- Revenue: $25 billion, up 9% year-over-year.
- Diluted EPS: $1.89, up 9% year-over-year.
- Cash Flow from Operations: $1.3 billion.
- Gross Margin: $5.5 billion, or 21.8% of revenue.
- Operating Expense: $3.4 billion, down 4% year-over-year.
- Operating Income: $2 billion, up 3% year-over-year.
- Net Income: $1.37 billion, up 7% year-over-year.
- ISG Revenue: $11.6 billion, up 38% year-over-year.
- Servers and Networking Revenue: $7.7 billion, up 80% year-over-year.
- Storage Revenue: $4 billion, down 5% year-over-year.
- ISG Operating Income: $1.3 billion, up 22% year-over-year.
- CSG Revenue: $12.4 billion, down 4% year-over-year.
- Commercial Revenue: $10.6 billion, flat year-over-year.
- Consumer Revenue: $1.9 billion, down 22% year-over-year.
- CSG Operating Income: $767 million, or 6.2% of revenue.
- Dell Financial Services Originations: $2.4 billion, up 5% year-over-year.
- Cash and Investments: $6 billion, down $1.3 billion sequentially.
- Share Repurchases: 5.5 million shares at an average price of $130.03.
- Dividend: $0.45 per share.
- Core Leverage: 1.4x.
- FY25 Revenue Guidance: $95.5 billion to $98.5 billion.
- FY25 Diluted Non-GAAP EPS Guidance: $7.80 plus or minus $0.25.
- Q3 FY25 Revenue Guidance: $24 billion to $25 billion.
- Q3 FY25 Diluted Non-GAAP EPS Guidance: $2 plus or minus $0.10.
Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dell Technologies Inc (DELL, Financial) reported a 9% increase in revenue to $25 billion, with record performance in servers and networking.
- Diluted EPS rose by 9% to $1.89, and cash flow from operations was $1.3 billion.
- AI momentum accelerated, with $3.1 billion in AI server shipments and a healthy AI server backlog of $3.8 billion.
- Dell IP core storage demand grew double digits, indicating strong performance in products like PowerMax, PowerScale, PowerStore, and PowerProtect Data Domain.
- Dell Financial Services originations increased by 5% to $2.4 billion, showing strong interest in customer payment solutions.
Negative Points
- Gross margin decreased by 230 basis points to 21.8% of revenue due to an increase in AI optimized server mix and a competitive pricing environment.
- Storage revenue declined by 5%, impacted by headwinds in the partner IP portion of the HCI portfolio.
- Consumer revenue in the CSG segment fell by 22%, reflecting a challenging market environment.
- Dell took a $328 million charge for workforce reductions as part of its optimization efforts.
- The competitive environment and inflationary input costs are expected to continue impacting gross margin rates.
Q & A Highlights
Q: Can you explain the significant margin expansion in ISG from 8% in Q1 to 11% in Q2?
A: Yvonne McGill, CFO: The margin expansion was driven by improvement across the entire portfolio, including revenue growth, price discipline, and a higher mix of Dell IP storage offerings. Additionally, AI server shipments with improved profitability and growing enterprise customers contributed to the margin increase. We expect ISG operating income to finish FY25 within our long-term framework of 11% to 14%.
Q: How should we reconcile the guidance for Q3 and the expected savings from the $328 million workforce reduction charge?
A: Yvonne McGill, CFO: For Q3, we expect combined CSG and ISG to grow 14%, with ISG up 30% year-over-year. We anticipate operating expenses to be down about 2% quarter-over-quarter. The savings from the workforce reduction are part of our ongoing efforts to optimize our cost structure and enhance competitiveness.
Q: Can you provide more detail on the AI-optimized server customer base and the concentration of spending within your backlog and pipeline?
A: Jeffrey Clarke, Vice Chairman and Co-COO: The pipeline is growing, with an increasing number of enterprise customers. The backlog includes orders for both current and future technologies, including NVIDIA H100s, H200s, and Blackwell. We are seeing growth in enterprise customers across various sectors, which is encouraging for future demand.
Q: How are the storage dynamics affecting your overall performance, given the double-digit growth in Dell IP businesses but a 5% decline in storage revenue?
A: Jeffrey Clarke, Vice Chairman and Co-COO: The double-digit growth in Dell IP storage products like PowerMax, PowerStore, and PowerScale was offset by declines in partner IP and data protection. The mix shift towards higher-margin Dell IP products contributed positively to overall margins.
Q: What gives you confidence in the expected growth in CSG in the fourth quarter and into calendar 2025?
A: Jeffrey Clarke, Vice Chairman and Co-COO: We remain optimistic about the PC refresh cycle driven by the end-of-life of Windows 10, an aging installed base, and advancements in AI-enabled architectures. The refresh is expected to accelerate towards the end of 2024 and into 2025, creating tailwinds for CSG growth.
Q: How do you see the AI server demand from enterprise customers impacting your overall business, particularly in terms of services and storage attach rates?
A: Jeffrey Clarke, Vice Chairman and Co-COO: We are in the early stages of AI adoption in enterprises, which presents significant opportunities for services and storage. Our professional services help customers with strategy, implementation, and scaling AI solutions. Enterprise AI deployments generally offer better margins compared to large CSPs.
Q: Can you elaborate on the impact of recent partnerships, such as the Nutanix hyperconverged partnership and NVIDIA SuperPOD certification, on your storage strategy?
A: Jeffrey Clarke, Vice Chairman and Co-COO: These partnerships enhance our storage offerings by providing high-performance, scalable solutions for modern workloads. The NVIDIA SuperPOD certification for PowerScale products and the introduction of Project Lightning are expected to drive growth in our storage business, particularly in AI and accelerated computing environments.
Q: How are you managing the constraints in AI server shipments, and what should we expect in terms of backlog and order conversion?
A: Jeffrey Clarke, Vice Chairman and Co-COO: Supply is improving, but we are managing complex deployments that require readiness in data centers, power, and cooling. Our five-quarter pipeline remains healthy, and we are focused on converting this demand into orders and shipments. We expect continued growth in AI server shipments as supply constraints ease.
Q: What are the key drivers for the traditional server market, and how do you see this segment evolving?
A: Jeffrey Clarke, Vice Chairman and Co-COO: The traditional server market is benefiting from the longest digestion period ending, an aging installed base, and the need for consolidation to make room for AI infrastructure. Additionally, workloads are repatriating from the cloud to on-prem servers and storage, driving demand.
Q: How do you view the competitive landscape and your pricing power across different segments?
A: Jeffrey Clarke, Vice Chairman and Co-COO: The industry remains competitive, but Dell's broad coverage model, unmatched supply chain, R&D investments, and strong service capabilities provide us with a competitive edge. We are market leaders in several categories and will continue to invest to maintain and grow our leadership positions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
