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DATE

Tuesday, Nov. 25, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

  • Vice Chairman and Co-Chief Operating Officer — Jeff Clarke
  • Chief Financial Officer — David Kennedy
  • Vice President of Investor Relations — Paul Frantz

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RISKS

  • Jeff Clarke said, "the cost basis is going up across all products," due to rapid increases in DRAM, NAND, and hard drive pricing, impacting the entire portfolio and suggesting margin pressure industry-wide.
  • Management is working to minimize—but unable to eliminate—customer cost impacts as the aggregate cost basis moves across all product categories.

TAKEAWAYS

  • Revenue -- $27 billion, up 11%, setting an all-time Q3 record, with combined ISG and CSG growth of 13%.
  • Earnings per Share (EPS) -- $2.59, up 17% to a quarterly record, driven by improved AI and storage profitability.
  • ISG Revenue -- $14.1 billion, up 24%, marking seven consecutive quarters of double-digit revenue growth.
  • ISG Servers and Networking Revenue -- $10.1 billion, up 37%, with 43% growth year-to-date.
  • AI Server Orders and Shipments -- $12.3 billion in orders and $5.6 billion shipped in the quarter, contributing to a record $30 billion in orders year-to-date and a record backlog of $18.4 billion.
  • AI Shipment Guidance -- Q4 shipments are expected to be roughly $9.4 billion, bringing full year shipments to roughly $25 billion, equating to over 150% growth year-over-year.
  • Gross Margin -- $5.7 billion, up 4%, representing 21.1% of revenue, mainly from AI mix improvement; operating expense down 2% to $3.2 billion (11.8% of revenue).
  • ISG Operating Income -- $1.7 billion, up 16%, with a sequential increase of 360 basis points to 12.4% of segment revenue.
  • CSG Revenue -- $12.5 billion, up 3%; commercial revenue up 5% ($10.6 billion), consumer revenue down 7% ($1.9 billion).
  • CSG Operating Income -- $700 million, 6% of CSG revenue; commercial segment maintained stable profitability.
  • Cash and Balance Sheet -- Cash flow from operations was $1.2 billion, with cash and investments rising $1.6 billion sequentially to $11.3 billion; core leverage ratio at 1.6x.
  • Shareholder Returns -- $1.6 billion returned through repurchases of 8.9 million shares and a $0.53 per-share dividend; year-to-date returns total $5.3 billion and 39 million shares repurchased.
  • Storage Revenue -- $4 billion, down 1%, with Dell IP PowerStore posting seven consecutive quarters of growth and six consecutive quarters of double-digit gains.
  • Q4 Outlook -- Guidance sets expected revenue between $31 billion and $32 billion (up 32% at the midpoint), ISG and CSG combined up 34%, and ISG alone guided to mid-60s% growth; non-GAAP EPS expected at $3.50 plus or minus $0.10 (up 31%).
  • Full-Year and fiscal 2027 Outlook -- Fiscal 2026 (ending Jan. 30, 2026) non-GAAP revenue expected at $111.7 billion (up 17%), non-GAAP EPS at $9.92 (up 22%); management points to mid-teens EPS growth framework for the following year.
  • AI Server Margins -- Jeff Clarke said, our margins move to safe right in that range that we've talked about, mid single digits. He expects this to persist, citing he is very confident of that.
  • Commodity Cost Pressures -- Management described demand for components as way ahead of supply. Strategies are in place to recover costs through pricing, but clearly, we're in a situation that is not typical.
  • PC Refresh Cycle -- More than 1 billion out of 1.5 billion installed PCs remain either unconverted to Windows 11 or too old, supporting continued upgrade demand; international CSG growth was double digits year-over-year.
  • Traditional Servers -- Demand grew double digits, especially in EMEA and North America, with roughly 70% of installed base on older generations, indicating remaining upgrade opportunity.
  • Inventory and Purchase Commitments -- Inventory declined $300 million sequentially, remained flat year-over-year, with no material change in purchase commitments versus last quarter; $19 billion year-to-date demand growth observed.

SUMMARY

Dell Technologies (DELL 0.79%) delivered Q3 records for both revenue and earnings per share, propelled by accelerated AI server demand and orders that expanded the company’s backlog and pipeline. ISG momentum was supported by strong operating income gains and margin expansion, while Dell’s AI business achieved record bookings across Neo Clouds, sovereigns, and enterprises, with Q4 AI shipments expected to nearly match the total for all prior quarters. Operating leverage was evidenced by reduced operating expenses alongside higher gross profit, and disciplined capital returns continued through aggressive share repurchases and dividends.

  • Guidance points to a substantial sequential jump in AI server revenue in Q4, indicating significant customer readiness and supply chain execution as delivery constraints ease.
  • Management explicitly cautioned on the industry-wide impact of rising memory and storage input costs, stating, the cost basis is going up across all products. Management is committed to leveraging direct sales, mix, and repricing to recoup a greater share of these costs in extraordinary conditions.
  • ISG and CSG are set to drive combined mid-30% revenue growth in Q4, with ISG forecasted to grow in the mid-60s% guided by continued data center modernization and robust Dell IP storage demand.
  • PC and server refresh cycles remain persistent tailwinds, underpinned by a large segment of the installed base eligible for upgrades, while the strategy focus is on expanding Dell IP mix in storage and targeting share gains in lower-margin PC segments.
  • Forward commentary signaled continued prioritization of margin protection and operational agility as the market adapts to acute supply and pricing volatility.

INDUSTRY GLOSSARY

  • ISG (Infrastructure Solutions Group): Dell's segment delivering server, storage, and networking solutions, including AI and traditional data center hardware.
  • CSG (Client Solutions Group): Dell's segment focused on PCs, workstations, consumer, and commercial client devices.
  • Neo Clouds: Tier two cloud service providers and emerging hyperscale providers referenced by Dell as key AI server buyers.
  • PowerStore, PowerMax, ObjectScale, PowerFlex, PowerScale: Dell’s proprietary (“IP”) storage platforms, highlighted for their growth and margin impact.
  • TRUs: Technical Resource Units; a Dell-specific internal reference to a dimension of server sales or customer engagement.
  • GB200, GB300: References to NVIDIA GPU chipsets used in Dell's next-generation AI server products, impacting demand shifts within AI-related orders.

Full Conference Call Transcript

Thanks everyone for joining us. With me today are Jeff Clark, David Kennedy, and Howard 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, includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call. all references to financial measures During this call, unless otherwise indicated, refer to non GAAP financial measures. Including non GAAP gross margin, operating expenses, operating income net income, diluted earnings per share, free cash flow and adjusted free cash flow.

A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release. Growth percentages refer to year over year change unless otherwise specified. Statements made during this call relate to future results and events are forward looking statements. Based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings. We assume no obligation to update our forward looking statements. Now I'll turn it over to Jeff.

Jeff Clarke: Thanks, Paul, and thanks, everyone, for joining us. Before we get started, I'd like to congratulate David on his appointment to CFO. We worked together closely for the past couple of decades, and I look forward to what's ahead. Now moving to our results. We delivered a strong third quarter. With a record for both revenue and earnings per share and an all time high in AI server orders. Total revenue reached $27 billion, up 11%. CSG and ISG combined were up 13%. Year to date, total revenue was up 12% with ISG revenue up 28%. EPS was up 17% to $2.59 driven by improved profitability in AI and storage and continued operational scaling.

Our strong performance and operational led to continue robust cash flow and significant capital returns for shareholders. Now let's move to AI, where momentum has accelerated meaningfully the second half of the year building on an already strong first half. AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year to date orders to $30 billion, both record figures. The large scale customer base continues to broaden with expansion across Neo Clouds, which tier two CSPs and sovereigns. Our strong orders and customer base expansion clearly shows customers value unique ability to design, deploy, and maintain large at scale AI factories especially our engineering and rapid deployment capabilities.

We have AI racks operational within twenty four to thirty six hours of delivery with up time exceeding 99%. We shipped $5.6 billion in AI servers during the quarter for a total of $15.6 billion year to date. We ended the quarter with a record backlog of $18.4 billion. Our five quarter pipeline continue to grow sequentially across Neo Cloud sovereigns and enterprises and remains multiples of our backlog even when accounting for the robust demand we've seen. As expected, AI server profitability improved sequentially. Moving to traditional servers. Overall demand grew double digits with growth accelerating sequentially in both EMEA and North America.

We saw growth across units, TRUs, our buyer base, and the mix of the sixteenth and seventeenth generation reflecting customers preference for dense, high performing compute configurations. Traditional x 86 compute demand continues to benefit from workload expansion and AI driving broader IT modernization and consolidation. Moving to storage. While revenue declined 1% year over year, demand for our Dell IP portfolio remained strong. For two consecutive quarters, our all flash array portfolio has from power store, delivered double digit demand growth supported by strong double digit growth PowerMax, ObjectScale, and PowerFlex. PowerStore demand has now grown for seven consecutive quarters with six quarters of double digit growth.

Profitability improved as we increased both the mix and margin of Dell IP offerings underscoring the differentiated value of our platforms. In CSG, we saw momentum continue. CSG revenue increased 3% with commercial up 5%. International growth accelerated sequentially, up double digits year over year. North America also showed improvement. Demand for small and medium business remained strong, and we now have five consecutive quarters of P and L growth and seven consecutive quarters of commercial demand growth. Consumer revenue declined 7%, although the demand environment turned to growth. As we refocused on expanding where we play in the market. Commercial profitability was stable, while consumer and education were competitive.

The PC refresh cycle remains durable, supported by an aging installed base and a significant portion of system not yet upgraded to Windows 11. And before I wrap up, I'd like to briefly touch on the commodity supply environment. We are well positioned across our commodity basket. Q3 was the and our outlook for Q4 is largely unchanged from last quarter. Looking ahead to next year, there will be dynamics that we will have to navigate, but we are confident in our ability to secure supply and adjust pricing as needed. As always, we'll leverage our world class supply chain to deliver the best outcomes for our customers and shareholders. In closing, we delivered a record third quarter.

With strong performance across all segments and continued operational discipline. Revenue and EPS reached Q3 highs. Supported by growth in ISG, CSG, and improved profitability in AI, and in storage. AI momentum remains exceptional with record orders, backlog, and a growing diverse customer base. Our competitive edge in AI is our ability to engineer bespoke high performance solutions deploy large scale clusters rapidly, and support them globally, all backed by an unmatched ecosystem and flex financing offerings. This end to end capability is why Dell continues to win in AI. We are well positioned to capitalize on AI infrastructure build outs, expanding traditional infrastructure demand and the ongoing PC refresh cycle.

Now let me turn it over to David to talk more about Q3 in detail.

David Kennedy: Thanks, Jeff. I'm pleased with the team's strong execution this quarter. Delivering Q3 records for both revenue and EPS along with strong cash generation and above trend capital return. Total revenue was up 11% to $27 billion ISG and CSG combined grew 13%. Gross margin was up 4% to $5.7 billion or 21.1% of revenue. Gross margin rate was driven primarily by a mix shift to AI servers with shipments doubling year over year partially offset by improved profitability in storage. Operating expense was down 2% to $3.2 billion or 11.8% of revenue as we continue to drive scale within the P and L. Operating income grew 11% to $2.5 billion or 9.3% of revenue.

The increase in operating income was driven by higher revenue and lower operating expenses partially offset by a decline in our gross margin rate. Q3 net income was up 11% to $1.8 billion primarily driven by stronger operating income. And our diluted EPS increased 17% to $2.59 a Q3 record. Moving to ISG. ISG revenue was a Q3 record $14.1 billion up 24% marking seven consecutive quarters of double digit revenue growth. Servers and networking revenue reached a Q3 record $10.1 billion up 37% and is up 43% year to date. AI server demand accelerated. With a record $12.3 billion in orders dollars 5.6 billion.0 in AI server shipments, and a record ending backlog of 18,400,000,000.0.

In traditional servers, we saw demand improve throughout the quarter and stability within the P and L. Storage revenue was $4 billion down 1% with strong demand across parts of our Dell IP portfolio. PowerStore continued its double digit growth trajectory with seven consecutive quarters of growth. ISG operating income a Q3 record $1.7 billion up 16% marking six consecutive quarters of double digit growth. This was driven primarily by higher revenue. Our ISG operating income rate was up three sixty basis points sequentially to 12.4% of revenue. This improvement was driven by mix of AI servers, sequential improvement in AI server margins, and stronger profitability from storage. Turning to CSG.

CSG revenue was up 3% to $12.5 billion Commercial revenue grew for the fifth consecutive quarter up 5% to $10.6 billion while consumer revenue declined 7% to $1.9 billion CSG operating income was $700 million or 6% of revenue. Commercial profitability was stable, driven by steady pricing sequentially as customers prioritize rich config AI ready devices. In consumer, profitability improved year over year and demand returned to growth. Moving to cash and the balance sheet. We delivered another strong cash quarter, with cash flow from operations of $1.2 billion This was primarily driven by profitability and working capital improvements. We ended the quarter with $11.3 billion in cash and investments, up $1.6 billion sequentially.

Our core leverage ratio is 1.6 x. We returned $1.6 billion of capital to shareholders, including 8,900,000.0 shares of stock repurchased at an average price of $140 per share. And paid a dividend of approximately $0.53 per share. Through 3 quarters, have returned 5,300,000,000.0 and repurchased over 39,000,000 shares. With record Q3 results in hand, I'll now walk you through our outlook for Q4. a record. In ISG, we expect to ship roughly 9,400,000,000 of AI servers in Q4, Bringing full year shipments to roughly 25,000,000,000 or over a 150% year over year.

Our Q4 outlook for traditional server and storage remains unchanged from last quarter supported by continued data center modernization and consolidation and above market growth in Dell IP storage. In CSG, with the ongoing PC refresh cycle, we are improving our execution to drive revenue growth and gain market share. Given that backdrop, we expect Q4 revenue between $31 and $32 billion up 32% at the midpoint of $31.5 billion ISG and CSG combined are expected to grow 34% at the midpoint with ISG growing mid-60s and CSG up low to mid single digits. Operating expenses will be flat sequentially. We expect operating income to be up roughly 21% with continued sequential improvement in ISG operating income rate.

We anticipate a diluted share count of roughly $672 million shares and an 18% non GAAP tax rate. Our diluted non GAAP EPS expected to be $3.5 plus or minus $0.10 up 31% at the midpoint. Our Q4 guidance implies a strong FY 2026 with revenue of $111.7 billion up 17% and non GAAP EPS of $9.92 up 22% at the midpoint both well above our long term framework. And briefly on FY 2027, it's still very early in our planning process, We wanted to give you some context on how we are thinking about next year. We have strong conviction in our AI business, supportive of what we see in our backlog, the pipeline, and ongoing customer discussions.

We've proven we can execute and deliver for our customers in this space. For the rest of the business, the long term framework we outlined at our Securities Analyst Meeting remains a solid starting point as you think about next year. We are highly confident in our ability to drive EPS growth, supported by multiple levers including leveraging our go to market engine, improving gross profit, scaling operating expenses, and ongoing share repurchases. In closing, we delivered a record Q3, with revenue of $27 billion and EPS of $2.59 both quarterly highs, driven by strong execution across ISG, CSG and disciplined cost management.

ISG continues to see sustained double digit growth, and accelerating AI demand, evidenced by $30 billion in AI server orders over the past three quarters. We are focused on capitalizing on the ongoing PC refresh and expect continued growth from CSG. We remain focused on driving shareholder value through strong cash generation and capital returns. Thank you all for your time. I'll turn it back to Paul to begin our Q and A.

Paul Frantz: Thanks, David. Let's get to Q and A. In order to ensure we get to as many of you as possible, please ask one concise question. Operator, let's go to the first question.

Operator: Thank you. We'll take our first question from Samik Chatterjee with JPMorgan.

Samik Chatterjee: Hi. Thanks for taking my question. Jeff and David, I mean, maybe since this is sort of the topic of investor conversation mostly at this point, if you can flesh out your thoughts on the kind of reaction you expect from customers in relation to the pricing discussions by sort of the product categories do you think it's more sort of easier to take some of those pricing actions versus not relative to your overall portfolio? And David, if I heard you correct, you're saying to sort of use your invested targets for about mid teens EPS growth as still a starting point for next year despite those sort of dynamics of headwinds on the memory side.

If Can I just clarify that as well? Thank you.

Jeff Clarke: Sure, Samik. Let me, wade my way through that. I it will be the first question this afternoon. Or the only question I should say. Look, we're in a very unique time. It's unprecedented. We have not seen costs move at the rate that we've seen. And by the way, it's not unique to DRAM. It's NAND, It is hard drives. Leading edge nodes, across the semiconductor network, There is a if you will, I'd categorize it as demand is way ahead of supply. And as we wait our way through that, we're gonna lean on the things that we've always done. We have a lot of experience at this. This isn't our first DRAM cycle.

There have been seven, I think, in the last forty years. Michael and I have been here navigating the organization in various ways. Through that time. Our senior leadership team and our supply chain has been through everyone this decade. First rule of our supply chain is to get the parts. Supply matters. Mix matters. And as we get to supply and mix, our job is to minimize the impact of that to our customers. But clearly, we're in a situation that is not typical. We've learned a great deal since COVID. Since previous cycle of this last super cycle of this magnitude was 2016 through 2017.

And we're gonna do everything we can to minimize the impact, but the fact is the cost basis is going up across all products. No one more unique than others, Everything uses a CPU, has DRAM, has storage in it. So with that said, we're gonna do things we've always done. We're gonna work on configurations. We're going to work on availability, adjust mix, Our direct model allows us to move demand where supply is.

Our direct model allows us to act to the market signals it gives us quicker than anybody else, allows us to price, accordingly, reprice when needed, and we will make our way through that across consumer PCs, commercial PCs, in the server storage, and through our AI servers. No product category is not going to be impacted in terms of the aggregate cost basis moving. Again, our number one rule is get parts. Secure supply, secure the mix we need, to meet the customer demand. The world needs more computational intensity, needs more compute, If you're in the world of AI, token growth is going. We see a consolidation in servers.

Consolidation in servers is dry driving denser servers with more DRAM, more storage. And we're in the middle of a PC refresh that's not complete. So I don't see how we will not, what's what's best way to do describe? I will not I don't see how this will certainly not make its way into the customer base. We'll do everything we can to mitigate that. As we mentioned earlier, our cost outlook for Q4 is largely unchanged. And David just gave you what our guidance is that we believe that you'll see sequential profitability improvement in our company across the broad portfolio. While managing an increased in our cost basis. That's what we're gonna do.

That's what we know how to do, and we have all of the tools in our company to be able to do that effectively and fast.

David Kennedy: And, David, that's in relation to Yep. Please. Thank you. Yeah. Hey, Samik. Yeah. Like we said, it's very, very early in our planning process, obviously. But the framework from our security analyst meeting is a good reference point to start with. Know? So I think EPS included in that is the ZIP code will be in. We'll be looking out to leverage our go to market engine, which is differentiated. All the things Jeff has just outlined there in relation to our supply chain, We'll continue to drive significant scale in our OpEx. And then obviously stay committed to our capital return KPIs, right, whether it's share repurchase, or staying committed to our dividend.

So look, we feel we have many tools in that toolbox that allow us to stay agile and deliver on our EPS numbers. But like I said, it's still very, very early in the planning process here. You. Thank you both. Thank Thanks, Eric.

Operator: And we'll take our next question from Mark Newman with Bernstein.

Mark Newman: Hi. Thanks for taking my question. Congrats on a great quarter, particularly impressive on the AI server orders. I wondered on AI servers, if you could talk about some of the recent comments that have been coming from NVIDIA around the potential vertical integration that they're doing, getting a little bit more involved in the supply chain, and how that may impact on how or how Dell is navigating around that. And, also, on AI servers, any color on the mix of AI servers, any change on the mix, for example, enterprise as a portion of AI server orders would be useful. Thanks very much.

Jeff Clarke: For Mark, let me make my way through that. I mean, first of all, as we look forward to the new technologies that are in front of us, we remain excited We think there's ample opportunity for us to continue to differentiate. These large scale deployments are very complex. Our value add is at the rack level, is at the solution level, l 11 and beyond. That differentiation, we believe, remains for the next several cycles easily.

In fact, the our ability to engage with customers early, which we can on the next generation technology, to work through their needs to bring these very complex offers to the marketplace fast in it, scale with a significantly better uptime and outcome, we believe is a differentiation. We focus on optimizing performance per watt. Performance per dollar at the data center level, We focus on our services, our value add and deployment, our financing side, the ecosystem that we bring to our customer base, none of that changes in the next generation of technology.

And I to be honest, I think the opportunity for us gets greater in the future as we head towards 500 kilowatts of rack of power density moving to a megawatt in beyond, the engineering skill required to do that at rack scale is significant. We've invested in that ahead of the curve and we believe that gives us the opportunity to differentiate remain the leader in time to market, drive broad installation and deployment capabilities ahead of our competition at a higher level, uptime of 99% or better. And that's why we win, and I don't see that changing.

When I look at the mix, two forms of the mix that I'll address is we saw a change in the quarter towards GB 300. So in our backlog of $18.4 billion there's been a significant shift towards GB 300 as expected. And then lastly, we continue to see great build on our five quarter pipeline around sovereigns and around enterprise and remain very encouraged about the opportunities in both. Thanks, Mark. Great. Thank you very much. Of course.

Operator: And the next question will come from Ben Reitzes with Melius Research.

Ben Reitzes: Hey. Great. Good with the commodity environment guys, and I'll try to be concise for Paul. The question is around your AI server margins. You mentioned it was up sequentially. Was wondering if you guys can talk about, you know, order of magnitude there. And is that gonna continue into the four q? And are you starting to see more product attach, more high margin attach? To that end? Thanks.

Jeff Clarke: I'll take a run at it, Ben, and then David can certainly add to this. Clearly, we made reference in Q2 that we had some onetime cost elements that hit us. If you recall, we talked about expedites and supply chain reconfiguration. Those went away in Q3 as expected. We also talked about shipping a lot of the early aggressive GB200 deals in the quarter. Those went through the system. And we continue to now see the ability to add differentiation as I just mentioned in the previous question that we see in the GB two hundred and three hundred designs. And our margins move to safe right in that range that we've talked about, mid single digits.

We see that continuing as part of our long term value creation framework that we laid out eight weeks ago. It's what we'll continue to talk about here, and we believe that we can operate going forward in that range. In fact, we're very confident of that. And then we also had a mix change or, if you will, a change in customer mix to the good. When you look at the broad portfolio and diverse customer set that we have within the AI portfolio, portfolio shipping to a broader set of customers across a greater range of solutions helps margin. Hope that answered your question about AI margins. Yeah. Thanks a lot, Jeff. Appreciate it. Of course. Thanks, Ben.

Operator: And our next question will come from Eric Woodring with Morgan Stanley.

Eric Woodring: Hey guys. Thank you for touching my question tonight. I wanted to touch on PCs. Jeff, you sound very bullish on the PC opportunity into year. Some of the channel partners earlier in earnings were talking about maybe the seventh inning of a PC refresh. And I'd love to just get your comments because you sound more bullish So where do you think we are on the PC refresh? And is that still Windows end of life upgrades that still need to get done? Or are there new factors that you think could elongate the PC cycle well into 2026? Thank you. Sure, Eric. I mean, I mean, a couple of things.

One, we have not completed the Windows 11 transition. In fact, if you were to look at it relative to the previous OS, end of service. We are 10, 12 points behind at that point with Windows 11 than we were the previous generation. So we still have ample opportunity to convert. If memory serves me right, the installed base is roughly $1.5 billion or dollars. 1.5 billion units. We have about 500 million of them capable of running Windows 11 that haven't been upgraded. And we have another 500 million that are four years old that can't run Windows 11. Those are all rich opportunities to upgrade towards Windows 11 and modern technology. Equally important AIPCs.

Small language models, more capable applications, improvements in operating systems and their capabilities in the embedded AI there, the use of an MPU, the capability of an MPU and future piece PCs, gives me the view that the PC market will continue to flourish going forward. Now let's define flourish. We have the PC market in our outlook roughly flat year over year. That's after a year that we grew mid to high single digits, I think it's flat as we look into next year's planning horizon, and we're building plans accordingly that would take share against that outlook. Thanks, Eric. Awesome. Thank you, Jeff. Of course.

Operator: And the next question will come from Wamsi Mohan with Bank of America.

Wamsi Mohan: Yes. Thank you so much. I was wondering if you could just, maybe give some color around this AI business. You noted very strong conviction going into fiscal twenty seven. Obviously, you just raised your guide here from 20 to 25 billion. Can you just put that in context of some of financing issues at NeoClouds? And how much of your conviction and growth is predicated on some of these neo clouds being able to procure financing versus maybe other customers that you might have visibility into?

And Jeff, if you could just clarify, you mentioned the cost base moving up across the product portfolio, and I was wondering if you could maybe share at the highest level how much of that conceptually could you recover from pricing how much of OpEx reductions are possible to offset some of these pressures? You so much. Maybe I'll start once and Jeff can add some color. Look. I think if you start answer first, you look at our Q4 guidance, $9.4 billion. That represents $25 billion obviously for a full FY '25. So you look at that appetite for AI demand, and it's across the neo clouds.

Sovereign opportunities, and obviously within the enterprise. shipments of 5.6 billion.0 in Q3, orders of 12.3 billion.0. That's year to date at $30 billion. Backlog at 80,400,000,000.0. And as Jeff referenced in his opening remarks, the next five quarter pipeline is multiples of that. So every conversation we're in which is also being very aware of all the opportunities that are out there, It's about demand. It's about opportunity. And eagerness to work and see the opportunities in front of us. So we actually see huge scale to come Every opportunity, reality is we're not going to win them all.

But we love our momentum that's there, and we think we're well positioned to meet the expected needs of the customer base. Yeah. I would add to that maybe some color. $25 billion this year. 150% increase over last year. On the guidance that David called out, we will ship nearly as much in Q4 as we did all of flash year. I think that gives a on the need for compute The need for and what we see as token generation increasing at an incredible rate. And the corresponding compute that has to be behind that to generate those tokens. It's reflected in that five quarter pipeline that David said that is up across all three customer types.

Neo Clouds, sovereigns, as well as enterprises. And we're seeing progress in all three. So I think that's very important for us to make sure that we communicate that the momentum as we head into Q4 continues. You saw that in orders in Q3. The backlog building and significant shipments in Q4. If I flip to the other question about the cost basis and our ability to recover that's an interesting question. We would we've said over the years in normal times, when our input costs go up, we can recover roughly two thirds of that cost in a ninety day period. I would tell you this is not normal times.

This is extraordinary times, and we put extraordinary actions in place weeks ago as we saw this to be able to mitigate the impact upon our company our customers, and our shareholders. And, again, it goes back to our business model. Direct signals, we understand the demand, our long term partnerships and agreements with our partners to make DRAM and make band, the agreements we have in place around capacity, those relationships are meaningful and impactful as we navigate these types of situations that again, that are unprecedented. And then our model gives us tremendous flexibility.

Whether that is to reprice whether how we set up quotes, whether that's to reconfigure, redirect to different products, the ability to determine how long price will be in effect, the ability to understand where we're gonna drive demand to and change our demand generation vehicles to drive that. It's important that our engine and the way we run, I think, is very different than others in our ability to respond. Those of you that took note, you saw that in COVID in a very similar situation. The experience that we had there where there was material shortages and increased cost, our ability to navigate that I think, was unmatched in the marketplace.

Our supply chain is very good at this. And we're gonna lean on them. Those lessons learned from the COVID time and most recently what happened with tariffs. I think show that we can operate with the right sense of urgency We're managing this real time actively managing it. I was on three pricing calls today alone. And we're driving to get a better outcome. So our belief is we will do better than our normal twothree in a ninety day period given the actions that we've put in place and our understanding of demand and our understanding of supply. Thanks, Wamsi. Thank you.

Operator: And our next question will come from Amit Daryanani with Evercore.

Amit Daryanani: Thanks a lot for taking my question. Know, I guess, maybe you could just spend a little bit of time on i's margins that improved rather well by about 350 basis points sequentially. Can you just touch on like what drove the strength in ISD margin in Q3 versus Q2? And then, you know, your guide, I think, reflects the largest AI server revenue number you guys gonna put up in Q4 at 9.4 billion.0 plus. How should we think about that impacting your P and L?

And do you think gross margins should remain in the Q2 levels, or is there kind of further movement from there, as we think about the P and L impact from the I s from the AI numbers in Q4? Thank you. Yes. Thanks, Amit. Yes, look, really pleased with the team's execution in Q3 around ISG, ARP Inc, at 12.4%, like you said, up three fifty basis points quarter on quarter, so a lot to like here. I guess a couple of things to call out First, on the storage side. Look, Q3 was no different than what we've seen year to date. Where we've seen demand growth at a premium to market for our Dell IP storage portfolio.

You know, probably a strong call out there will be PowerStore also. Six consecutive quarters with double digit growth. So obviously, that Dell IP portfolio gives us better operating margins as you'd expect. So there's a natural mix effect that creates a tailwind there. Secondly, in storage, our pricing discipline was something I was very pleased with also. And then thirdly, look at the focus of the teams looking to find improvements at a by product level within the portfolio also. So again, like I said, a lot to like on the storage side. Also within that, on the AI margins, like Jeff said earlier, Q3 on track to what we've consistently committed to mid single digit up ink here.

In relation to that. And we obviously didn't have those And then your reference, I think your question was Q3 into Q4 then from a guidance Q2 one timers that were there, and we'll keep that consistency as we go into Q4. perspective, If we expect to continue to make progress. Our Q4 profit guidance is anchored again through the storage P and L. With the Dell IP storage growth, we expect to make it four for four in terms of quarterly growth. In that portfolio. That should allow us to grow at or likely slightly ahead of normal sequentials which will allow us to see an uptick in our op inc rate sequentially also into Q4.

Yes, Mam, and I'd just again to emphasize that. AI shipments 5.6 to 9.4 quarter over quarter. Our strategy of focusing on Dell IP storage, the mix is up the rate is up, and increased velocity of our traditional sore server business is the recipe for the performance that we expect to have in Q4. While increasing AI shipments significantly as we mentioned. Thanks, Amit.

Operator: And the next question will come from Aaron Rakers with Wells Fargo.

Aaron Rakers: Yes. Thanks for taking the question. I want shift gears a little bit away from the AI to the more traditional server business. Jeff, I think in your prepared comments, you've mentioned double digit demand growth. I think if my math's correct, I don't think revenue grew necessarily at that clip. So I'm curious if you could talk a little bit about what you're seeing as far as the aged installed base, where we're at in the upgrade cycle. For traditional servers? And do you think double digit growth is a good baseline that we could think about going into fiscal twenty seven as that demand follows through to revenue? Sure. A couple of comments, yes.

So the double digit was demand, the P and Ls certainly didn't track that, but we obviously would have built backlog as a result. We talked about North America recovered or improved quarter over quarter and that the international market demand were double digits, and that's two in a row now off last quarter's double digit performance. We continue to see modernization in the data center consolidation in the data center, which is reflected in the fact that our TRU's continue to go up, our content continues to go up, the number of cores, how much DRAM, how much NAND per server, is corresponding with that.

And we still see a pretty significant opportunity with roughly 70% of our install base is still the older generation servers. That we have shipped many years ago. So the ability to continue to upgrade them modernize them, is the opportunity that we have in front of us. And then we see that cycle continuing into next year. This has been a longer consumption cycle. We're encouraged by what we see. That's reflected in the Q4 guidance that we just talked about. And that momentum as we update you on '27, we'll give you the best look we have.

But right now, that momentum of consolidating, modernizing, refreshing old servers to new one continues, and we're working on making sure our pipeline grows and we can convert it into orders as quickly as we can. Thank you. Of course. Thanks, Aaron.

Operator: And we'll take our next question from Michael Ng with Goldman Sachs.

Michael Ng: Hey, good afternoon. Thank you for the question. I just wanted to follow-up on the commodity costs recovery point, which was encouraging to hear. When you talk about the actions that you've taken to help mitigate the impacts I guess, do you expect to see a benefit from below market costs, strategically purchased commodities and you know, if so, you know, how long can that be you know, a benefit for And, I think you may have alluded to opportunities to maybe, like, reprice longer term commercial contracts. In response to the rising commodity costs.

Just wanted to see if that was the case or are there any kinda longer term contracts that might inhibit your ability to price at all? Thank you very much. Well, I mean, maybe working backwards towards the first parts of your questions. And clearly, we have to do what's right by customers. And where we have contracts, we have contracts and we will honor those contracts and work through the situation. I think what maybe I didn't convey correctly or to the right balance that's needed is we tend to talk about the commodity cost here. There's a commodity scarcity too. In other words, there's not gonna be enough parts.

So there's a combination of the demand that's in the marketplace, one's ability to procure the part, which is why job one of our supply chain is to get the material never run out of parts, and then price it to the commensurate value with having that material. That's what we're gonna work our way through. We're I think, very skilled at this. The last two cycles have certainly honed our skills. And we'll use all of the tools available from configurations. It's not uncommon in the PC industry to see configurations come down. That's happened before. Likely to happen again. That tends to happen in the lower price bands.

You tend to see mixed where what comes out of the factory isn't necessarily what was forecasted. We think we have a unique ability to adjust our demand faster than anybody. We think the ability to navigate how you price with a very large transactional business selling to small and medium businesses, selling to the day to day needs of many corporations, we can adjust that to what's available. Those are all skills and techniques that being a direct manufacturer and a direct seller, we believe us an advantage and will help our partners and customers through that as well. And all of these tools that I've mentioned in one of the previous answers are in effect now.

Our special pricers know the cost for all of next year our best guess for next year, what's available. Our Salesforce, our product business leaders all know and we're acting working as one team to collectively work this real time, as I mentioned before, to get the best outcome for the company, our shareholders, and customers. That's what we'll work through. So our ability to recover I think, is better than the normal times. And I think that's probably amplified or improved by the fact that there'll be a scarcity of parts. Thanks, Mike.

Operator: And our next question will come from Asiya Merchant with Citigroup.

Asiya Merchant: Great. Thank you for taking my question. Just looking ahead into storage, seems like that business, you know, is doing perhaps, you know, a little bit better than what was previously expected. As you look into the server demand that is driving up the revenues for this the core server, And as you look into next year, just given all the, obviously, the backdrop of commodities, headwinds here, how are you thinking about storage from here on?

And if we can get that inflection towards more Dell IP storage, which is obviously positive for your margins, quicker relative to some of the unwinding of the HCI storage, if that can happen faster than what was previously communicated at the Analyst Day. Thank you. Yeah. I think, again, just to clarify, I guess, in Q4, what we're looking at in terms of guidance, Continuing to show that Dell IT storage growth and seeing that sequentially hopefully above our expected to be above normal sequentials. That'll allow us, along with the pricing discipline, keep that margin improvement coming along for the p and l. On the server comment again, strong demand in Q3, particularly in month three.

So to Jeff's point earlier, building a bit of that backlog. So I think you can expect you know, high single digit growth in that business for Q4, which would you know, end us on a high point as we exit the quarter. That said, look, as we head into FY twenty seven, still very early. Obviously, it's a lot happening in the market and changing. I would still reference you back to the long term framework that we've got. I think it's a good reference starting point. We'll work from there. And then, obviously, be agile as we assess and see how it evolves. But yeah, for now, I think it's still a little early for FY '27.

But strategy wise, we made the pivot to Dell IP. Not looking back. It is serving us well. The mix continues to increase. Across our storage revenue dollars. The margins within the portfolio continue to improve. We talked in our comments about the all flash portion of the portfolio growing double digits for the second quarter. So thank PowerMax, PowerScale, PowerStore, Object Scale, and PowerFlex all growing. We've talked about PowerStore in seven quarters of growth, six of those double digits. The buyer base is growing. The net new customers buying Dell Storage with PowerStore is up.

The strategy that we've flipped to, which really drives this notion of three core areas where the Dell private cloud which is really open, disaggregated and automated storage. It's our three tier storage with our Dell automation platform. Our AI and unstructured storage assets, so think of those as the construct of the AI data platform and cyber resilience, is really data domain and power Those are all Dell IP assets. That's what we're driving. That's what the Salesforce is incented to do. And we're seeing nice results from it. Thanks, Assia. Thank you.

Operator: And our next question will come from Simon Leopold with Raymond James.

Simon Leopold: Thanks for taking the question. I wanted to see if you could maybe unpack the elements that contribute to the roughly $5 billion of incremental AI revenue for the full year. I guess what I'm trying to get at is how much is this about your ability to get key components new orders, or existing orders occurring earlier? Just help us unpack what factors led to the raised forecast for AI. Thank you. Well, at the highest level, 12.3 billion of new orders and a growing backlog and then a supply chain that I think is unmatched that finds materials and gets materials lined up with customer availability. This is equal parts customer readiness.

Buildings, power, direct liquid cooling, So we've used the word lumpy before, which we purposely didn't use here, but it's really driven by a customer's readiness and our ability to deliver matched up with the supply chain's ability to get the material and matched up with our sales force out winning new opportunities across the Neo Cloud customer base. The sovereign customer base, and enterprise customer base. So it's that combination and why you see one quarter five billion dollars, 1 quarter $9 billion in shipments. It really is equal parts customer readiness customer delivery acceptance, that drives that. And The stars align in Q4.

With the amount of orders with the GB 200 and GB 300 business that we have booked that we'll be able Deliver at that rate in Q4. Thanks, Simon.

Operator: And the next question comes from David Voigt with UBS.

David Voigt: Great. Thanks, guys. Maybe just one for David. So you talked about margins and commodity pressures quite extensively. Can we look at your purchase commitments as barometer for how you're thinking about margins going into next year? I know a big chunk of that is probably tied to the AI server business. But is there anything in sort of those purchase commitment numbers that we could look at as sort of evidence of how you're thinking about where DRAM and NAND prices could be? And I think last quarter, you exited the queue north of 5 billion but most of that is for this fiscal year.

So if you can give us any update on kind of how to think about purchase commitments going into fiscal twenty seven, and as an indicator, that would be great. Thanks. Yeah. Sure. Look, have no discernible change in the pattern of our you know, purchase commitments. Or in relation to positioning on things like inventory, etcetera. So if you think of AI, and this is a good kind of litmus test for us within the finance side as well as we observe it. You take that $12.3 billion that Jeff just referenced, sequentially, we actually took down our inventory values about $300 million.

If you look at it in the year on year, the year on year inventory is roughly flat, give or take. Yet our year to date demand is up over $19 billion in that period too. So obviously, we have our normal supply chain procurement processes kicked in. As part of it. So no real discernible change from last quarter. Or anything to read in as we look into FY twenty seven just yet. Yeah. Thanks a lot, David. Operator, we'll take one more question, and then we'll hand it over to Jeff We're closed.

Operator: We'll take our final question from Tim Long. With Barclays.

Tim Long: Thank you for squeezing me in. Two parter, if I could, on gross margins. First part, talking about the mix in AI servers, as you start to convert more of the Neo Cloud and sovereign and enterprise, to revenues, would you expect to change to that mid single digit operating margin? Could that move higher? Or how meaningful would that be? And the second part, on the PC side, think there was a comment at the analyst day about you know, really doing well in the high end commercial but trying to recapture share in other parts of the PC market. Is that something that we could expect might impact operating margin on the on the PC business? Thank you.

Yes. Maybe let's let's start with the AI side. Look. We're gonna stay consistent on our single digit delivery in terms of operating profit. You will stay within that range Yep. While we'd like to in every deal, the reality is we won't write on a lot of those can be competitive, particularly the larger ones. So look, we'll remain judicious as we manage the profitability and the ongoing activities there. Some will flow slightly lower. Other deals will be slightly higher, but we'll stay pretty consistent as an objective within that mid single digit. Momentum. As we kind of go forward. And that's if you like, the bedrock of which we'll build it on.

The other element for me is which is part of it, is making sure every deal is accretive from a dollar perspective too. So, again, cash flow is something that at the forefront of all our operations. We think that's a good thing. In fact, we think it's a great thing. We wanna make sure we keep it front and center as we look at the at the activities. And Tim, your second question on PCs, when we were last together, you're exactly right, I talked about the PC business being a scale business. And our share had slipped in the non premium segments. And we leaned in this past quarter.

We leaned in with our Dell Pro Essential and education boxes in commercial, and we were more aggressive in the holiday in the consumer and the results are encouraging. International growth accelerated sequentially up double digits in demand year over year. That's exactly where Dell Pro Essential is targeted. And while it is a very competitive marketplace, we made a slight reference to it, but I'm going to call it out specifically. We return to demand growth in consumer for the first time in three years. We returned to growth in the consumer business for the first time in three years.

We're gonna continue to work on our cost position, tuning the products so they're the right products at the right cost for the right price span, We went into the market with what we had. We'll continue to refine that. Lots of changes in the road maps going forward, and you have our commitment that we can grow while balancing the profitability within the operating ranges that we've given. Thanks, Tim. And to you, Jeff, to close this out.

Jeff Clarke: Thanks, Jim. Sure. Thank you all for joining us today. A few a few as we wrap up. First, we achieved record Q3 results across both revenue and EPS underscoring disciplined execution and the strength of our business models. Second, our AI momentum remains exceptional. We saw record orders in Q3 and have booked 30 billion through the first three quarters of this year. Our pipeline and customer base continues to expand and we remain well positioned to capitalize on accelerating demand for AI solutions. And lastly, we saw improved profitability and strong cash generation enabling above trend capital return to shareholders. We are set up well to close the year strong and to drive long term value.

Thanks for joining us today and happy Thanksgiving everybody.

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