Dell Technologies Inc. Q3 FY2026 earnings call

• Congratulated David Kennedy on his appointment to CFO. - Delivered record revenue and EPS in Q3, with AI server orders, shipments, and backlog all at records. - AI momentum accelerated with broad customer base expansion. - Traditional servers saw double-digit demand growth in EMEA and North America. - Storage had strong demand in parts of Dell IP portfolio, with PowerStore growing for seven consecutive quarters. - CSG had momentum with commercial growth and international acceleration. - Strong cash flow and significant capital returns to shareholders.

Dell Technologies delivered a strong third quarter. Total revenue reached $27 billion, up 11%. ISG revenue was a Q3 record $14.1 billion, up 24%, with servers and networking revenue at a Q3 record $10.1 billion, up 37% year to date. AI server orders were a record $12.3 billion in the quarter, with $5.6 billion in shipments and a record backlog of $18.4 billion. Storage revenue declined 1% year over year, but demand for Dell IP portfolio remained strong, with PowerStore having seven consecutive quarters of growth. CSG revenue was up 3% to $12.5 billion, with commercial revenue up 5% and consumer revenue down 7%. Traditional servers saw double-digit demand growth.

• Q4 ISG expected to ship roughly $9.4 billion of AI servers, full year AI server shipments to be ~$25 billion. - CSG Q4 revenue expected between $31 and $32 billion, full year revenue $111.7 billion, up 17%, non GAAP EPS $9.92, up 22%. - FY 2027 planning is early, but confident in driving EPS growth through multiple levers.

• Cost basis rising across all products due to semiconductor supply issues and demand exceeding supply. - Unprecedented market conditions posing challenges in managing cost impacts on customers and shareholders.

Q: Flesh out thoughts on customer reaction to pricing discussions by product categories and EPS growth guidance.

A: Jeff Clarke mentioned costs are rising across all products, but Dell will use its direct model to adjust pricing, mix, and supply to mitigate impact. David Kennedy noted FY 2027 planning is early but framework from Securities Analyst Meeting provides a starting point for EPS growth.

Q: Talk about NVIDIA vertical integration impact on Dell and AI server mix.

A: Jeff Clarke said Dell's differentiation in rack-level solutions, uptime, and ecosystem remains, and there's a shift towards GB 300 in backlog.

Q: Discuss AI server margins, order of magnitude, and continuation into Q4.

A: Jeff Clarke said Q3 AI margins improved as one-time costs and early GB200 deals cleared, expecting mid single-digit margins to continue.

Q: Bullish on PC opportunity, PC refresh status.

A: Eric Woodring said Windows 11 transition not complete, AIPCs and future tech will elongate PC cycle, with PC market flat year over year but Dell aiming to gain share.

Q: Color on AI business conviction, cost base recovery, and OpEx reductions.

A: Wamsi Mohan was told AI demand is strong across neo clouds, sovereigns, and enterprises. Jeff Clarke said in normal times can recover two-thirds of cost in 90 days, but extraordinary times require extraordinary actions, and Dell's model allows flexibility in pricing and reconfiguration.

Q: AI server margin improvement in Q3 vs Q2 and Q4 impact.

A: Amit Daryanani said ISG margin improved due to storage demand growth, mix shift, and pricing discipline, expecting Q4 to continue momentum with AI shipments and storage growth.

Q: Traditional server demand double-digit growth vs revenue, aged installed base.

A: Aaron Rakers was told double-digit demand growth is due to data center consolidation and modernization, with ~70% of installed base being older servers, opportunity to upgrade continuing.

Q: Commodity costs recovery, below market cost benefits, and long-term contracts.

A: Michael Ng said Dell has skills to navigate commodity costs, using configurations, repricing, and supply chain relationships to mitigate impact, honoring contracts while adjusting to scarcity.

Q: Storage business outlook, Dell IP storage inflection.

A: Asiya Merchant said storage growth continues with Dell IP portfolio, mix and margins improving, and strategy focused on Dell private cloud, AI and unstructured storage, and cyber resilience.

Q: Elements contributing to $5 billion incremental AI revenue for full year.

A: Simon Leopold said it's due to customer readiness, supply chain ability to get materials, and winning new opportunities across Neo Cloud, sovereign, and enterprise customers.

Q: Purchase commitments as barometer for margins in FY 2027.

A: David Voigt was told no discernible change in purchase commitments from last quarter, and Dell's supply chain processes are in place to manage procurement.

Q: AI server margin movement and PC business margin impact.

A: Tim Long was told AI operating margin will stay in mid single-digit range, and Dell is working to recapture share in non-premium PC segments, with encouraging results in consumer and commercial growth.