Q2 2027 Dell Technologies Inc Earnings Call

Speaker #1: Like to inform all participants, this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or part, without the prior written permission of Dell Technologies, is prohibited.

Speaker #1: Following prepared remarks, we will conduct a question-and-answer session. If you have a question, simply press "star" then "1" on your telephone keypad at any time during the presentation.

Speaker #1: I'd like to turn the call over to Paul Frantz, Head of Investor Relations. Mr. Frantz, you may begin.

Speaker #2: Thanks, everyone, for joining us. With me today are Jeff Clarke, David Kennedy, and Tyler Johnson. Our earnings materials are available on our IR website, and I encourage you to review these materials.

Speaker #2: Also, please take some time to review the presentation which includes additional content to complement our discussion this afternoon. 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.

Speaker #2: A reconciliation of these measures to their most directly comparable GAAP measures can be found in our WebDAC and our press release. Growth percentages refer to year-over-year change unless otherwise specified.

Speaker #2: 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 WebDAC and our SEC filings.

Speaker #2: We assume no obligation to update our forward-looking statements. Now, I'll turn it over to Jeff.

Speaker #3: Thanks, Paul, and thanks, everyone, for joining us. Another outstanding quarter. I am proud of how our team executed across the business, delivering record revenue and record earnings per share.

Speaker #3: Revenue was $47 billion up 58%, and earnings per share was $7.04 up 203%. These results reflect the compounding benefits of our competitive advantages, the breadth of our portfolio, and the strength of our operating model.

Speaker #1: Question and answer session. If you have a question, simply press star then one on your telephone keypad at any time during the presentation. I'd now like to turn the call over to Paul Prontz, Head of Investor Relations.

Speaker #3: Our modernization efforts are driving greater efficiency and significant operating leverage, enabling us to grow earnings faster than revenue. Customers no longer see IT environments simply as cost centers, but as value drivers that enable growth, productivity, and competitive advantage.

Speaker #3: As a result, they are expanding and reallocating budgets to support continued investment. This is creating opportunities across our portfolio, from infrastructure to client devices, our world-class supply chain and ability to serve customers across their IT environments.

Speaker #2: Kennedy 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.

Speaker #2: Kennedy 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. Thanks, everyone, for joining us. Today, we have Jeff Clark and David joining us.

Speaker #3: Our helping us meet more of their needs and gain share. Our deployment and service capabilities are helping customers integrate solutions across their IT environments and capture more value quickly.

Speaker #3: The proof is in our results. Over the past 12 months, we have booked more than 130 billion dollars in AI server orders. In just the past two quarters, we have generated almost as much revenue from traditional servers and networking as we have in any prior full year in company history.

Speaker #3: Storage returned to growth, and share gain was strong demand for Dell IP storage products, and CSG revenue is growing at the fastest rate in five years.

Speaker #3: It is clear why demand for our solutions is exceeding available supply. Our results and guidance demonstrate the strength of our position as customers enter a new era of infrastructure modernization.

Speaker #3: Customers are modernizing their data centers for both AI and non-AI workloads, and the benefits are meaningful. AI is an important catalyst, but the opportunity extends well beyond AI-optimized infrastructure.

Speaker #3: AI requires modern, disaggregated architectures that keep data accessible and in motion across compute, storage, and networking. It is also accelerating investment across traditional IT environments, as customers see greater performance, efficiency, and resiliency.

Speaker #3: Our AI server momentum continues to accelerate. We booked 60.9 billion dollars of AI orders in this quarter, the most in our history. We are also seeing AI-related tailwinds in traditional servers and networking, along with early signs of increased storage demand as customers prepare, manage, and protect growing volumes of data.

Speaker #3: Deployment methods are evolving as well. On-prem and edge infrastructure offers attractive token economics for the right workloads, while giving customers greater control over their data and intellectual property.

Customers no longer see IT environments simply as cost centers, but as value drivers that enable growth, creativity, and competitive advantage.

Speaker #3: Our portfolio global reach and deep customer relationships position us to help customers design, deploy the right solutions for their performance, cost, and security requirements.

Speaker #3: Together, these trends are expanding our addressable market and driving demand across compute, networking, storage, and PCs. This represents a significant long-term opportunity for us.

Speaker #3: It plays directly to our strengths and expands the value we can deliver across the entire IT environment. Now, onto the results. Starting with ISG, revenue increased 89% to a record 31.8 billion dollars, with operating income of 4.8 billion dollars, and an operating income rate of 15%.

As a result, they are expanding and reallocating budgets to support continued investment. This is creating opportunities across our portfolio, from infrastructure to client devices. Our world-class supply chain and ability to serve customers across their IT environments are helping us meet more of their needs and gain share. Our deployment and service capabilities are helping customers integrate solutions across their IT environment and capture more value quickly. The proof is in our results: over the past 12 months, we have booked more than $130 billion in AI server orders.

And just in the past two quarters, we have generated almost as much revenue from traditional servers and networking as we have in any prior full year in company history.

Speaker #3: In AI, demand continues to accelerate. In Q2, we booked a record 60.9 billion dollars in AI orders and recognized 16.4 billion dollars in AI server revenue.

Speaker #3: We exited the quarter with a record 95 billion dollars of AI backlog, and our pipeline continued to grow sequentially and remains multiples of our backlog, even after converting 131.7 billion dollars into orders over the past 12 months.

Speaker #3: Demand is broadening across new clouds, sovereigns, and enterprise customers, and our customer count has surpassed 6,500. The scale and complexity of these deployments reinforce why customers choose us.

Speaker #3: AI infrastructure requires much more than assembling and delivering components. These opportunities demand significant engineering, design, and deployment expertise, with some engagements requiring upwards of 50 unique designs, as customers optimize for workload performance, power, cooling, and the data center environment.

Speaker #3: This complexity placed our strength. Our engineering capabilities, broad portfolio, global supply chain, and ability to deploy and support infrastructure at scale globally differentiate us, enable customers to move from design to production more quickly.

Speaker #3: We demonstrated those capabilities again by becoming the first to ship a rack systems engineered on the NVIDIA Vera Rubin platform. The AI market is evolving rapidly, and we are focused on expanding our platforms and capabilities, solving increasingly complex customer challenges, and innovating across the infrastructure stack.

Speaker #3: With accelerating demand and a growing pipeline and differentiated capabilities, we are well positioned to capture the opportunity ahead. Moving to traditional servers, revenue was up 122% as demand remains exceptionally strong, supported by multiple vectors of growth.

It is also accelerating investment across traditional IT environments. As customers see greater performance, efficiency, and resiliency, our AI server momentum continues to accelerate. We booked $60.9 billion of AI orders in this quarter, the most in our history. We are also seeing AI-related tailwinds in traditional servers and networking, along with early signs of increased storage demand, as customers prepare, manage, and protect growing volumes of data. Deployment methods are evolving as well. On-prem and edge infrastructure offer attractive token economics for the right workloads, while giving customers greater control over their data and intellectual property. Our portfolio, global reach, and deep customer relationships position us to help customers design and deploy the right solutions for their performance, cost, and security requirements. Together, these trends are expanding our addressable market and driving demand across compute, networking, storage, and PCs.

Speaker #3: First, a majority of our growth is coming from existing customers. As they continue to refresh and modernize their data centers to support traditional workloads, heightened security and resiliency requirements are also creating incremental demand as customers modernize their infrastructure.

This represents a significant long-term opportunity for us. It plays directly to our strengths and expands the value we can deliver across the entire IT environment. Now, on to the results, starting with ISG. Revenue increased 89% to a record $31.8 billion, with operating income of $4.8 billion and an operating income rate of 15%. New demand continues to accelerate in Q...

Speaker #3: Second, we are seeing a growing trend of customers that require meaningful CPU compute capacity to support AI and agentic workflows. These workloads are creating incremental demand for traditional servers.

In Q2, we booked a record $60.9 billion in AI orders and recognized $16.4 billion in ISG server revenue.

Speaker #3: We are executing very well against both opportunities and gaining share. Over the past two quarters, we have gained more than 10 points of traditional server share and we expect to gain share again this quarter.

We exit the quarter with a record $95 billion of AI backlog, and our pipeline continues to grow sequentially and remains a multiple of our backlog, even after converting $131.7 billion into orders over the past 12 months.

Speaker #3: With the majority of the install base still on 14th generation or older servers, we see a significant and durable refresh opportunity ahead. The strength and breadth of demand combined with our continued share gains demonstrate the competitiveness of our portfolio and the consistency of our execution.

Demand is broadening across Neo clouds, sovereigns, and enterprise customers, and our customer count has surpassed 6,500. The scale and complexity of these deployments reinforce why customers choose us.

Speaker #3: Turning to storage, revenue is up 26% as strong demand for our Dell IP portfolio translated into revenue growth and improved storage profitability. Dell IP delivered another record demand growth quarter.

Speaker #3: Making this our sixth consecutive quarter of demand growth above market. Demand remains broad-based, enterprises continue to modernize their storage environments, as data growth increases the importance of keeping data available and secure.

Speaker #3: At the same time, we are beginning to see incremental demand from AI workloads, which require customers to prepare, manage, and move increasingly large volumes of data.

AI infrastructure requires much more than assembling and delivering components. These opportunities demand significant engineering design and deployment expertise, with some engagements requiring upwards of 50 unique designs as customers optimize for workload performance, power, cooling, and the data center environment. This complexity plays to our strengths—our engineering capabilities, broad portfolio, global supply chain, and ability to deploy and support infrastructure at scale globally differentiate us and enable customers to move from design to production more quickly.

We demonstrated those capabilities again by becoming the first to ship rack systems engineered on the NVIDIA Vera Rubin platform.

Speaker #3: We saw strong growth across power flex, power store, power protect, and power vault, with power store posting double-digit demand growth for the ninth consecutive quarter.

Speaker #3: Power scale and object scale also drove another exceptional quarter in unstructured storage. Which has now grown at double-digit or better for three consecutive quarters.

The AA market is evolving rapidly, and we are focused on expanding our platforms and capabilities, solving increasingly complex customer challenges, and innovating across the infrastructure stack with accelerating demand and a growing pipeline in differentiated capabilities. We are well positioned to capture the opportunity ahead.

Speaker #3: Storage is becoming a more meaningful contributor to our growth and profitability, Dell IP continues to increase as a percentage of our storage mix, and margins continue to improve, supporting overall ISG profitability.

Moving to traditional service, revenue was up 122% as demand remains exceptionally strong, supported by multiple vectors of growth.

Speaker #3: Our share gains expanding Dell IP mix and accelerating pace of product development give us confidence in the opportunity ahead. Turning to CSG, revenue grew 20% with demand growth across all regions and verticals.

First, a majority of our growth is coming from existing customers as they continue to refresh and modernize their data centers to support traditional workloads.

Speaker #3: Commercial revenue grew 22%, our eighth consecutive quarter of growth, with demand up for the tenth quarter. Large enterprise customers continue to refresh their PC install base, driving double-digit growth across all regions.

Heightened security and resiliency requirements are also creating incremental demand as customers modernize their infrastructure. Second, we are seeing a growing trend of customers that require meaningful CPU compute capacity to support AI and agentic workflows. These workloads are creating incremental demand for traditional servers.

Speaker #3: More cost-sensitive customers are extending their upgrade cycles. This is increasing the number of older devices in the install base and expanding the long-term refresh opportunity for CSG.

Speaker #3: Consumer revenue is up 7%, the fourth consecutive quarter of demand growth. CSG profitability remains strong, benefiting from price discipline, and greater scale. In closing, we delivered record revenue and EPS, with continued strong cash flow and record capital returned to shareholders.

We are executing very well against both opportunities and gaining share over the past two quarters. We have gained more than 10 points of traditional server share, and we expect to gain share again this quarter, with the majority of the install base still on 14th generation or older servers. We see a significant and durable refresh opportunity ahead.

Speaker #3: Our results reflect several reinforcing factors. First, infrastructure demand is growing structurally driven by data center modernization AI adoption and attractive economics of deploying workloads on-prem.

Strength and breadth of demand, combined with our continued share gains, demonstrate the competitiveness of our portfolio and the consistency of our execution. Turning to storage, revenue is up 26% as strong demand for our Dell IP portfolio translated into revenue growth and improved storage profitability.

Speaker #3: Second, our broad-based portfolio across AI infrastructure, traditional servers, and networking storage and PCs enable us to serve the full range of our customers' needs.

Speaker #3: And lastly, we delivered value at scale through our engineering and deployment expertise supply chain scale and fast discipline operating model. Our full-year operating expense rate guidance of approximately 8% of revenue is the lowest in our company's 42-year history, demonstrates the operating leverage this model can deliver.

From AI workloads, which require customers to prepare, manage, and move increasingly large volumes of data.

We saw strong growth across power Flex, power store, power, protect and power bulb with power store, posting double-digit demand growth for the 9th consecutive quarter power scale and object scale. Also drove another exceptional quarter in unstructured storage

Speaker #3: These advantages reinforce one another. They are driving growth, share gains, profitability, and cash generation. By creating more value for our customers, we compound our advantages and create durable cash flow and long-term value for our shareholders.

Speaker #3: I am proud of our team's performance. We enter the second half of strong momentum and confidence in our position. With that, let me turn it over to David to walk through the financials and our outlook.

Which has now grown at double digits or better for three consecutive quarters. Storage is becoming a more meaningful contributor to our growth and profitability. Dell IP continues to increase as a percentage of our storage mix, and margins continue to improve, supporting overall ISG profitability.

Our share gains, expanding Dell IP mix, and accelerating pace of product development give us confidence in the opportunity ahead.

Speaker #2: Thanks, Jeff. We delivered another record quarter, capping a very strong first half of the year. The team executed exceptionally well, driving record revenue, record EPS, and record shareholder returns.

Speaker #2: Total revenue was up 58% to $47 billion. Gross margin dollars grew 78% to $9.9 billion. Gross margin rate was 21.1%, driven by an improvement in ISG margin rate and a higher mix of ISG revenue.

Turning to CSG revenue, it grew 20%, with strong growth across all regions and verticals. Commercial revenue grew 22%, our eighth consecutive quarter of growth, with demand up for the tenth quarter. Large enterprise customers continue to refresh their PC install base, driving double-digit growth across all regions.

Speaker #2: Operating expenses were up 22% to $4 billion. Primarily from variable compensation tied to our outperformance. Building on last quarter, we continue to drive significant scale in the P&L, with OPEX down 250 basis points to $8.5% of revenue.

More cost-sensitive customers are extending their upgrade cycles. This is increasing the number of older devices in the installed base and expanding the long-term refresh opportunity. For CSG, consumer revenue is up 7%, marking the fourth consecutive quarter of demand growth.

CSG profitability remains strong, benefiting from price discipline and greater scale.

In closing, we delivered record revenue and EPS, with continued strong cash flow and record capital returned to shareholders.

Speaker #2: Operating income grew 160% to $5.9 billion. Or $12.6% of revenue, driven by higher revenue, scale, and price discipline across servers, storage, and CSG. Net income was up 189% to $4.6 billion.

Our results reflect several reinforcing factors.

Speaker #2: Primarily driven by strong operating income. Diluted EPS increased 203% to $7.04, a record. Moving to ISG, ISG delivered record revenue of $31.8 billion. Up 89%, marking the tenth consecutive quarter of double-digit or better revenue growth.

Speaker #2: AI server momentum accelerated, and we set records across the board, including 60.9 billion in orders, 16.4 billion in revenue, and 95 billion in ending backlog.

First infrastructure, demand is growing. Structurally driven by data center modernization. AI adoption and attractive economics of deploying workloads on Prem second our broad-based portfolio across AI infrastructure, traditional servers and networking storage, and PCs enable us to serve the full range of our customers needs. And lastly, we delivered value at scale through our engineering and deployment expertise supply chain, scale and fast discipline. Operating model our full-year operating expense rate, guidance of approximately 8% of our revenue is the lowest in our company's 42 year history demonstrates, the operating leverage, this model can deliver.

Speaker #2: Traditional server and networking revenue was 10.5 billion. Up 122%. As demand continued to outpace supply. Storage revenue was $4.9 billion. Up 26%, with strong demand across the Dell IP portfolio driving revenue growth and significant margin contribution.

These advantages reinforce one another. They are driving growth, share gains, profitability, and cash generation by creating more value for our customers. We compound our advantages and create durable cash flow and long-term value for our shareholders. I am proud of our team's performance. We enter the second half with strong momentum and confidence in our position. With that, let me turn it over to David to walk through the financials and our outlook.

Thanks Jeff.

We delivered another record quarter, capping a very strong first half of the year.

Speaker #2: Dell IP storage demand has grown above market for six consecutive quarters. Unstructured storage remained one of our fastest growing solutions, with broader strength across the rest of the portfolio.

The team executed exceptionally well, driving record revenue, record EPS, and record shareholder returns.

Total revenue was up 58% to $47 billion.

Gross margin dollars grew 78% to $9.9 billion.

Speaker #2: ISG operating income was a record $4.8 billion. Up 225%, marking the ninth consecutive quarter of double-digit or better growth. Primarily driven by higher revenue across the business.

Gross margin rate was 21.1%, driven by an improvement in ISG margin rate and a higher mix of ISG revenue.

Operating expenses were up 22% to $4 billion.

Speaker #2: Operating margin was 15%. Up 620 basis points. Looking at the key drivers of margin performance, a number of factors came together and went our way this quarter.

Primarily from variable compensation tied to our outperformance.

Speaker #2: The demand environment was strong, mix and rates were favorable, and the team executed with discipline. While we have not expect every benefit to continue at this level, the quarter also reflects meaningful structural improvements in the business, which is reflected in our second half guidance.

Building on last quarter, we continue to drive significant scale in the P&L, with optics down 250 basis points to 8.5% of revenue.

Operating income grew 160% to $5.9 billion, or 12.6% of revenue, driven by higher revenue, scale, and price discipline across servers, storage, and CSG.

Speaker #2: Looking more closely at the drivers, first, we are realizing the benefits of our multi-year modernization journey. That work is driving greater efficiency and strong operating leverage, resulting in significant scale.

Net income was up 189% to $4.6 billion.

Primarily driven by strong operating income.

Diluted EPS increased 203% to $0.074, a record.

Moving to isg.

Speaker #2: Second, storage profitability was up, with the higher mix of Dell IP and rate expansion across the solutions. And third, we maintain strong operational and price discipline in the dynamic environment, reflecting our team's strong execution and continued focus on supporting our customers.

ISG delivered record revenue of $31.8 billion, up 89%, marking the 10th consecutive quarter of double-digit or better revenue growth.

Speaker #2: Turning to CSG, CSG revenue was up 20% to $15 billion. Commercial revenue grew for the eighth consecutive quarter, up 22% to $13.2 billion. And consumer revenue increased 7% to $1.8 billion.

AI server momentum accelerated, and we set records across the board, including $60.9 billion in orders.

16.4 billion in Revenue.

And $95 billion in ending backlog.

Traditional server or networking revenue was $10.5 billion, up 122%, as demand continued to outpace supply.

Speaker #2: CSG operating income was $1.1 billion. Or $7.6% of revenue, driven by pricing discipline and the benefits of scale in the P&L. We will continue to balance customer demand with availability of supply to drive profitable share gain.

Storage revenue was $4.9 billion, up 26%, with strong demand across the Dell IT portfolio.

Driving revenue growth and significant margin contribution.

DIP storage demand has grown above market for six consecutive quarters.

Speaker #2: CSG remains an integral part of the business. It provides scale across our supply chain and manufacturing, completes our end-to-end portfolio with the essential productivity device, and is our most heavily efficient business.

On structured storage, we remain one of our fastest-growing solutions, with broader strength across the rest of the portfolio.

Speaker #2: Together, these strengths make CSG a significant source of cash generation and helps fund growth across Dell and capital returns to our shareholders. Moving to cash and the balance sheet, we delivered another strong cash quarter, with cash flow from operations of $2.2 billion.

ISG operating income was a record $4.8 billion, up 225%, marking the 9th consecutive quarter of double-digit or better growth, primarily driven by higher revenue across the business.

Operating margin was 15%, up 620 basis points.

Speaker #2: And adjuster-free cash flow of $8.1 billion. This was primarily driven by sequential revenue growth and higher profitability. We returned an all-time record $4.3 billion to shareholders this quarter, including repurchasing $9.5 million shares at an average price of $401 per share, and paying a dividend of approximately $63 per share.

Looking at the key drivers of margin performance, a number of factors came together and went our way this quarter.

The demand environment was strong, mix and rates were favorable, and the team executed with discipline.

Well, we're not expecting every benefit to continue at this level. The quarter also reflects meaningful structural improvements in the business, which is reflected in our second half guidance.

Looking more closely at the drivers.

Speaker #2: This acceleration in shareholder return up 2.2 billion quarter on quarter, reflects our agility and commitment to capital deployment, as we generate more significant adjuster-free cash flow as well as our confidence in our long-term value creation.

First, we are realizing the benefits of our multi-year modernization journey.

That work is driving greater efficiency and strong operating leverage, resulting in significant scale.

Speaker #2: We ended the quarter with $14.2 billion in cash and investments, up 0.2 billion sequentially, and our core leverage ratio is at 0.8x. Overall, our strong cash generation and healthy balance sheet further validated by positive credit rating actions during the quarter, provide significant flexibility to invest in the business and continue returning capital to shareholders.

Second storage profitability was up, with the higher mix of Dell IP and rate expansion across the solutions.

And third, we maintain strong operational and price discipline in the dynamic environment, reflecting our team's strong execution and continued focus on supporting our customers.

Turning to CSG.

CSG revenue was up 20% to $15 billion.

Speaker #2: Turning to guidance, we've had a strong first half of the year, and we expect a second half to be stronger. The momentum we've seen continues, and we are raising our expectations across every line of business.

Commercial revenue grew for the 8th consecutive quarter, up 22% to $13.2 billion, and consumer revenue increased 7% to $1.8 billion.

Speaker #2: Our second half gross margin rate outlook has improved over the past 90 days, and we continue to drive significant operating leverage and scale. For Q3, we expect revenue to be $49 billion.

CSG operating income was $1.1 billion, or 7.6% of revenue, driven by pricing discipline and the benefits of scale in the P&L.

We will continue to balance customer demand with the availability of supply to drive profitable share gain.

CSG remains an integral part of the business.

Speaker #2: At the midpoint, up roughly 80% year on year. We expect ISG to grow roughly 145%, supported by $19 billion in AI server revenue. CSG revenue is expected to be up roughly 15%.

It provides scale across our supply chain. And Manufacturing completes our end-to-end portfolio with the essential productivity device and is our most highly efficient business.

Speaker #2: Operating expenses are expected to be down low single digits sequentially. Operating income is expected to grow roughly 120%. We expect ISG operating income rate to be up just over a point year over year, even as AI server revenue more than triples year over year.

Together, these trends make CSG a significant source of cash generation and help fund growth across Dell and capital returns to our shareholders.

Moving to cash and the balance sheet.

We delivered another strong quarter, with cash flow from operations of $2.2 billion and adjusted free cash flow of $8.1 billion.

This is primarily driven by sequential revenue growth and higher profitability.

Speaker #2: We expect CSG operating income rate to moderate to roughly 6% as we balance demand, share, and profitability. We anticipate a diluted share count of approximately 651 million shares.

We returned an all-time record $4.3 billion to shareholders this quarter, including repurchasing 9.5 million shares.

At an average price of $401 per share and paying a dividend of approximately $0.63 per share.

Speaker #2: Diluted non-GAAP earnings per share is expected to be $6.50, up over 150% at the midpoint. For the full year, we are raising our revenue guide by $25 billion to $192 billion at the midpoint, up roughly 70%, with diluted non-GAAP EPS of $25.50, up approximately 150%.

This acceleration in shareholder return, up $2.2 billion quarter on quarter, reflects our agility and commitment to capital deployment as we generate more significant adjusted free cash flow, as well as our confidence in our long-term value creation.

Speaker #2: We expect ISG to grow roughly 120%, driven by AI server revenue up 3x year over year, to $74 billion. We expect traditional servers to grow just over 100%, storage up in the mid-teens, and CSG revenue to grow in the mid-teens.

We ended the quarter with $14.2 billion in cash and investments of $0.2 billion, sequentially. And our core leverage ratio is at 0.8x.

Overall, our strong cash generation and healthy balance sheet, further validated by positive credit rating actions during the quarter, provide significant flexibility to invest in the business and continue returning capital to shareholders.

Speaker #2: Excluding the mix impact of AI servers, gross margin rate are up year over year. Our modernization efforts are paying off, simplifying standardizing automating, and enhancing our operating model with AI.

turning to guidance.

We've had a strong first half of the year, and we expect the second half to be even stronger. The momentum we've seen continues, and we are raising our expectations across every line of business.

Speaker #2: Delivering significant operating leverage with operating expenses to be approximately 8% of revenue, the lowest level in the company's 42-year history. With gross margin improvement and the benefits of significant scale, operating income is expected to grow approximately 120%.

Our second half gross margin rate outlook has improved over the past 90 days, and we continue to drive significant operating leverage and scale.

For Q3, we expect revenue to be $49 billion at the midpoint, up roughly 80% year on year.

Speaker #2: With over 2 points of rate improvement year over year. I&O is expected to be between 1.4 and 1.5 billion dollars. Diluted non-GAAP earnings per share is expected to be $25.50, up approximately 150% at the midpoint.

By $19 billion in AI server revenue.

CSG revenue is expected to be up roughly 15%.

Operating expenses are expected to be down low single digits sequentially.

Speaker #2: In closing, we've delivered another exceptional quarter, capping a record first half of the year. Over the past two quarters, revenue was $90.8 billion, up 71%.

Operating income is expected to grow roughly 120%.

Speaker #2: EPS grew $208% to $11.90. We generated record cash flow from operations of $6.3 billion, and returned an all-time record $6.3 billion to shareholders. The team executed exceptionally well across the business.

We expect ISG operating income rate to be up just over a point year-over-year, even as AI server revenue more than triples year-over-year.

We expect the CSG operating income rate.

To moderate to roughly 6% as we balance demand, share, and profitability.

We anticipate a diluted share count of approximately 651 million shares.

Speaker #2: The second quarter provided further evidence that AI momentum is accelerating, with 60.9 billion in orders, 16.4 billion in revenue, and a backlog approaching 100 billion.

Diluted non-GAAP earnings per share is expected to be $6.50, up over 150% at the midpoint.

Speaker #2: At the same time, traditional servers, storage, and CSG all contributed, reinforcing the breadth and balance of our portfolio. Beyond the numbers, I would highlight the operating discipline.

For the full year, we are raising our revenue guide by $25 billion to $192 billion at the midpoint, up roughly 70%.

With diluted non-GAAP EPS of $25.50, up approximately 150%.

Speaker #2: The modernization work we've invested in over several years is showing up in scale, in margin structure, and in our ability to execute in a dynamic supply environment.

We expect ISG to grow roughly 120%, driven by AI server revenue of three times year-over-year to $74 billion.

Speaker #2: We're entering the second half from a position of strength, and will continue to balance growth with discipline, to drive long-term shareholder value. You are seeing the compounding benefits of our durable competitive advantages, differentiated operating model, and operational discipline.

We expect traditional servers to grow just over 100%, storage up in the mid-teens, and CSG revenue to grow in the mid-teens.

Excluding the mixed impact of AI servers, gross margin rate is up year-over-year.

Speaker #2: We're excited about the second half and confident in our long-term value creation. Thank you to the team for their execution, and thank you all for your time today.

Speaker #2: Now I'll turn it back to Paul to begin Q&A.

Speaker #1: Thanks, David. And let's get to Q&A. In order to ensure we get to as many of you as possible, please ask one concise question.

And enhancing our operating model with AI, delivering significant operating leverage. We expect operating expenses to be approximately 8% of revenue—the lowest level in the company's 42-year history.

Speaker #1: Let's go with the first question.

Speaker #3: Thank you. Our first question will come from Amit Daryani with Evercore.

With gross margin improvement and the benefits of significant scale, operating income is expected to grow approximately 120%, with over 2 points of rate improvement year-over-year.

Speaker #4: Yep. Thanks a lot. Good afternoon, everyone. And congrats on a really nice sprint here. I want to spend some time on the non-AI part of ISG, and if I look at a traditional server growth of 122%, it was actually faster than AI compute, and storage grew 26% as well.

In O's expected to be between $1.4 and $1.5 billion.

Diluted non-GAAP earnings per share is expected to be $25.50, up approximately 150% at the midpoint.

In closing, we've delivered another exceptional quarter.

Speaker #4: I think a worry folks will have is, is this driven by a combination of pricing and demand? So I don't know if you can spend some time just talking about, what do you think is driving this demand?

capping our record first half of the year,

Over the past two quarters, revenue was $90.8 billion, up 71%.

Speaker #4: And if there's a way to think about pricing versus demand versus share gains, and really any cut on what workloads or use cases are you seeing this infrastructure going into and the durability of it would be helpful.

EPS grew 208% to $11.90.

We generated record cash flow from operations of $6.3 billion and returned an all-time record $6.3 billion to shareholders.

Speaker #4: Thank you.

Speaker #1: Sure, Amit. Let me try a little bit. So if you look at traditional servers, and what we're seeing, which is the vast majority of the growth that we saw in the quarter, it's a consistent theme that I think we talked about last quarter.

The team executed exceptionally well across the business.

The second quarter provided further evidence that AI momentum is accelerating, with $60.9 billion in orders.

$16.4 billion in revenue and a backlog approaching $100 billion.

Speaker #1: One, there's a modernization in the data center. That modernization continues to drive consolidation. It is increasing space, driving power efficiency, and cooling. And it's obviously driving demand.

At the same time, traditional servers, storage, and CSG all contributed, reinforcing the breadth and balance of our portfolio.

Beyond the numbers, I would highlight the operating discipline.

Speaker #1: And demand for new servers that have more cores, new servers that have more DRAM, and new servers that have more storage in them, as we consolidate and aged install base.

The modernization work we've invested in over several years is showing up at scale in margin structure and in our ability to execute in a dynamic supply environment.

Speaker #1: Secondly, that's probably the next big opportunity for us. As much as we've modernized and to give you a sense that it's not an end near or it's a one-time thing, we still have 1.2 million assets that are 14G or older in the install base.

We're entering the second half from a position of strength, and we will continue to balance growth with discipline to drive long-term shareholder value.

You are seeing the compounding benefits of our durable, competitive advantages, differentiated operating model, and operational discipline.

We're excited about the second half and confident in our long-term value creation.

Speaker #1: They have to be upgraded. They're going to have to be consolidated with new technology, whether it's our 17G in the consolidation ratios or 6 to 8 to 1, or our new 18G that will begin shipping next month, where we see consolidation rates in the 12 to 14 servers per new 18G server.

Thank you to the team for their execution, and thank you all for your time today.

Now, I'll turn it back to Paul to begin Q&A.

Thanks, David. Let's move on to Q&A to ensure we get to as many of you as possible. Please ask one concise question. Let's go with the first question.

Speaker #1: That is going to happen. And a forcing function is going to be the security environment that we live in today. So we think about what's happening in the world of security and driving increased resilience and new requirements like post-quantum cryptography coming online.

Thank you. Our first question will come from Amit Daryanani with Evercore.

Speaker #1: Old infrastructure has to be updated. And then increasingly, we're seeing enterprises drive AI workloads, specifically agentic workloads. I know your question was specifically the non-ones, but it's complemented by growth there.

Speaker #1: And storage, we see a very similar dynamic. We have the dynamic of our products, our very, very competitive in the marketplace. Data continues to grow.

Your ability in this area would be helpful. Thank you.

Speaker #1: So regardless of the inflationary environment that exists, more data is being created on the planet at the edge, and data centers in the cloud, and that data has to be stored.

You're on it. Let me try a little bit.

So, if you look at traditional servers and what we're seeing—which is the vast majority of the growth that we saw in the quarter—

Speaker #1: It has to be encrypted and protected. And those are the opportunities that we see, which is why we believe our Dell IP portfolio is has a pretty significant tailwind.

It's a consistent theme that I think we talked about last quarter, Q1—there's a modernization.

in the data center.

Speaker #1: Think about it. I think if we blend Q1 and Q2 together, we grew storage 17% in the first half of the year. We continue to see our Dell IP storage growing ahead of the market for six consecutive quarters on a demand basis.

That modernization continues to drive consolidation. It is increasing space, driving power, efficiency, and cooling, and it's obviously driving demand.

Speaker #1: We could run off a bunch of fun numbers, power storage now growing 10 consecutive quarters in a row. We got power scale five quarters in a row, object scale four quarters in a row, data domain three quarters in a row.

And demand for new servers that have more cores, new servers that have more DRAM, and new servers that have more storage in them, as we consolidate an aged install base.

Secondly, that's probably the next big opportunity for us.

Speaker #1: Our all-flash rate have grown now 10 quarters in a row. So there is inherent demand, our products are more competitive, and we're seeing that play out in the marketplace from the largest enterprise customers down to small and medium-sized businesses.

As much as we've modernized, and to give you a sense that it's not an end or a one-time thing, we still have 1.2 million.

assets that are 14G or older in the installed base.

They have to be upgraded.

Speaker #1: And then there, there's also the opportunity to grow with AI. Which is driven by agents and KV cash and new techniques. And the AI world.

Speaker #1: I hope that helps.

Speaker #2: And maybe to add, Jeff, I think it's part of the durability of that growth and demand. Again, we see as part of our guide, our second half growth rates maintaining what you've seen in the first half.

They're going to have to be consolidated with new technology, whether it's our 17G and the consolidation ratios are 6 to 8 to 1, uh, or our new 18G that will begin shipping next month where we see consolidation rates in the 12 to 14 servers per new 18G surface.

Speaker #2: So Jeff mentioned the 17% growth in storage. Pretty similar mid-teens for the second half. We'll continue to guide to traditional server growing triple digits.

That is going to happen, and a forcing function is going to be the security environment that we live in today.

Speaker #2: Again, for the second half, as we drive that through. So we continue to see pipelines build. We continue to see the use cases that Jeff mentioned.

So, we think about what’s happening in the world of security and how it’s driving increased resilience, as well as new requirements like post-quantum cryptography coming online.

Old infrastructure has to be updated.

Speaker #2: And it all points to a more broad-based, more durable ecosystem.

And then increasingly we're seeing enterprises drive AI.

Speaker #4: Thanks, Amit.

Speaker #3: And the next question will come from Ben Reitzes with Melius Research.

Workloads are specifically identical. I know your question was specifically about the non-ones, but it's complemented by growth there. In storage, we see a very similar dynamic.

we have the dynamic of

Speaker #4: Hey, guys. Thanks. And I'll echo pretty impressive quarter and guide there. Wanted to ask about a little longer term. Your partner in AI servers talked about growing 70% next year in overall revenue.

Our products are very, very competitive in the marketplace. Data continues to grow.

Speaker #4: You guys are growing faster than that. Your backlog just surged. I was and you also have these CPU racks. That are new, adding to traditional servers.

So regardless of the inflationary environment that exists, more data is being created on the planet—at the edge, in data centers, and in the cloud. And that data has to be stored, it has to be encrypted and protected. And those are the opportunities that we see, which is why we believe.

Speaker #4: So would you be willing to should you grow kind of in line with Nvidia for next year? You guys are really part of the ACIE segment they have.

Our Dell IP portfolio has a pretty significant tailwind, if you think about it. I think if we blend Q1 and Q2 together, we grew storage 17% in the first half of the year.

We continue to see our Dell IP storage growing ahead of the market for six consecutive quarters on a demand basis.

Speaker #4: Do you see that kind of growth rate in your future or anything you want to kind of say about your long-term growth rate, given it's so much better than expected?

We could run off a bunch of fun numbers. PowerStore has now grown for 10 consecutive quarters in a row.

Speaker #4: Would be appreciated. Thanks.

Speaker #2: Thanks, Ben. Look, I think if you anchor in on our second half trajectory, building on the last question, you can see we like to position in relation to the durability that we see in the demand.

Speaker #2: We see it across the portfolio, and that's giving us tremendous leverage. As we continue to grow, that scale that we get in the P&L, again, offers us the opportunity to continue to find scale and growth in the business.

We got power scale, 5 quarters in a row object, scale, 4 quarters in a row data, domain, 3 quarters in a row, are all flash, array, uh have grown now. 10 quarters in a row. So there is inherent demand. Our products are more competitive and we're seeing that uh, play out in the marketplace from the largest Enterprise, customers down to small and medium-sized businesses.

And then there's also the opportunity to grow with AI, which is driven by agents and KB cache and new techniques in the AI world. I hope that helps.

Speaker #2: The second half growth, which is 68%, is pretty much a mirror image to the first half, 71%. And it's obvious we're seeing signs where the data center is turning in from this cost center approach to a value creator.

And maybe to add, Jeff, I think it's part of the durability of that growth and demand.

Again, we see, as part of our guide, our second half growth rates maintaining what you've seen in the first half.

Speaker #2: And the ecosystem and the enterprise customers that we're seeing are starting to embrace that. There's lots of complexity in execution, I think, right now, really keen to execute a strong second half.

Speaker #2: Continue that great momentum as we go through the second half of the year. I think we'll be in a great position at that point, and we'll continue to look for the growth going forward.

So Jeff mentioned the 17% growth in storage, pretty similar to our mid-teens for the second half. We continue to guide to traditional server growing triple digits again for the second half as we drive that through. So we continue to see pipelines build, we continue to see the use cases that Jeff mentioned, and it all comes to a more broad-based, more durable ecosystem.

Speaker #1: And then maybe some more context around that. Our five-quarter pipeline grew sequentially. That's after booking 131.7 billion of orders over the past four quarters.

Thanks Tommy.

And the next question will come from Ben Ritzez with Melius Research.

Speaker #1: I think that gives you a sense of what's happening today. And then if I look at the longer-term trends, I know you're a believer of this, but as we see it, agentic demand is reshaping the data center and the underlying infrastructure.

Hey guys. Um, thanks, and I'll echo—pretty, pretty impressive quarter and guide there, um.

Wanted to ask about a little longer term.

Um, your

Your, uh, partner in AI servers talked about growing 70% next year in overall revenue.

Speaker #1: Inference this past training and its pure demand on our industry we think the tokens that inference drives is going to grow 87 times to 3,600 quadrillion tokens by 2030.

Um, you guys are growing faster than that. Your backlog just surged. Uh, I was—and you also have these CPU racks—

That are new additions to traditional servers. So,

Speaker #1: Training demand grows 5X to 850 zeta flops by 2030. Enterprise agentic is expected to be the single largest workload by 2028. We're expecting AI to be 75% of all data center demand by 2030.

Speaker #1: Adding 200 gigawatts of power over that same timeframe and half of that, we believe, is right on our sweet spot with our customers, the NeoCloud, Sovereigns, and enterprises.

Segment, they have—do you see that kind of growth rate in your future, or anything you want to say about your long-term growth rate, given it’s so much better than expected, would be appreciated. Thanks.

thanks been, um,

Speaker #1: And if you look at that math, we think the opportunity in front of us is more than a trillion dollars over that timeframe. And we believe we're well positioned.

Look, I think if you anchor in on our second half trajectory, building on the last question, you can see, you know, we like to position in relation to the durability that we see in the demand.

Speaker #1: We believe that our model is differentiated, that our engineering is differentiating ourselves with every customer that we interact with. The scale of our deployment capabilities is unmatched globally.

Speaker #1: We believe what we're doing on the support side is equally important, helping customers ramp getting to that first token faster, than anyone else, and then keeping it running.

Speaker #1: And then the DFS component that we have to help customers in that bridge point from in order to that first token is something that we believe is differentiating us.

Speaker #1: And we're going to continue to focus on that. And then if you believe that demand is there, it drives more servers than the agentic workload, and it drives more data around that agentic workload.

Speaker #1: Growing each of those areas for us as well.

We see the cross the portfolio and that's giving us tremendous, tremendous, leverage, as we continue to grow that scale that we get in the p&l. Again, offers us the opportunity to continue to find scale and, and, and growth in the business as a second half growth, which is 68% is pretty much a mirror image to the first half 71% and it's obvious. We're seeing signs where the data center is turning in from this hot Center approach to a a value Creator, uh, and the ecosystem and the Enterprise customers that we're seeing are starting to embrace that. You know, there's lots of complexity and execution and I think right now uh, really Keen to execute a strong second half. Continue that great momentum as we go through the second half of the year. I think we'll be in a great position at that point and we'll continue to look for the growth going forward.

Speaker #4: Thanks, Ben.

And then, maybe, some more context around that.

Speaker #3: And our next question will come from Mark Newman with Bernstein.

Speaker #4: All right. Thanks very much. Congrats again on the fantastic numbers. A few more details on the huge strength you're seeing in both traditional and AI servers.

Our five-quarter pipeline grew sequentially. That's after booking $131.7 billion of orders over the past four quarters.

Uh, I think that gives you a sense of what's happening today. And then, if I look at the longer-term trends,

Speaker #4: First of all, for traditional servers, this has been traditionally almost all enterprise customers. And I believe you're lumping in these CPU racks that are agentic AI servers that are CPU racks in there, I believe.

I know you're a believer of this, but as we see it, AI and demand is reshaping the data center and the inner lining and underlying infrastructure.

Speaker #4: Is this traditional server category still almost all enterprise, or are you seeing a portion of that from, say, NeoCloud's or Tier 2 CSPs? And then similarly for the AI server customer mix, both revenue and orders I know majority in the past has been NeoCloud's or Tier 2 CSPs.

Inference is past training and it’s pure demand on our industry. We think the tokens that inference drives are going to grow 87 times, to 3,600 quadrillion tokens by 2030. Training demand grows 5x to 850 zettaflops by 2030.

Enterprise. Agentic is expected to be the single largest workload by 2028.

We're expecting AI to account for 75% of all data center demand by 2030.

Adding 200 gigawatts of power over that same time frame, and half of that.

We believe this is right in our sweet spot with our customers—the NIO Cloud, sovereigns, and enterprises.

Speaker #4: Is that still the same? I wondered if you could give us any hints in terms of the relative growth rate between enterprise versus other larger customers in the AI server mix, because previously, you said enterprise had been growing faster and I just wondered if that is still the case, given the huge step up, particularly in the orders.

And if you look at that math, we think the opportunity in front of us is more than $1 trillion over that time frame.

And we believe we're well positioned. We believe that our model is differentiated, that our engineering is differentiating ourselves with every customer that we interact with. The scale of our deployment capabilities is unmatched globally.

Speaker #4: Thanks very much.

Speaker #2: You bet.

Speaker #1: Mark, traditional server, the 122% growth, it's primarily our historical enterprise customers. I'd stress demand outstrips supply. Demand was even greater than the results that we published there.

We believe what we're doing on the support side is equally important, helping customers ramp, getting to that first token faster than anyone else, and then keeping it running. And then the DFS component that we have to help customers at that bridge point to get to that first token is something that we believe is differentiating us, and we're going to continue to focus on that.

Speaker #1: We are a supply-constrained but demand is from our traditional enterprise customers. That's where the vast majority of the workloads are. That's where the modernization is occurring.

And then, if you believe that demand is there, it drives more servers than the injective workload, and it drives more data around that agent-to-workload. Growing each of those areas for us as well.

Thanks man.

Speaker #1: That's where the aged install base is. That's where the heightened awareness around security and resiliency is been driving demand. I introduced last quarter that we are beginning to see an AI servers.

And our next question will come from Mark Newman with Bernstein.

Speaker #1: And when I talked about that and it would be the same that happened this past quarter, that there are NeoClouds buying that. Some of our high-frequency trader customers are buying those types of servers, as well as very advanced in their AI deployments, our largest and most sophisticated enterprise customers.

Thanks so much again for the fantastic numbers. Um, a few more details on the huge strength you're seeing in both traditional and, uh, AI servers. Uh, first of all, for traditional servers, this has been, uh, traditionally, um, almost all, uh, enterprise customers. Uh, and I believe you're lumping in, uh,

Speaker #1: So vast majority of that 122% growth are traditional customers across all segments, all geos. AI servers are beginning to show up with that set of customers.

The CPU racks that are authentic, AI servers that are CPU, uh, racks in there. I believe, um, is, is this, is this...

Speaker #1: Which is exciting to see. That grew quarter over quarter. It grew across NeoClouds. It grew across our HFT customers as well as our enterprise customers.

Speaker #1: So that's exciting to see. And then the mix inside our traditional AI business is exciting. And something that we've talked about and I think we mentioned in our remarks, we now have more than 6,500 customers buying Dell AI Factory.

Category—um, is it still almost all enterprise, or are you seeing a portion of that from, say, Neo clouds or CSPs? And then, similarly, for the AI server customer mix, both revenue and orders.

Speaker #1: 3,300 of them have happened in the last three quarters. It took us eight quarters to get to the first 3,200. That acceleration is enterprise.

Speaker #1: Enterprise customers grew quarter over quarter, year over year, repeat buyers grew quarter over quarter and year over year. Enterprise revenue grew quarter over quarter and year over year.

Speaker #1: And the pipeline of enterprise customers grew sequentially as well. So we are seeing more enterprise customers. The mix didn't necessarily change because we are still winning on the sovereign side as well as the large NeoCloud side.

Faster. And I just wondered if that is still the case, given the huge step up, particularly in the orders. Thanks very much.

You bet. Uh, Mark, traditional server, the 122% growth.

Speaker #1: But the momentum with enterprise best measured by number of customers. The number of customers that are buying repeatedly is all up in the indicators are strong.

It's primarily our historical enterprise customers. I had stressed demand outstrips supply.

Demand was even greater than the results that we published. There, we are supply constrained.

Speaker #1: And they tend to buy more storage and they tend to buy more networking when they engage with us. A more complete solution. I hope that helped.

Speaker #4: Thanks, Mark.

Speaker #3: Yeah. Thanks very much. And we'll take a question from Catherine Murphy with Goldman Sachs.

Speaker #5: Thank you very much. Maybe to follow up on that last point, you talked about how the strength in this core enterprise customer base is driving strong pull-through of other types of products, whether it be networking, storage, or PCs.

Uh, but demand is from our traditional enterprise customers. That's where the vast majority of the workloads are, that's where the modernization is occurring, that's where the aged install base is, that's where the heightened awareness around security and resiliency has been driving demand. I introduced last quarter that we are beginning to see...

Speaker #5: Can you help us think about how that informed some of the margin outperformance in the quarter, both on the storage side and as we think about PCs?

Speaker #5: And if this is going to drive a structurally higher margin framework for both of these segments, as we look forward into the future with enterprise represents a bigger share of your AI server engagements.

...and AI servers. And when I talked about that, it would be the same as what happened this past quarter—that there are Neo clouds buying, that some of our high frequency trader customers are buying those types of servers, as well as very advanced in their AI deployments—our largest and most sophisticated enterprise customers.

So, the vast majority of that 122% growth is from traditional customers across all segments, all goes.

Speaker #5: Thank you.

Speaker #1: Sure. Let me try to walk through that and David certainly will help me here. But the single biggest lever of the operating margin improvement in the company is scale.

Speaker #1: Operating leverage. Our the dividend we are reaping dividends from the investments that we've made internally in AI. Internally in modernization of the company. And it's allowing us to grow without significant investment going forward.

AI servers are beginning to show up with that set of customers, which is exciting to see. That grew quarter over quarter; it grew across Neo clouds, it grew across our HFT customers as well as our enterprise customers. So that's exciting to see. And then the mix inside our...

Traditional AI business is exciting. And something that we've talked about—and I think we mentioned in our remarks—we now have more than 6,500 customers.

Uh, buying Del AI Factory.

Speaker #1: Now, clearly, David mentioned the variable cost component or variable compensation component in our cost profile. But at a core spend rate, we're seeing tremendous leverage.

3,300 of them have happened in the last three quarters. It took us eight quarters to get to the first 3,200.

That acceleration is enterprise.

Speaker #1: When I think about the portfolio, the single biggest contributor to the portfolio in our operating margin improvement, and it's particularly in ISG, is storage.

Speaker #1: And specifically Dell IP storage. We are still transitioning from a partner IP mix to a Dell IP mix. We're continuing to gain momentum there.

Speaker #1: That momentum drives incremental revenue dollars at a higher margin rate, which drives incremental margin dollars. That is the single biggest contributor outside of operating leverage in the portfolio.

Enterprise customers grew quarter over quarter and year over year. Repeat buyers grew quarter over quarter and year over year. Enterprise revenue grew quarter over quarter and year over year, and the pipeline of Enterprise customers grew sequentially as well. So, we are seeing more Enterprise customers. The mix didn't necessarily change because we are still winning on the Sovereign side as well as the large NIO Cloud side, but the momentum with Enterprise is best measured by the number of customers. The number of customers that are buying repeatedly is up, and the indicators are strong. They tend to buy more storage and they tend to buy more.

Speaker #1: And we've seen expansion of our Dell IP margins because of mix selling higher-end products, more capable products, you take our power edge elite with our 6 to 1 data reduction rate, the best in the industry, driving tremendous value for our customers.

Networking, uh, when they engage with us, is a more complete solution.

I hope that helped.

Thanks, Mark. Yeah, thanks so much.

And we'll take a question from.

Speaker #1: The same we see on a data domain product as well as our unstructured products. So because of their performance, their capabilities, we're extracting more value from them.

Speaker #1: And clearly, there's an inflation component of this. They cost more because of the cost basis of NAN in particular with storage products. Well, that's what's driving the improvement in our business.

Speaker #1: If you think about PCs, the single biggest improvement of the operating margins over the past two quarters has been operating leverage. And we see that continuing with our guidance of 8% OPEX for the balance of the year.

Speaker #1: David, anything you would add?

Speaker #2: Yeah. I guess maybe just to punch through some of the storage commentary. I mean, we're I mean, the guy today adding over 2.5 billion dollars of storage revenue year on year to the P&L.

Speaker #2: That's tremendous margin opportunity. Particularly as this Dell IP and allows us to think about our margin rates from an enhancement perspective. Then on the CSG side, we're guiding to 6 points of operating income in Q3.

Speaker #2: And into Q4. Ultimately, that's roughly the midpoint of our range. That we've always had from a long-term value creation framework perspective. And we'll obviously continue to price discover what is a competitive market likely down in units in the second half of the year.

Speaker #2: So some extra color of commentary there. But ultimately, it's scale. Scale and then storage mix is part of the value creation.

Speaker #5: Thank you both very much.

Speaker #3: And our next question will come from Wamsi Mohan with Bank of America.

Speaker #6: Hi. Yes. Thank you so much.

Speaker #1: Jeff, maybe it'd be helpful if you could slice this a slightly different way in terms of what you're seeing from customer purchasing behavior, particularly in the enterprise.

Speaker #1: I was wondering how much demand is actually being deferred because of inability to flex budget dollars high enough to keep up with the price increases.

Speaker #1: So if someone needed 100 servers, are they buying 50 today and 50 are sort of hitting your backlog, which will be fulfilled next year hopefully?

Speaker #1: And secondarily, your financing receivables ticked up materially. Any color you could share over there? Thank you.

Speaker #4: Let me start with the first one, David. Can help and then head into the second part of your question. I mean, it's a tale of multiple factors.

Speaker #4: You have companies or customers in the public sector that operate in fixed budgets on annual cycles. They tend to operate in the very way you asked the question if they have 1,000 dollars or 100,000 dollars or a million dollars to spend.

Speaker #4: They spend that. And they will buy as much as they possibly can with that. The same is true more of the small and medium-sized businesses that have less of a forecasting cycle of what their business may look like multiple years out.

Speaker #4: So they're more short-term in their buying behaviors and buy that way. And then you have larger customers, globally, that are investing in infrastructure. I think I made note of that in our comments, that we are seeing customers investing more than they plan to in infrastructure.

Speaker #4: Modernizing ahead, investing in AI ahead of their plans, and we see that from large corporations to large enterprise to large multinational corporations across the globe.

Speaker #4: And that's been a big driver of demand. Those customers would prefer to have product now if we had the supply. We are, again, supply constrained in the sense of what we can build any given quarter.

Speaker #4: They're putting off that based on our availability. But I mean, at least from what I see, the order book many would prefer to have the product sooner.

Speaker #4: And we are working through in this demand environment that's well ahead of supply helping customers manage because of the environment. They are placing their orders further in advance to ensure they have access to that supply.

Speaker #4: I believe that's something we talked about last quarter. That behavior continues. Large sophisticated customers are acting first and foremost, ensuring they have access to supply and giving us their view of demand with collaborative planning tools across our two organizations to get a view of their needs further into the future.

Speaker #4: That is probably a new phenomenon that's happened in this demand environment today with the constrained supply.

Speaker #2: Maybe if I touch on the cash flow and receivables element, Wamsi. I think, look, firstly, you can see the power of our model in full flight here.

Speaker #2: I think as you accelerate revenues in the business, it allows us to grow cash flow. And given our cash conversion cycle, it ultimately enables us to reward a shareholders with expanded returns.

Speaker #2: Looking Q2, we oversaw a 2.2 billion dollar quarter on quarter increase. On a 1.6 billion dollar baseline to drive over 3.9 billion dollars of share repurchase.

Speaker #2: It's almost 2X any previous spend that we've done in our history. And I think it highlights two things. One, just the agility and nimbleness to execute in the market so quickly.

Speaker #2: But also two, I think an evidence-based commitment to our shareholder return strategy. And as we continue to grow, our DFS capability is going to remain one of our differentiators there.

Speaker #2: You won't see any change in overall diligence or posture in relation to that. I think, look, our involvement will continue to be selective. It's primarily focused on short-term financing and offerings.

Speaker #2: Jeff outlined that earlier. And I think we'll observe that in parallel to many other long-term financing offerings available in the market. I think in terms of the increase, I think it's simply a factor of the growing business.

Speaker #2: The growth in financing receivables is effectively driven by the growth in the overall business. And it's anchored obviously in the expansion of AI. I think we're net income to adjusted free cash flow over one times.

Speaker #2: I think we're very comfortable with our capital and liquidity position in strong health here as we exit the quarter.

Speaker #1: Thank you so much.

Speaker #4: Thanks, Wamsi.

Speaker #3: And we'll take a question from Eric Woodring with Morgan Stanley.

Speaker #7: Awesome, guys. Thank you for taking my question. Jeff, I think you'd have to go back to the quarter of the EMC acquisition to find a quarter where Dell Storage grows fast as it did.

Speaker #7: So a big congrats there. I realize pricing is a clear tailwind in storage, but for a long time, we've been talking about this kind of 2 to 3 dollar storage attach opportunity with servers, with AI servers.

Speaker #7: And I'm just wondering from your perspective, if we are starting to see this kind of storage attach story materialize, how long could that runway be based on what you hear from your customers, what you see in your pipeline?

Speaker #7: Just would love to understand how that relationship is emerging as we look at storage, obviously crushing it this quarter. Thanks so much.

Speaker #1: You bet.

Speaker #4: Look, Eric, I think it's I'll start at the simple macro point of view. There's more data. And there's more data being created. And as a result of agents and what we're doing in AI, there's even more data being created.

Speaker #4: I suspect you know, but these agents when used are creating files. They're creating logs. They're creating traces of the work that they do. That work has to be retained.

Speaker #4: Depending on what type of customer you are, there's compliance and regulatory requirements about how long that's got to be retained and what the protection policies are with that.

Speaker #4: So you have another new source of growth for storage. You see the same happening with KV Cash and how it's being used. And driving more efficient inference.

Speaker #4: So we see multiple new lines or new paths for storage growth in our businesses. If we think about this across agentic workloads as we head towards physical AI and what's going to happen in manufacturing and IoT sensors and robotics which drive tremendous amounts of multimodal unstructured data arthro like they call it, unstructured repositories.

Speaker #4: There's a lot of structured data and databases the growth of that is immense and we actually see it accelerating not slowing down. And that bodes well for someone that's in the storage business, which we absolutely are.

Speaker #4: And equally important in the data business. And how do we start helping customers with forms of data management? We talk about this internally around creating a data semantic layer, a layer of intelligence that helps make something of all of that data to feed the AI engines to make sure that they can actually produce something even more worthwhile to help the agents be more efficient, etc.

Speaker #4: To help training. That virtuous cycle we believe is just starting. And as we understand it today, we're very optimistic about the growth of storage going forward in the AI world.

Speaker #4: And we're positioned quite well across all of our storage assets. We protect data. We store all forms of data. And as we build more of our data automation platform, we think about our data management work.

Speaker #4: I think we have a huge opportunity to grow and to be even more important to our customers as their data needs grow.

Speaker #1: Thanks, Eric.

Speaker #3: In our next question, we'll come from Asiya Merchant with City.

Speaker #5: Great. Thanks for taking my question. And great results here. Can I just ask a little bit about supply? Jeff, I know you mentioned supply constraints.

Speaker #1: And driving more efficient inference? So, we see multiple new lines or new paths for storage growth in our businesses. If we think about this across agentic workloads as we head toward physical AI and what's going to happen in manufacturing and IoT sensors and robotics—which drive tremendous amounts of multimodal, unstructured data—Arthur likes to call it unstructured repositories—there's a lot of structured data and databases. The growth of that is immense, and we actually see it accelerating, not slowing down.

Speaker #5: Maybe if you can just help us understand where these supply constraints have anything changed from the last quarter? Clearly, some of the component makers are talking about supply agreements that have been signed.

Speaker #5: How do you think about your supply going ahead? And what we should think about where some of the incremental supply constraints are perhaps relative to last quarter in order to meet the demand durability that you're talking about even going into next year.

Speaker #5: Thank you.

Speaker #4: You bet, Jeff. How I think about supply. As I'm often reminded by our Salesforce, it's not enough. So we are doing everything we can to get more supply.

Speaker #1: And that bodes well for someone that's in the storage business, which we absolutely are, and, equally important, in the data business. And how do we start helping customers with forms of data management?

Speaker #4: In today's environment, that's a very difficult task. Well, we've been doing is I think optimizing the bits and bytes that we have coming in.

Speaker #1: We talk about this internally, about creating a data semantic layer—a layer of intelligence that helps make sense of all that data, to feed the AI engines. This ensures they can actually produce something even more worthwhile, helping agents be more efficient, and so on.

Speaker #4: Whether that be with configuration, that be building matched sets, to maximize the output of the corporation out of the factories. Our ability to increase guidance by the 25 billion dollars is a direct reflection of our ability to optimize what's coming in, shaping demand, planning in accordingly, and getting it out the door.

Speaker #1: To help training, that virtuous cycle we believe is just starting. And as we understand it today, we're very optimistic about the growth of storage going forward in the AI world.

Speaker #4: One of the things that we did earlier this year is we saw the PC market showing signs of softening in the second half. We optimized the bits and bytes we have towards the infrastructure business.

Speaker #1: And we're positioned quite well across all of our storage assets. We protect data. We store all forms of data. And as we build more of our data automation platform, we think about our data management work.

Speaker #4: There's a lead time associated with that. We're working through that lead time, which is part of why the second half looks a little better.

Speaker #4: We've been able to realize greater shipments as a result of that. The constraints remain the same. DRAM, DRAM, DRAM, followed by NAND, NAND, NAND.

Speaker #1: I think we have a huge opportunity to grow and to be even more important to our customers as their data needs grow.

Speaker #4: We have spotty CPU shortages. There are shortages with disk drives. If you go further down in the supply chain, just about every product going through a leading node is constrained.

Speaker #2: Thanks, Eric.

Speaker #3: Our next question will come from Asiya Merchant with Citi.

Speaker #4: Great, thanks for taking my question, and great results here. Can I just ask a little bit about supply? Jeff, I know you mentioned supply constraints.

Speaker #4: Mature nodes that are building MOSFETs, power ICs, microcontrollers, drivers are constrained. There's shortages of ABF substrate, T-glass, all of which we monitor. There's shortages in optical, the AI supply chain is working red line, all out to build CDUs, power, racks, welcome to the life of a supply chain person at Dell.

Speaker #4: Maybe if you can just help us understand where these supply constraints are—have anything changed from the last quarter? Clearly, some of the component makers are talking about supply agreements that have been signed.

Speaker #4: How do you think about your supply going ahead, and what should we consider regarding some of the incremental supply constraints, perhaps relative to last quarter, in order to meet the durable demand you’re talking about—even going into next year?

Speaker #4: This is what we do, chasing parts. We love it. Trying to optimize the outcomes for the company. I think we've done largely a good job of that with the second half guide up.

Speaker #4: Thank you.

Speaker #4: And we'll continue to focus on trying to get more supply and take the supply we have and optimize the output.

Speaker #1: You bet, Jeff. How I think about supply—as I'm often reminded by our sales force—it's not enough. So we are doing everything we can to get more supply.

Speaker #1: Thanks, Asiya.

Speaker #3: And the next question will come from Aaron Rakers with Wells Fargo.

Speaker #1: In today's environment, that's a very difficult task. What we've been doing is, I think, optimizing the bits and bytes that we have coming in, whether that be with configuration or building matched sets, to maximize the output of the corporation out of the factories.

Speaker #6: Hi guys. This is Michael Tvetnoff on behalf of Aaron. Thanks so much for letting me ask a question. I wanted to ask on the storage business.

Speaker #6: Obviously, very strong within that you mentioned several solidly performing Dell IP portfolio. Products, one of which I wanted to ask about is Lightning. How is that contributing at this point?

Speaker #1: Our ability to increase guidance by the $25 billion is a direct reflection of our ability to optimize what's coming in, shape demand, plan accordingly, and get it out the door.

Speaker #6: And kind of what level of attach are you seeing to those cloud AI server deals?

Speaker #1: One of the things that we did earlier this year is we saw the PC market showing signs of softening in the second half. We optimized the bits and bytes we have toward the infrastructure business.

Speaker #4: Well, Lightning, our parallel file systems, there's an echo, sorry. Parallel file system design for native AI use cases. We continue to have the product out in the field.

Speaker #4: We continue to see interest. It's still a relatively new product. It's in beta. It's several customers. We're in runoffs against other competitors. With the product that will continue and as it builds momentum, I'm certain we'll give you an update in the future.

Speaker #1: There's a lead time associated with that. We're working through that lead time, which is part of why the second half looks a little better.

Speaker #1: We've been able to realize greater shipments as a result of that. The constraints remain the same: DRAM, DRAM, DRAM, followed by NAND, NAND, NAND.

Speaker #4: But that's where Lightning is at the moment.

Speaker #1: We have spotty CPU shortages. There are shortages with disk drives. If you go further down in the supply chain, just about every product going through a leading node is constrained.

Speaker #1: Thank you.

Speaker #6: Thank you.

Speaker #3: And our next question will come from Joseph Cardosa with JP Morgan.

Speaker #7: Hi guys. And congrats on the results here. And thanks for the question. Maybe can you guys and I know you guys kind of talked about the traditional business here in length, but maybe just curious if we break down the growth that you're seeing on the traditional server and storage side, between volume and pricing.

Speaker #1: Mature nodes that are building MOSFETs, power ICs, microcontrollers, drivers are constrained. There are shortages of ABF substrate, T-glass—all of which we monitor. There are shortages in optical. The AI supply chain is working red line, all-out to build CDUs, power, racks. Welcome to the life of a supply chain person at Dell.

Speaker #7: Relative to your earlier view, how much of the upside is coming from each of those vectors? And maybe more importantly, as you think about going forward in the momentum you're seeing in the business, how are you thinking about headroom for customers to keep on digesting these higher prices?

Speaker #1: This is what we do—chasing parts. We love it. Trying to optimize the outcomes for the company, I think we've done largely a good job of that with the second half guide up.

Speaker #7: And your customer discussions, are you starting to see any pushback there? Thank you.

Speaker #1: And we'll continue to focus on trying to get more supply, and take the supply we have and optimize the output.

Speaker #4: Our seeing servers and storage by revenue and growth. Let me try. So if I look at servers and what we're seeing in traditional servers, we're seeing, again, this notion of modernization that's driving higher core count, more DRAM, and more storage.

Speaker #2: Thanks, Asiya.

Speaker #3: And the next question will come from Aaron Rakers with Wells Fargo.

Speaker #5: Hi guys, this is Michael Tvetnoff. On behalf of Aaron, thanks so much for letting me ask a question. I wanted to ask about the storage business.

Speaker #4: Those products are those configurations are part of this modernization or consolidation. And they continue to grow rapidly. They cost more than they did last quarter.

Speaker #5: Obviously, very strong within that— you mentioned several solidly performing Dell IP portfolio products, one of which I wanted to ask about is Lightning. How is that contributing at this point?

Speaker #4: And the quarter before and the quarter before. So there's a notion of inflation inside our growth. But the underlying demand for the technology is significant.

Speaker #5: And kind of what level of attach are you seeing to those cloud AI server deals?

Speaker #1: Well, Lightning are parallel file systems—there's an echo, sorry—parallel file systems designed for native AI use cases. We continue to have the product out in the field.

Speaker #4: I think about the new use cases, that's all new use cases, all new growth, which is being driven by agentic AI, essentially running the harness, if that makes sense.

Speaker #1: We continue to see interest. It's still a relatively new product. It's in beta at several customers. We're in runoffs against other competitors. With the product, that will continue, and as it builds momentum, I'm certain we'll give you an update in the future.

Speaker #4: And we continue to be optimistic about the prospects. Again, demand outran supply last quarter. Demand outran supply this quarter. The pipeline remains robust. David just gave an update on guidance of the server business, which is very healthy.

Speaker #1: But that's where Lightning is at the moment.

Speaker #2: Thank you.

Speaker #5: Thank you.

Speaker #4: And clearly, there's a component of that driven by the price increases as our input costs continue to go up. Storage is a very similar story, as I think I mentioned to one of the earlier questions.

Speaker #3: And our next question will come from Joseph Cardosa with J.P. Morgan.

Speaker #6: Hi guys, and congrats on the results here, and thanks for taking the question. Maybe, can you guys—and I know you kind of talked about the traditional business here at length—but maybe just curious if we break down the growth that you're seeing on the traditional server and storage side, between volume and pricing?

Speaker #4: As we see a ramp down of our partner IP, portfolio, it's being offset by more units in our Dell IP portfolio. That come with higher revenue and higher margin rates.

Speaker #6: Relative to your earlier view, how much of the upside is coming from each of those vectors? And maybe more importantly, as you think about going forward and the momentum you're seeing in the business, how are you thinking about headroom for customers to keep on digesting these higher prices?

Speaker #4: We're seeing a greater use of our storage products in AI applications, which is good to see most notably with our unstructured products, which had unprecedented growth, again, but I rattled off a bunch of numbers earlier about every category of our traditional or core Dell IP portfolio, growing multiple quarters now.

Speaker #6: And your customer discussions, are you starting to see any pushback there? Thank you.

Speaker #1: We're seeing servers and storage by revenue and growth. Let me try. So, if I look at servers, and what we're seeing in traditional servers, we're seeing, again, this notion of modernization that's driving higher core count, more DRAM, and more storage.

Speaker #4: The Dell IP stack has grown six consecutive quarters now ahead of the marketplace. We expect to take share again. And clearly, some of that is uplifted by the increased cost of the underlying material.

Speaker #4: Our software-defined products are doing well in the storage portfolio, which is incremental business for us. So I hope that gave some color.

Speaker #1: Those products and those configurations are part of this modernization or consolidation, and they continue to grow rapidly. They cost more than they did last quarter, and the quarter before, and the quarter before.

Speaker #1: Thanks. And we'll take one more question before we go to a close.

Speaker #3: And that question will come from David Vogue with UBS.

Speaker #6: Great. Thanks, guys, for your squeezing me in. Maybe for Jeff and David, can you help us understand sort of the long-term margin differentials as customers modernize to next-gen servers off of older generation servers like 14 on the way to like 17G, 18G?

Speaker #1: So there's a notion of inflation inside our growth. But the underlying demand for the technology is significant. I think about the new use cases.

Speaker #1: That's all new use cases, all new growth, which is being driven by agentic AI essentially running the harness, if that makes sense. And we continue to be optimistic about the prospects.

Speaker #6: And how much of the margin uplift that you're seeing in ISG comes from a like-for-like margin lift as we modernize data centers versus sort of your efficiency improvements and scale economics that you're seeing just from more volume going through the supply chain?

Speaker #1: Again, demand outran supply last quarter. Demand outran supply this quarter. The pipeline remains robust. David just gave an update on guidance of the server business, which is very healthy.

Speaker #6: Thanks.

Speaker #4: Yeah. I mean, if you look at our Q2 results here, ISG opting at 15 points. Obviously, tremendous performance. Jeff outlined it earlier. The number one driver here is a scale conversation given the growth that we're seeing and accelerated growth that we're seeing.

Speaker #1: And clearly, there's a component of that driven by the price increases, as our input costs continue to go up. Storage is a very similar story, as I think I mentioned in response to one of the earlier questions.

Speaker #4: That for the ISG business was the driver of just over 400 basis points. For the full year guide, it's worth over $650 basis points.

Speaker #1: As we see a ramp down of our partner IP portfolio, it's being offset by more units in our Dell IP portfolio that come with higher revenue and higher margin rates.

Speaker #4: So you see the leverage that we can adopt into the ecosystem. Outside of that, you then as you do your storage growth and again, as we drive that 13% guide, our 50-15% guide, excuse me, for the full year, that 2.5 billion dollars of incremental storage is a huge drag in terms of revenue dollars that we push through.

Speaker #1: We're seeing a greater use of our storage products in AI applications, which is good to see—most notably with our unstructured products, which had unprecedented growth again. But I rattled off a bunch of numbers earlier about every category of our traditional or core Dell IP portfolio growing, multiple quarters now.

Speaker #4: As you look at our guide for the second half of the year then for ISG, you'll see it's up over a point in the second half.

Speaker #1: The Dell IP stack has grown for six consecutive quarters now, ahead of the marketplace. We expect to take share again, and clearly, some of that is uplifted by the increased cost of the underlying material.

Speaker #4: And you'll see it grow from Q3 to Q4 also, even with the expansion of AI, which is over 3X growth year on year at a 74 billion dollar guide.

Speaker #1: Our software-defined products are doing well in the storage portfolio, which is incremental business for us. So, I hope that gave some color.

Speaker #4: So all of that's kind of contributing to a robust portfolio. And then across the rest of the portfolio, it's really about mixed product mix, geo mix, and just traditional execution pricing discipline.

Speaker #2: Thanks. And we'll take one more question before we go to a close.

Speaker #3: And that question will come from David Vogt with UBS.

Speaker #4: And operational rigor across our supply chain, engineering, and sales teams.

Speaker #5: Great. Thanks, guys, for squeezing me in. Maybe for Jeff and David, can you help us understand sort of the long-term margin differentials as customers modernize to next-gen servers off of older generation servers, like 14G, on the way to, like, 17G or 18G?

Speaker #1: All right. Well, moving over to Jeff to close this out.

Speaker #2: Sure. Thanks, Paul. Thanks, everyone, for joining us today. Our advantages are compounding. Our addressable opportunity is expanding. And our differentiated operating model is delivering significant leverage.

Speaker #2: With our full year opex rate, at a 42-year low. We raised our full year guide by 25 billion dollars to 192 billion dollars with 25 dollars and 50 cents of EPS.

Speaker #5: And how much of the margin uplift that you're seeing in ISG comes from a like-for-like margin lift as we modernize data centers, versus sort of your efficiency improvements and scale economics that you're seeing just from more volume going through the supply chain?

Speaker #2: We are optimistic about a stronger second half and the momentum we carry into next year, thanks everyone for your time today.

Speaker #5: Thanks.

Speaker #1: Yeah, I mean, if you look at our Q2 results here, ISG operating at 15 points. Obviously, tremendous performance. Jeff outlined it earlier. The number one driver here is a scale conversation, given the growth that we're seeing and the accelerated growth that we're seeing.

Speaker #1: That for the IC business was a driver of just over 400 basis points. For the full-year guide, it's worth over 650 basis points.

Speaker #1: So you see the leverage that we can adopt into the ecosystem. Outside of that, you then as you do your storage growth and again, as we drive that 13% guide, our 50-15% guide, excuse me, for the full year, that 2.5 billion dollars of incremental storage is a huge drag in terms of revenue dollars that we push through.

Speaker #1: As you look at our guide for the second half of the year for ISG, you'll see it's up over a point in the second half.

Speaker #1: And you'll see it grow from Q3 to Q4 also, even with the expansion of AI, which is over 3X growth year on year at a $74 billion guide.

Speaker #1: So, all of that is kind of contributing to a robust portfolio. And then, across the rest of the portfolio, it's really about mixed product mix, geo mix, and just traditional execution and pricing discipline.

Speaker #1: And operational rigor across our supply chain, engineering, and sales teams.

Speaker #2: All right, well, moving over to Jeff to close this out.

Speaker #6: Sure. Thanks, Paul. Thanks, everyone, for joining us today. Our advantages are compounding, our addressable opportunity is expanding, and our differentiated operating model is delivering significant leverage.

Speaker #6: With our full year opex rate, at a 42-year low. We raised our full year guide by 25 billion dollars to 192 billion dollars with 25 dollars and 50 cents of EPS.

Speaker #6: We are optimistic about a stronger second half and the momentum we carry into next year. Thanks, everyone, for your time today.

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