Booming sales of servers for artificial intelligence workloads helped Dell Technologies Inc. to deliver a crushing earnings and revenue beat in its latest financial quarter, sending its stock higher in extended trading.
The company reported second-quarter earnings before certain costs such as stock compensation of $1.89 per share, blowing past the analysts’ consensus estimate of $1.71. Meanwhile, revenue increased by 9% from a year earlier, to $25.06 billion, ahead of the $24.53 billion analyst target.
It was a strong performance that helped to boost Dell’s bottom line by a fairly wide margin. It reported net income for the quarter of $841 million, up 85% from the year-ago period, when it delivered just $455 million in profit.
Dell also revised its full-year revenue guidance, saying it now sees total sales of between $95.5 billion and $98.5 billion, up from an earlier forecast of $93.5 billion to $97.5 billion. The midpoint is still lower than the Street’s target of $96.34 billion, though. For the current quarter, Dell is looking for revenue of $24 billion to $25 billion, just a tad below the Street’s forecast of $24.6 billion.
Still, investors appeared to be at least a little impressed by the results and forecast, as Dell’s stock rose more than 3% in extended trading, having declined by less than a percentage point during the regular trading session.
The reason for Dell’s hot streak is that it has emerged as one of the top sellers of so-called AI servers that incorporate graphics processing units from Nvidia Corp. The company is seeing sky-high demand from enterprises and cloud computing infrastructure providers, as everyone is clamoring to get generative AI workloads up and running. Dell has benefited from Nvidia Chief Executive Jensen Huang’s comments earlier this year, when he said Dell founder Michael Dell (pictured) is the best person to talk to for anyone looking to buy server systems that contain his company’s most powerful chips.
Dell’s AI server sales numbers are included in the company’s Infrastructure Solutions Group, which is the business unit that makes servers, storage systems and other equipment for data centers. The ISG unit delivered revenue of $11.65 billion, rising 38% from a year earlier and easily beating the Street’s target of $10.44 billion in sales.
Dell Chief Operating Officer Jeff Clarke said in a statement that the company’s AI momentum accelerated in the second quarter. “We’ve seen an increase in the number of enterprise customers buying AI solutions each quarter,” he added.
Digging deeper into the ISG unit’s sales, not surprisingly the growth was driven by servers and networking revenue. That segment includes sales of AI servers that incorporate GPUs from Nvidia and Advanced Micro Devices Inc., as well as traditional servers based on central processing units. It delivered $7.76 billion in sales, up 80% from a year earlier. Within that segment, AI server sales accounted for $3.1 billion in revenue, up from $1.7 billion in the prior quarter.
“We are competing in all of the big AI deals and winning significant deployments at scale,” Clarke said in an earnings call with analysts.
According to Clarke, the company has a growing backlog of orders for AI servers that have not yet been fulfilled. He said this backlog totals around $3.8 billion worth of equipment, before adding that its deals pipeline is even longer.
Dave Vellante, chief research analyst of SiliconANGLE’s sister organization theCUBE Research, said the latest results show that Dell is executing its plan perfectly.
“The AI server business is growing dramatically and its pipeline is now several multiples of the backlog, which is approaching $4 billion,” the analyst said. “This contributed to 9% year-over-year top-line revenue growth and puts Dell back into $100 billion revenue run-rate territory.”
Dell’s earnings results came out just hours after a report from the U.S. investment research firm Hindenburg Research LLC, which revealed that Dell is increasingly taking customers away from rivals in the server market, such as Supermicro Computer Inc.
“Tesla had been sourcing its servers exclusively from Super Micro,” the Hindenburg report said. “But recent reports in May 2024 and posts by Elon Musk show Dell has now won major deals from Tesla and Musk’s xAI, eroding Super Micro’s exclusivity. “
The report also cited a post on X by Michael Dell himself, who revealed that he’s helping Musk’s AI firm to train and power its popular Grok chatbot.
We’re building a Dell AI factory with @nvidia to power @grok for @xai @elonmusk pic.twitter.com/2aTYLtCBup
— Michael Dell (@MichaelDell) June 19, 2024
The enormous demand for Dell’s AI servers has helped to offset some worrying revenue declines elsewhere in the company’s business. Dell’s storage business, which is also a part of the ISG unit, saw revenue fall by 5%, to $4 billion in the quarter.
In addition, Dell’s Client Solutions Group, which is focused on personal computers and laptops, saw revenue drop by 4%, to $12.41 billion. Within that segment, consumer PC sales dropped 22%, to $1.86 billion, while enterprise PC sales stayed flat at $10.55 billion.
Like HP Inc., which reported its financial results 24 hours earlier, Dell is betting on a new generation of so-called “AI PCs” and it has big hopes that these new machines, designed to process AI workloads locally instead of the cloud, can reinvigorate PC sales.
“The PC business is software than many had hoped for, as many customers are evaluating the next phase of their PC cycles,” Vellante said. “AI PCs are alluring but they’re also more expensive, so right now the market seems to be taking a wait and see posture.”
Vellante said that on balance, Dell is a “steady state business,” with a roughly equal balance between PCs and enterprise infrastructure. He added that while the latter is more profitable, the former can throw off tons of cash for the company when PC cycles kick in.
“Dell is extremely generous with its cash flow in terms of stock buybacks and dividends, and that will keep investors onboard,” Vellante added. “I’m looking for continued momentum in AI servers, and an improvement in storage would be a welcome sign. When AI PCs kick in, the company should see continued success.”
Earlier this month, it was reported that Dell is laying off an unspecified number of employees in a reorganization of sales and marketing teams. One source told SiliconANGLE that the number could be as high as 12,000, around 10% of the company’s workforce, though analysts said this might be an overestimation, as such a high number would probably trigger a filing with the U.S. Securities Exchange Commission, and that didn’t happen.
Meanwhile, a report from Reuters today said Dell is continuing to seek buyers for its cybersecurity business SecureWorks, having previously tried and failed to sell the unit last year. Reuters quoted unnamed sources as saying that the company has tapped investment bankers at Morgan Stanley and Piper Sandler to explore interest from prospective acquirers, which include private equity firms.
SecureWorks has a market value of about $658 million, but a sale is far from guaranteed, as it would ultimately depend on what those prospective buyers are willing to pay. If it cannot negotiate a satisfactory price, Dell could instead decide to maintain ownership of the company, Reuters said.
Prior to today’s movements, Dell’s stock had gained 48% in the year to date, though it had slumped 34% since its prior earnings call in May.