Dell Technologies, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• FY '25 Performance: FY '25 revenue was $95.6 billion, up 8%, with operating income of $8.5 billion. Operating expenses were reduced by 4%. EPS reached a record $8.14, up 10%, and cash flow was $4.5 billion.
• Innovation: Added AI-optimized portfolio platforms, launched server and storage solutions, expanded PC portfolio with AI PCs, and continued leadership in PC monitors and peripherals.
• Q4 Highlights: Total revenue was $23.9 billion, up 7%. Strong profitability in ISG. Gross margin was $5.8 billion, 24.3% of revenue. Operating expenses decreased 6% to $3.1 billion.

Segment Performance

• ISG (Infrastructure Solutions Group): Q4 revenue was $11.4 billion, up 22%. Servers and networking revenue reached a Q4 record of $6.6 billion, up 37%. Storage revenue rose 5% to $4.7 billion. ISG operating income hit a record $2.1 billion, up 44%.
• CSG (Client Solutions Group): Revenue was $11.9 billion, up 1%. Commercial revenue increased 5%, while consumer revenue declined 12%.
• Dell Financial Services: Ended the year with a record $15 billion in assets under management, up 5%. Q4 originations were up 7% with a strong attach rate.

Guidance

• FY '26: Anticipates revenue between $101 billion and $105 billion (midpoint $103 billion), up 8%. ISG is expected to grow in the high teens, CSG in the low to mid-single digits. Gross margin rate is projected to decline ~100 basis points. Diluted non-GAAP EPS is expected to be $9.30 ± $0.25.
• Q1 '26: Expect revenue between $22.5 billion and $23.5 billion (midpoint $23 billion), up 3%. ISG and CSG combined growth is 6% (midpoint). Gross margin rate is lower sequentially, and OpEx is down low single digits. Diluted non-GAAP EPS is expected $1.65 ± $0.10.

Risks

• Tariffs and Trade Regulations: Dynamic environment; need to monitor and adjust prices as input costs change due to tariffs.
• Competition: ODM encroachment in the AI server market and competitive pricing in CSG.
• Supply Chain: Uncertainties in component availability for AI servers impacting supply chain.

Question and Answer

• Q: Talk through fiscal '26 guide and margin comments A: Yvonne McGill discussed FY '26 guide with ISG growth in the high teens, CSG in the mid-single digits, OpEx down low single digits, and balancing growth and profitability.
• Q: Risk of ODM encroachment in AI server market A: Jeff Clarke stated Dell's engineering, architecture, service, financing, and global footprint differentiate them, focusing on unique solutions for customers.
• Q: Exposure to U.S. federal government A: Jeff Clarke and Yvonne McGill noted Dell has navigated cycles and expects government to need technology, leveraging its broad business.
• Q: Margin profile of Blackwell vs Hopper product cycles A: Jeff Clarke said Blackwell margins are lower than Hopper, but opportunities exist in system design, services, and time-to-market.
• Q: ISG margin outlook flat year-over-year A: Jeff Clarke discussed growth in AI servers, storage leverage, pivot to Dell IP storage, and overcoming headwinds in HCI.
• Q: Tariffs and China exposure A: Jeff Clarke and Yvonne McGill mentioned monitoring tariffs, optimizing supply chain, and adjusting prices as needed.
• Q: Server refresh durability and attach to GenAI servers A: Jeff Clarke discussed server refresh driven by floor space, power savings, and AI needing data, with opportunities in storage attach.
• Q: AI server supply and demand dynamics A: Jeff Clarke stated Hopper supply is available, Blackwell is ramping, and at least $15 billion in AI shipments are expected with a growing pipeline.
• Q: Pipeline and backlog progression A: Jeff Clarke noted 5-quarter pipeline growth, a healthy mix of enterprise and CSPs, and continued growth in the buyer base.