level.
Speaker Change: Have some hopper of it as well.
Speaker Change: And yes. These systems are complex or not for the same hard at this as we'll engineering I believe matters, where innovation matters. The custom design nature and some of these very large deployments are unique pushing the envelope working with our partner in the us specifically our customers.
Speaker Change: The design a custom solution that meets the needs.
Speaker Change: And not only designing it delivering it and having it work at volume at scale is equally as difficult.
Jeff Clarke: And then when you deliver it, as I made reference earlier, it actually works. We are moving towards when we deliver, and it is delivered at our customer's site. It's up and operational within 24 hours. Challenge anybody to see if they're close to that. I think we continue to differentiate ourselves. This is the opportunity. Blackwell challenges. Many engineering principles. We think we're working our way through them. We're excited about new versions of BlackHole as they come out later in the year. And then obviously next year's design that we made reference to in the press release this morning on NERSC-10, where it's going to provide 10 times more performance than the current implementation.
Speaker Change: And then when you deliver it.
Speaker Change: I made reference earlier it actually works.
Speaker Change: We are moving towards when we deliver it.
Speaker Change: <unk> delivered at our customer site with its upfront operational within 24 hours challenge anybody to see if they're close to that.
Speaker Change: I think we continue to differentiate ourselves this is the opportunity Blackwell challenges.
Speaker Change: Many engineering principles.
Speaker Change: We think we're working our way through them. We're excited about new versions of Blackwell as they come out later in the year and then obviously next years design that we made reference to in the press release. This morning, our nurse 10, where it's going to provide 10 times more performance than the current implementation and that's the next generation platform.
Jeff Clarke: And that's the next generation platform between Dell and NVIDIA. So we're excited.
Speaker Change: Between <unk> and <unk>. So we're excited.
Unknown Executive: For more information, visit Dell.com or the Supreme Court. All right. Thanks, guys.
Speaker Change: Alright, thanks, guys. Thanks, Dave.
Unknown Executive: And moving on to Simon Leopold with Raymond. Great. Thank you for taking the question. I want to see if maybe you could help us bridge the trends in your ISG operating margin, in that I know there's some seasonal aspects to it that we saw, but last quarter, you did have significant operating margin improvement and less year-over-year improvement this quarter. So if you could unpack the trends there and include it in that, did you have any inventory write-downs or any excess inventory like copper or anything like that that might have affected the operating margins in ISG?
Speaker Change: And moving on to Simon Leopold with Raymond James.
Simon Leopold: Great. Thank you for taking the question I wanted to see if maybe you could.
Simon Leopold: US bridge the trends in your ISG operating margin in that I know theres, some seasonal aspects to it that we saw but.
Simon Leopold: Last quarter, you did have significant operating margin improvement and less year over year improvement this quarter. So if you could unpack the.
Speaker Change: The trends there and included in that did you have any inventory write downs or any excess inventory like copper or anything like that that might have affected the operating margins in ISG. Thank you.
Yvonne McGill: Thank you. So, in ISG, the operating rate was down quarter over quarter, and that's seasonally what happens, right, going from Q4, our highest performing quarter. In fact, we had record operating income of 18.1% in Q4. So, normal seasonality there coming in, but, you know, slightly More than, you know, in Q1, slightly more than what we were expecting. That's because of a few things. Traditional servers were impacted by lower North America mix, which we've already talked about, which is higher margin, as well as more large deals. And again, we've talked about that, and those large deals continue to be competitive.
Speaker Change: So I see the operating.
Speaker Change: Rates was down quarter over quarter, and that's seasonally what happens right going from Q4, our highest performing.
Speaker Change: In fact, we had record operating income of 18, 1% in Q4, so normal seasonality there coming in but slightly.
Speaker Change: More than.
Speaker Change: In Q1 slightly more than what we were expecting.
Speaker Change: Because of a few things traditional servers were impacted by lower North American mix, which we've already talked about.
Speaker Change: As higher margin.
Speaker Change: As well as more large deals and again, we've talked about that and those large deals continue to be competitive.
Yvonne McGill: We did improve our operating income rate, though, 170 basis points. And, you know, we're going to maintain that. All that while driving up our Dell IP mix within our storage portfolio. And, you know, I'd mention also lower operating expense. So, you know, I think we're on the path, normal seasonality from Q4 to Q1, and then we'll see that as our storage portfolio continues to build across the year. Now, in Q2, we've already talked about how we're going to have a high mix of AI servers that we're expecting to be shipped. So, you know, if you're going to focus on rates, we will have a rate impact there, but we will be driving significant margin dollars and operating income dollars quarter over quarter based upon how we're guiding, and that's coming from the entire portfolio, inclusive of our AI server.
Speaker Change: We did improve our operating income rate, though.
Speaker Change: 170 basis points.
Speaker Change: And we're going to maintain that.
Speaker Change: That while driving up our Dell IP mix within our storage portfolio.
Speaker Change: And I had mentioned also lower operating expense.
Speaker Change: So I think we're on the path normal seasonality and from Q4 to Q1, and then we'll see that as our storage portfolio continues to build across the year now in Q2, we've already talked about how we're going to have a high mix of <unk>.
Speaker Change: Servers that we're expecting to be shipped so if you're if we're going to focus on rates. We will have we will have a rate impact there, but we will be driving significant.
Speaker Change: Margin dollars and operating income dollars quarter over quarter.
Speaker Change: Based upon how we're guiding and that's coming from the entire portfolio inclusive of our AI servers.
Tyler Johnson: Thank you.
Speaker Change: Thanks, Kevin Thank you.
Mehdi Hosseini: And the next question will come from Mehdi Hosseini with SIG. Yes, thanks for taking my question. One quick follow-up, just going back to the backlog you reported for April quarter based on a $12 billion booking. It's a huge number. Should we expect this booking and the backlog is good for like the entire fiscal year? And I'm asking this because just to better set the expectation, should we expect a sharp decline in orders into July and then a Well, we're 91 days into the year with $12.1 billion of orders to date with a five quarter pipeline that is significantly greater than the backlog of $14.4 billion.
Speaker Change: And the next question will come from Mehdi Hosseini with <unk>.
Mehdi Hosseini: Yes. Thanks for taking my question one quick follow up just going back to the backlog you reported every quarter.
Speaker Change: Based on the 12 billion bookings are huge numbers to the respective.
Speaker Change: Booking into backlog is good for the entire fiscal year.
Speaker Change: I'm asking this because just to.
Speaker Change: Your expectation should we expect a sharp decline in orders into July and then the rebound.
Speaker Change: Or is this order for the entire fiscal year.
Speaker Change: What were 91 days into the year with $12 $1 billion of orders to date with a five quarter pipeline that is simple.
Speaker Change: Typically greater than the backlog of $14 4 million.
Jeff Clarke: We're going to ship $7 billion of that backlog in Q2, and we're going to go try to convert, that's our job, convert the pipeline in Q2 and the second half into orders. Our best outlook is that we're in the 15 plus range of shipped revenue. We'll continue to work and drive backlog and convert pipeline into backlog. The composition of the backlog does have orders that are delivered beyond Q2 based on customer delivery schedules, which is dependent on their buildings, power, cooling us, solutions, their ability to take it. And we're pretty, I think, tied out. I'm not pretty.
Speaker Change: We're going to ship $70 billion of that backlog in Q2, and we're going to go try to convert that's our job to convert the pipeline in Q2.
Speaker Change: In the second half and into orders.
Speaker Change: Our best outlook is that we are in the 50 plus range of ship revenue will continue to work and drive backlog and convert pipeline into backlog.
Speaker Change: The composition of the backlog does have orders that are delivered on Q2 based on customer delivery schedules, which is dependent on their buildings power cooling solutions their ability to take it.
Speaker Change: And we're pretty.
Speaker Change: <unk> tied out.
Jeff Clarke: We are tied out with our customers there. We know our delivery schedules and we've communicated delivery schedules. Our ability to ship $7 billion in the quarter, and that's going to convert more revenue of that pipeline going forward. And we'll update you on what we think the entire AI year looks like if there's an update in Q2. So we're optimistic about the additional opportunity that's there. 15 plus with a capital E, capital L, capital U, capital S. Thank you.
Speaker Change: Are tied up with our customers there.
Speaker Change: No our delivery schedules and we've communicated delivery schedules.
Speaker Change: Our ability to ship.
Speaker Change: $7 billion in the quarter and Thats go convert more revenue of that pipeline going forward and we'll update you on what we think the entire year. It looks like if there's an update in Q2.
Speaker Change: So we're optimistic.
Speaker Change: Additional opportunity Thats, there 15, plus.
Speaker Change: With supply of capital New capital S. Thanks Manny.
Speaker Change: Okay.
Jeff Clarke: And the next question will come from Matt Niknam with Deutsche Bank. Hey, guys, thanks so much for taking the question. I had a quick follow-up on servers and a question on cash flow. On the server side, is there any indication that the incremental spend for AI servers may be crowding out or negatively impacting traditional server spend, or is that softness more macro-related? And then just on operating cash flow, very strong 1Q. Yvonne, maybe I'm curious if you'd call out any one-off or non-recurring benefits in the quarter, and then maybe just directionally how to think about subsequent quarters.
Speaker Change: And the next question will come from Matt nickname with Deutsche Bank.
Matt: Hey, guys. Thanks, so much for taking my question.
Speaker Change: Quick follow up on servers, and then a question on cash flow on the server side is there any indication that the incremental spend for AI servers, maybe crowding out are negatively impacting traditional server spend or is that softness more macro related.
Speaker Change: And then just on operating cash flow a very strong <unk> you've owned maybe I'm.
Speaker Change: If you would call out any.
Speaker Change: One off or nonrecurring benefits in the quarter and then maybe just directionally how to think about subsequent quarters. Thank you.
Yvonne McGill: Thank you. Let me take the first question. And I think we said it in our prepared remarks, Q1 marked the sixth consecutive quarter of domain growth of our intertraditional server business. We expected, we the industry, we Dell, expected growth to moderate in fiscal 25. And it clearly has. We've updated our market models, we believe the market is somewhere in that four to 5% revenue growth range for traditional service. We'll outperform that intake share. Our guidance reflects our best understanding of where the market is, our ability to grow against that. Yvonne made reference to that in our Q2.
Speaker Change: Let me.
Speaker Change: The first question.
Speaker Change: And I think we said in our prepared remarks.
Speaker Change: Q1 marked the sixth consecutive quarter of demand growth in our traditional server business.
Speaker Change: We expected we the industry with Dell expected growth to moderate in fiscal 'twenty five.
Speaker Change: And it clearly has.
Speaker Change: Updating our market models, we believe new market somewhere in that 4% to 5% revenue growth range or traditional service will outperform that and take share.
Speaker Change: Our guidance reflects our best understanding.
Speaker Change: Where the market is our ability to grow against at upon made reference that our Q2.
Yvonne McGill: Foster, the revenue is below season L. I think that is prudent, given what we learned in Q1, specifically around the slowdown in month 3, weeks 10 through 12 in North America, specifically the United States. We're still optimistic. We're going to continue to grow. We see server ASPs continue to rise. We continue to see core count go up. We continue to see memory content go up. We continue to see storage content go up, which continues to tell us that consolidation is well underway. Customers are looking to consolidate traditional workloads to find space, power, and cooling to fuel new AI workloads.
Speaker Change: Server revenue was below seasonality.
Speaker Change: That is prudent given what we learned in Q1, specifically around the slowdown in month three weeks 10 through 12 in North America, specifically, the United States.
Speaker Change: We're still optimistic we're going to continue to grow we see server Asps continue to rise we continue to see core count go up we continue to see memory content go up we continue to see storage content go up which continues to tell us that consolidation is well underway customers are looking to consolidate traditional.
Speaker Change: Workloads defined space power and cooling to fuel new AI workloads.
Jeff Clarke: And if you like the opportunity side of this, half of our installed base is 14G servers. and the opportunity to replace them at 3-1, 4-1 with a 16G server or 6-1 to 7-1 with a 17G server is ripe for the picking. That's what we're going to continue to focus on and we think the opportunity is there.
Speaker Change: And if you like the opportunity side of this.
Speaker Change: Half of our installed base is 14 G servers.
Speaker Change: And the opportunity to replace them at a three to one 401 was a 16 gene server or 61% to 71 with a $17 silver.
Speaker Change: That is right for the picking.
Speaker Change: That's what we're going to continue to focus on we think the opportunities there.
Tyler Johnson: Hey, Matt, so let me jump in. This is Tyler. Let me jump in on the cash flow question. So you said it's really strong quarterly cash flow. You know, I'll remind you that, you know, when we ended Q4 on that call, I talked about the fact that, you know, when we saw a year like that with lower cash flow and working capital metrics where they were, that typically that's followed by a fairly strong year. And I think that's just what we're seeing is the beginning of that. There was nothing unique. There was no one-off impact that generated that.
Speaker Change: Hey, Matt So let me jump in this is Tyler let me jump in on the on the cash flow question. So.
Speaker Change: You said it.
Speaker Change: Really strong quarterly cash flow.
Speaker Change: I'll remind you that when we ended Q4 on that call I talked about the fact that when we saw a year like that with lower cash flow and working capital metrics, where they were but typically that's following.
Speaker Change: Very strong year and I think I think that's just what we're seeing is the beginning of that there was nothing unique there is no one off impact that generated that.
Tyler Johnson: I will take the opportunity to point out that we did see an increase in payables, and that's a temporary increase. It's cash nuclear because there's an offset. We're going to see that normalize this quarter. And the reason I want to point that out is because that large increase is not the driver of cash. And when you see that come back down and normalize, that's not going to be a negative impact to cash. If you look at CCC, we normalized for that, we would have been in the low 30s. And that's compared to, you know, we ended negative 31 days in Q4.
Speaker Change: I will take the opportunity to point out that we did see.
Speaker Change: An increase in payables.
Speaker Change: And that's a temporary increase its cash neutral because there is an offset.
Speaker Change: We're going to see that normalize this quarter.
Speaker Change: The reason I want to point that out is because that that large increase is not the driver of cash and when you see that come back down and normalize that's not going to be a negative impact cash.
Speaker Change: If you look at CCC, we normalize for that we would have been in the low <unk> and thats compared to where we ended <unk> at 31 days in Q4 net net there was there was a benefit from working capital. So that gross profitability is what drove cash flow and great job, we were able to use that into it.
Tyler Johnson: Net-net, there was a benefit from working capital. So that plus profitability is what drove cash flow. Thanks a lot, Matt.
Speaker Change: We returned $2 4 billion to our shareholders.
Jeff Clarke: Thanks, a lot Matt Thats. The last question I'll hand, it to Jeff to close thanks, Paul Thanks, everyone for joining us today as we wrap up I want to emphasize a few key points from today's call first our momentum in AI is unmatched we booked over $12 billion of orders this quarter alone, which will drive meaningful revenue and <unk>.
Jeff Clarke: That's the last question. I'll hand it to Jeff to close. Thanks, Paul. Thanks, everyone, for joining us today. As we wrap up, I want to emphasize a few key points from today's call. First, our momentum in AI is unmatched. We booked over $12 billion of orders this quarter alone, which will drive meaningful revenue and EPS growth going forward. Second, our supply chain is a unique advantage that enables us to respond with discipline and agility to minimize any impacts as demonstrated in the first quarter. Third, in a dynamic environment, we are reiterating our full-use revenue guidance and raising our EPS guidance.
Jeff Clarke: <unk> growth going forward second our supply chain is a unique advantage that enables us to respond with discipline and agility to minimize any impacts as demonstrated in the first quarter.
Jeff Clarke: Third in a dynamic environment, we are reiterating our full year revenue guidance and raising our EPS guidance. We will continue to do what we do drive growth profitability and shareholder returns. Thanks for your time today.
Unknown Executive: We will continue to do what we do, drive growth, profitability, and shareholder return. Thanks for your time today.
Unknown Executive: This concludes today's conference. We appreciate your participation. You may disconnect at
Jeff Clarke: Yeah.
Jeff Clarke: This concludes today's conference call. We appreciate your participation you.
Jeff Clarke: You may disconnect at this time.