Dell’s earnings top estimate as demand for AI servers increases

For the fiscal fourth quarter ended Feb. 2, Dell posted revenue of $22.3 billion, down 11% from a year ago. Still, the figure was within the company’s guidance range of $21.5 billion to $22.5 billion, and ahead of the Wall Street consensus of $22.2 billion as tracked by FactSet.

Earnings on an adjusted basis were $2.20 per share, well ahead of the Street consensus of $1.73 per share and the company’s forecast of $1.70 per share. Dell said about 19 cents of earnings reflected a lower-than-expected tax rate, with the rest reflecting lower operating expenses and revenue slightly above projections.

Dell said its backlog of artificial intelligence servers — most of them powered by Nvidia H100 chips — now reached $2.9 billion, compared with $1.6 billion last quarter and $800 two quarters ago. It was a million. Dell has shipped $1.5 billion worth of AI servers over the past two quarters and said it has a pipeline of interest in AI servers that is “multiple” of the current backlog.

Dell said it is seeing improved supply of H100 chips from Nvidia, and additional demand for AMD’s pending MI300 chip and Nvidia chips for next-generation servers. Jeff Clark, Dell’s vice chairman and COO, said in an interview Baron’s That “demand outstrips supply” for AI servers.

Dell said revenue from its Client Solutions group — mostly PCs — was $11.7 billion, down 12 percent from a year ago and down 5 percent sequentially. That’s in line with a softer-than-expected quarter reported by rival HP Inc on Wednesday.

On the topic of PC demand, Dell said that large corporate buyers remain “a bit cautious” given the current global geopolitical and macroeconomic environment. But the company continues to think that a refresh cycle is coming, as is the age of Covid-era laptops. Dell plans to launch new AI-powered PCs in the second half of the year, but expects adoption to take off over several quarters.

Clark said that by the end of fiscal year 2025, he expects one in five PCs sold to be AI-enabled. They believe the total could double by the end of fiscal 2026.

Dell said its infrastructure solutions group — which includes enterprise servers, storage, and networking gear — had revenue of $9.3 billion in the period, beating the Street consensus forecast of $9 billion. Is. While revenue fell 6% from a year ago, it was up 10% sequentially. The company had estimated sequential growth to be in the mid-single digits on a percentage basis.

Dell’s new quarterly dividend rate is 44.5 cents. The first payment at this rate will be made on May 3 to those on record on April 23. The stock now has a yield of about 1.9 percent.

For the April quarter, the company sees revenue between $21 billion and $22 billion, up 3% at the midpoint, slightly above consensus estimates of $21.4 billion. Non-GAAP EPS is expected to be $1.15 per share, up from consensus of $1.40. The company said gross margin would be lower sequentially due to “seasonally lower storage mix and higher AI-optimized server mix”.

Dell CFO Yvonne McGill said Baron’s The softer earnings per share forecast reflects a combination of rising semiconductor component costs and a more competitive pricing environment. She notes that the company has a policy of keeping parts inventory low, which helps in an inflationary environment — but can cut back when prices start to rise.

For the January 2025 fiscal year, Dell sees revenue of $93 billion, up 5%, and slightly ahead of the $92.2 billion Street consensus, with moderate growth in infrastructure solutions, and less for the client solutions group. With single-digit growth. The company expects earnings on an adjusted basis of $7.50 per share, above the Street’s $7.14.

McGill noted that the company sees 8% growth from infrastructure and client solutions. The offset is related to the maintenance revenue stream associated with the termination of the company’s relationship with VMware, which had acquired

Broadcom in late 2023.

Write to Eric J. Savitz at eric.savitz@barrons.com.