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GPTW Texas Large 2022-Dell Technologies

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G500 76 Dell Technologies

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Founded by Michael Dell in his dorm room at the University of Texas at Austin in 1984, the pioneering personal computer company made its mark by selling affordable PCs directly to consumers. The company’s offerings grew to include televisions and cameras, and by the early 2000s it came to dominate the consumer electronics market. Dell Computer went private in 2013, when Michael Dell and the private equity firm Silver Lake Partners purchased it for $25 billion; the company returned to public markets in 2018 as Dell Technologies. In 2016 the company and an investment firm acquired data storage provider EMC for $67 billion—at the time the biggest tech deal in history. In May 2025, amid growing demand for artificial intelligence systems, Dell unveiled new AI servers powered by Nvidia chips.

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Dell Technologies (DELL): Company Profile, Stock Price, News, Rankings

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Dell Technologies

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Afternoon, and welcome to the fiscal year 2027 first quarter financial results conference call for Dell Technologies Inc. I'd like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question and answer session. If you have a question, simply press star then one on your telephone keypad at any time during the presentation. I'd like to turn the call over to Paul Frantz, Head of Investor Relations. Mr. Frantz, you may begin.

Thanks everyone for joining us. With me today are Jeff Clarke, David Kennedy, and Tyler Johnson. Our earnings materials are available on our IR website, and I encourage you to review these materials. Please take some time to review the presentation, which includes additional content to complement our discussion this afternoon. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income, diluted earnings per share, free cash flow, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release. Growth percentages refer to year-over-year change unless otherwise specified. Statements made during this call that relate to future results and events are forward-looking statements based on current expectations.

Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings. We assume no obligation to update our forward-looking statements. Now, I'll turn it over to Jeff.

Thanks, Paul, and thanks everyone for joining us. What a great start to FY 2027. The first quarter underscored the strength and agility of our operating model and the advantage of our broad portfolio. Our team executed very well in a challenging environment, delivering record revenue and EPS. Revenue was $43.8 billion, up 88%, and earnings per share was $4.86, up 214%. Demand was stronger than we anticipated across all lines of businesses and geographies, with customers moving decisively to secure supply across a broad range of IT needs. This drove meaningful scale, record cash generation, and continued strong capital returns for shareholders. Our strong performance reflects not only demand in the quarter but also the pace of innovation we continue to bring to market across the full stack of PCs, compute, and storage. We have had a strong run of announcements since our last call.

At GTC, we marked the two-year anniversary of the Dell AI Factory with NVIDIA and extended our leadership in accelerated computing. We introduced new infrastructure across NVIDIA's Vera Rubin rack scale platform, the Rubin GPU architecture, and RTX GPUs, with form factors that scale the AI Factory from the largest clusters in the world to the flexibility and efficiencies enterprises need. We also extended AI to the desktop with the new Dell Pro Max systems supporting the GB10 and introducing the industry's first OEM desktop with GB300. At Dell Technologies World, we built on that momentum with new desk side server storage and data management innovations. Our desk side agentic AI solutions help enterprises run production-ready AI locally, supporting use cases like coding, research, and secure private assistance while keeping sensitive data and IP on-prem.

Building on strong demand of our integrated rack scale systems, where Dell is the top rack scale infrastructure provider, we expanded the portfolio with the launch of Dell PowerRack, a turnkey factory-integrated solution designed to accelerate deployment across compute, networking, and storage. In servers, our 18th generation of PowerEdge server portfolio expands support for AI, HPC, and enterprise workloads with new air-cooled systems that improve compute density and efficiency. On the data side, advancements in the Dell AI Data Platform help customers make enterprise data ready at scale with stronger orchestration, faster indexing of unstructured data, and improved analytics performance. We further strengthened the storage foundation for modern and AI workloads. PowerStore Elite delivers up to 3X performance and density than prior generations with an industry-leading 6:1 data reduction guarantee.

ObjectScale adds higher density object storage, and PowerFlex extends our exascale storage architecture with a unified approach across block, file, and object workloads. We continue to expand the Dell AI Factory ecosystem with partners including NVIDIA, Google Cloud, OpenAI, SpaceXAI, ServiceNow, Palantir, Mistral, and CrowdStrike. For example, with Google Distributed Cloud, we are bringing Gemini models on premises with confidential compute so customers can run AI closer to the data while meeting data residency, privacy, and sovereignty requirements. The bottom line, Dell is expanding the AI Factory from the data center to the desk side across compute, storage, networking, software, and services. We're giving customers choice, helping them protect their data, and enabling them to move from pilots to production faster. With that context, let me walk you through what we're seeing in the business.

Our Q1 results. In AI, the opportunity remains exceptionally strong, underscored by durable, broad-based demand. In Q1, we booked $24.4 billion in AI orders and recognized $16.1 billion of AI server revenue. We exited the quarter with a record $51.3 billion of AI backlog, and our pipeline continued to grow sequentially and remains multiples of our backlog, even after converting $24.4 billion into orders. Demand continues to exceed supply, with memory as the primary constraint, and we expect to exit the year with meaningful backlog. Our customer count surpassed 5,000, with growth across neocloud, sovereigns, and enterprise customers. Our differentiated offering continues to resonate, and our expanding platforms and capabilities are supporting continued share gain. We believe those share gains are rooted in things that have long differentiated Dell: strong engineering and design, the ability to deploy and install at scale, ongoing services and support, and flexibility financing and consumption options.

In AI, those advantages matter even more. Customers are not just buying components. They are looking for integrated solutions they can put into production quickly on infrastructure they control with the performance, security, and data foundation their workloads require. Moving to traditional servers, revenue was up 92%, as demand remained well ahead of supply in Q1, with strength across every region. The majority of demand was driven by large enterprise customers refreshing their compute environments and expanding capacities to support growing workloads. For many large customers, ensuring compute availability to modernize and grow remains their highest priority. Customers are also increasingly focused on infrastructure density as they optimize both spend and data center space, which is driving demand in platforms that deliver more compute capacity, greater efficiency, and better consolidation within existing footprints. Additionally, we saw AI inference workloads driving incremental demand for traditional compute.

The majority of the installed base remains on 14th generation or older servers, reflecting the continued refresh opportunity going forward. The memory uncertainty is driving customers to proactively secure access to infrastructure across both traditional and AI workloads over longer periods of time. We also continued to execute the pricing and margin discipline we established in Q4. All in, we remain confident in the demand outlook for traditional servers, and our portfolio is well-positioned to capture that opportunity. Turning to storage, revenue was up 8%, driven by continued outperformance in our Dell IP portfolio. Dell IP delivered a record demand growth quarter, making our fifth consecutive quarter of demand growth above market. In primary storage, we saw notable strength in PowerMax and PowerStore. We continue to see momentum in the mid-range ecosystem, with PowerStore delivering its eighth consecutive quarter of double-digit demand growth.

In unstructured, we saw strong performance from PowerScale and ObjectScale, with three consecutive quarters of growth, including double digits in each of the last two quarters. Dell IP storage continues to become a larger mix of Dell storage with its higher margins, and as a result, storage delivered strong profitability and was a key driver of overall ISG profitability in Q1. Turning to CSG, revenue grew 17%, and we gained share for the second consecutive quarter with broad-based demand led by large enterprise customers. Commercial revenue grew 18%, our seventh consecutive quarter of growth, with demand up for the ninth quarter. Large enterprise customers continue to refresh with double-digit growth across all regions. We continue to see run rate in the refresh cycle with roughly 1/3 of the install base consisting of devices four years or older.

Consumer revenue was up 9%, our third consecutive quarter of demand growth, supported by continued strength in gaming. Overall, CSG profitability improved as better-than-expected demand drove higher attach, greater scale, along with improved consumer profitability. In closing, Q1 was a strong start to FY 2027 and another proof point in the power of our operating model. We delivered record revenue, EPS, and cash flow and continued returning capital to shareholders while executing with discipline in a challenging demand and supply environment with notable commodity constraints, particularly in DRAM and NAND. Customers have come to rely on Dell during periods of significant disruption, and we expect that to continue over the course of the year. Our customers are investing in AI infrastructure, modernizing compute, expanding storage, and refreshing PCs to support the next wave of workloads. We are well-positioned with our portfolio.

I am proud of the team's execution and confident in our ability to create long-term value for customers and shareholders. With that, let me turn it over to David to walk through the financials and our outlook.

Thanks, Jeff. We delivered a record first quarter, which positions us very well for the year. Execution was strong across the business, from supply chain to sales to pricing, driving record revenue, EPS, and cash flow, along with continued strong shareholder returns. Total revenue was up 88% to $43.8 billion. Gross margin dollars grew 57% to $7.9 billion. Gross margin rate was 18.1%, driven primarily by mix shift to AI servers, with AI revenue up nearly 9x year-over-year. Excluding the impact of AI mix, gross margin rate was up. Operating expenses were up 9% to $3.7 billion, primarily from variable compensation tied to our outperformance. Importantly, we drove meaningful scale in the P&L, with OpEx down 610 basis points to 8.4% of revenue, the lowest level in over 20 years.

Operating income grew 154% to $4.2 billion, or 9.7% of revenue, driven by higher revenue and resilient margins across traditional servers, storage, and CSG. Net income was up 194% to $3.2 billion, primarily driven by strong operating income. Diluted EPS increased 214% to $4.86, a record. Moving to ISG. ISG revenue was a record $29 billion, up 181%, marking nine consecutive quarters of double-digit or better revenue growth. AI server momentum remained very strong. In the quarter, we generated $24.4 billion in orders, $16.1 billion in revenue, and ending backlog of $51.3 billion. Traditional server and networking revenue was $8.5 billion, up 92%, and demand continues to outpace supply. Storage revenue was $4.3 billion, up 8%, with strong demand across the Dell IP portfolio. Execution across the Dell IP portfolio was strong, with another quarter of growth above the market.

Unstructured solutions were the fastest-growing, along with strong demand across primary storage. ISG operating income was a record $3.1 billion, up 206%, marking eight consecutive quarters of double-digit or better growth, primarily driven by higher revenue across the business. Operating margin was 10.5%, up 80 basis points, even as AI servers grew nearly 800% year-over-year. Looking at the key drivers of margin performance, storage profitability was up with a higher mix of Dell IP and rate expansion within the solutions. Traditional server margins remained stable despite a high inflationary environment. AI server profitability was in line with our mid-single-digit operating income rate target. Taken together, these factors, along with stronger-than-expected revenue, drove meaningful scale in the P&L. Turning to CSG. CSG revenue was up 17% to $14.6 billion.

Commercial revenue grew for the seventh consecutive quarter, up 18% to $13 billion, while consumer revenue increased 9% to $1.6 billion. CSG operating income was $1.2 billion, or 8% of revenue. This performance was driven by stronger commercial revenue and mix, which supported more higher-margin peripherals, and similar to ISG, this all drove meaningful scale in the P&L. Looking ahead, we will continue to balance customer demand with supply while driving scale across the business. Moving to cash and the balance sheet. We delivered a Q1 record cash quarter with cash flow from operations of $4.1 billion. This was primarily driven by sequential revenue growth and higher profitability. We ended the quarter with $14.1 billion in cash and investments, up $0.8 billion sequentially. Our core leverage ratio is at 1.2x.

We returned $2.1 billion to shareholders this quarter, including repurchasing 11 million shares at an average price of $147 per share and paying a dividend of approximately $0.63 per share. Repurchase activity remains strong, and we remain committed to our shareholder return framework. Turning to guidance. Customers continue to prioritize their IT infrastructure needs with an increased focus on securing supply. We expect that behavior to continue throughout the year. For Q2, our revenue outlook is similar to Q1's performance. At the same time, we have increased our expectations for the second half while maintaining an appropriate level of prudence, given that we are only 90 days into the fiscal year. From a profitability standpoint, the pricing discipline and margin stability we saw in Q4 and Q1 continue to hold.

Excluding the impact of AI mix, our gross margin outlook is better than it was 90 days ago. We continue to expect margin rate expansion through the balance of the year. For Q2, we expect revenue of $44 billion-$45 billion, up roughly 50% at the midpoint of $44.5 billion. ISG is expected to grow roughly 75%, supported by $15.5 billion in AI server revenue. CSG is expected to be up roughly 20%. Operating expenses are expected to be down low single digits sequentially. Operating income is expected to grow roughly 80%. We expect sequential improvement in ISG operating income rate, while CSG operating income rates moderates to roughly 6% as we balance demand, share, and profitability.

We anticipate a diluted share count of roughly 652 million shares. Diluted non-GAAP earnings per share is expected to be $4.80, ±$0.10, up over 100% at the midpoint. For the full year, we expect revenue of $165 billion-$169 billion, up nearly 50% at the midpoint of $167 billion. ISG is expected to grow roughly 80%, driven by $60 billion of AI server revenue at the midpoint, or approximately 2.4x year-over-year. Traditional servers expect to grow just over 60%, storage up mid-single digits, and CSG to grow low teens. We continue to prioritize margin rate expansion. Excluding the impact of AI mix, our gross margin outlook is higher than it was 90 days ago and remains up year-over-year. We expect operating expense dollars to be up high single digits, driven primarily by variable compensation.

At the same time, our modernization efforts are paying off, simplifying, standardizing, automating, and enhancing our operating model with AI, delivering significant operating leverage with OpEx as a percentage of revenue in the single digits. Operating income is expected to grow over 55%, with improvement both in dollars and as a percentage of revenue. I&O is expected to be between $1.4 billion and $1.5 billion. Diluted non-GAAP earnings per share is expected to be $17.90 ±$0.25, up roughly 75% at the midpoint. In closing, we delivered an exceptional first quarter with record performance across revenue, EPS, and cash flow. Revenue was $43.8 billion, up 88%. EPS grew 214% to $4.86. We generated $4.1 billion in cash and returned $2.1 billion to shareholders. The strength of the quarter reflects broad-based execution across the business, continued momentum in AI, and solid performance across the rest of the business.

Our portfolio and operating model continue to differentiate us in a dynamic supply environment. We remain focused on supporting customers while driving shareholder value. We are well-positioned for the year. Thank you to the team for their strong execution. Thank you all for your time. I'll turn it back to Paul to begin Q&A.

Let's get to Q&A. In order to ensure we get to as many of you as possible, please ask one concise question. Let's go to the first question.

Thank you. We'll take our first question with Ben Reitzes with Melius Research.

Well, let me say congratulations, guys. I don't think I've ever seen a Dell quarter like this. Maybe Michael had one in the dorm room or something, beating expectations, but congrats to you guys. The question that I have is with regard to the inherent level of real demand. When you see something like this, you think there could be some pull forward, especially in the traditional servers and the PCs. The way you guided for the year, obviously by taking up the second half, would imply that the pull forward doesn't have much of an impact stealing from the rest of the year. Can you just go through the puts and takes of the pull forwards in the major segments, please, and how you came up with still a higher second half? Thanks.

Sure. Thank you, Ben. It was a good quarter. Been here a long time. It's a good quarter. When we look at the demand environment that we are operating in today, it's very different than historical. We think of it as several factors that are driving demand. Clearly what you said, there is a pull-in component, there's a buy-ahead. Customers want to ensure they have access to supply. They're concerned about raising prices, and they're acting. There's also a component of we have large install bases, whether that be in PCs, where you have a third of the units that are four years or older. We were lagging in a Windows 11 refresh and caught up through the quarter against historical refreshes. We have a large number of 14G servers in the install base that need to be upgraded as customers are moving to modernize.

Customers are upgrading their edge, they're upgrading the infrastructure. They're looking for more capable PCs as agentic workloads make their way to the edge. They're looking to consolidate space, power, and cooling to drive efficiency. Our new 18G servers are a great vehicle to do that with its 13:1 consolidation. We're seeing pockets of fundamental new demand. There's new demand driven by AI. There's an AI drag. There's inference. The agentic AI is driving a new marketplace for traditional servers that we haven't seen before. I think the last two are what you would expect out of Dell, are we're winning. We're taking share on all three segments, four if I count AI servers. All four major businesses, PC, server, storage, AI servers, taking share, we're winning.

Lastly, during these times of supply disruption and a lot of puts and takes in the marketplace, customers tend to come to Dell to look for a calming hand, looking for help. We're certainly helping as many customers as we have. That's in PCs. That's in servers, that's in storage.

Those are the demand levers of the demand dynamics that we see across all of the businesses. As we look at our forward-looking pipelines, the pipelines have never been healthier. They're actually growing at greater than historical rates, which gave us confidence to raise the guide by $27 billion of revenue for the year. I hope that helps.

The next question will come from Mark Newman with Bernstein.

Hi. Thanks for taking my question and congrats on a great quarter. It would be great to get a bit more clarity on the breakout of growth between units and pricing, particularly for the blowout performance you had on traditional servers. Just adding to some of the stuff you said in previous question, just trying to get better sense for how much confidence you have that this is sustainable beyond just one or two quarters, but through this year and into next year. Thanks so much, and congrats again.

Thanks, Mark. Very specifically, we grew units in PCs. The last reported quarter, we grew units in consumer PCs and commercial PCs, and obviously the aggregate market. We took share. There's a baseline of growth there. We were already the industry leader in PC revenue, and clearly the inflationary environment has driven up prices. Where we saw that primarily is on high price band products. We were the market leader in high price band in PCs, and that expanded as prices moved up. I won't parse out the specifics, but we had a great growth quarter in units. Obviously, the inflationary environment, we had the execution towards, for example, high-end and gaming and consumer. We had high price bands and commercial PCs. Don't forget the attached business.

The attached business for us around peripherals and around services is very healthy, and when the base business grows, it drags more revenue with each and every unit. On servers, absolute server unit growth occurred. They'll probably kick me under the table here. We had significant unit growth in traditional servers. We had the content growth. We are continuing to see on a year-over-year basis, more cores, more DRAM, more NAND placed in each and every server. You have the uplift of more content, and then obviously that content is growing as well in terms of the inflationary side. Absolute growth in units, absolute growth in the content driven by modernization and consolidation as customers are looking to upgrade and modernize their fleets. We had the inflationary part.

The other part of servers that I think is important to call out is this notion of AI drag and seeing traditional servers move and take on AI workloads. Those AI workloads we're seeing with very dense servers making their way into the neoclouds, into some of the more advanced enterprise users, think semiconductor companies, big tech, that are using it to actually drive some of the inference workloads and agentic workloads inside their environment. That's how I would capture it.

The next question will come from Amit Daryanani with Evercore.

Yep. Thanks a lot for taking my question and congrats on a really nice set of numbers over here from my side as well. You folks talked about maintaining an appropriate prudence, I think, is the way you framed it, like maintaining appropriate prudence when it comes to your guide, despite raising the back half outlook. If I sort of think about H2 versus H1 math for a second, right? I think the guide implies 48% of the revenues this year will come in the back half of the year. Historically, that number's been around 52%. Can you just touch on how much of that H2 drop you're expecting right now versus historically is from a pull-in versus you folks are perhaps just being a bit more conservative? Is that conservativeness coming more from lack of component availability or where could that lever be? Thank you.

You bet, Amit. I'm going to lead and David's going to punch the answer home, but I'm the problem. We have a supply issue. We are supply constrained in the second half. It is not a demand issue for us.

Yeah, that's the story here. The demand continues to outpace the supply. That demand is broad-based, as Jeff said, it's going beyond the GPU, there's more AI opportunities from a CPU perspective, traditional server, in the PC. We continue, obviously, these are complex designs. As we go forward, we'll continue with operational execution to work with our supply chain teams, our go-to-market teams, and our product teams to really execute a match-up to the best execution-wise, the supply that we have with the demand shaping that we see. The teams have obviously executed that tremendously in Q1. We'll look to do the same as we head into the back half of the year. The demand is there, as Jeff said. That's what we're looking at. We'll continue to look for more supply. We would like more supply.

The team will continue to go execute and go chase the pipeline that Jeff referenced earlier, which continues to be in very healthy shape.

We'll take a question from Wamsi Mohan with Bank of America.

Yes, thank you so much. Very impressive set of results here. I guess if we think about the comment you made on the call, I think you said customers are prioritizing securing supply, and that is something that you expect will continue for the remainder of the year. In this kind of an environment where you just noted that demand is extremely strong, what's your take on the magnitude of the variation in IT budgets for this year? Do you think that some of this is coming out of the budgets for next year as well on the enterprise side? I'm also curious on the traditional servers, I think, Jeff, you mentioned how agentic AI is maybe changing the usage. Is there a materiality of this to Tier 2 CSPs as well?

You noted enterprise strength, but kind of curious if Tier 2 CSPs could be a potential offset to maybe any change in linearity of demand at enterprise. Thank you.

Wamsi, I can't speak to next year and budgets for customers. Clearly the longer-term conversations we're having with customers are multi-year in nature of how they secure supply to provide their growth and upgrade their infrastructure. The discussions are multi-year in nature, think three, four, five years. Those discussions are underway, and it really is about access to supply because quite honestly, I can't tell them what the price is going to be. It's arrangements and agreements that we're working with large customers to ensure they have what they need to grow their businesses. We saw that occur across some of the largest enterprises around the world. Our pipelines indicate that's going to continue with the next set of customers and the next set of customers before that, which is breaking the historical norms of pipeline build within the quarter and the out quarters.

Our pipelines are good two quarters out. What was really interesting about traditional servers as an example, is we saw the pipeline grow in quarter greater than historical norms. We saw the two quarters out pipelines grow. It's showing more customers looking to get access to the technology. We're seeing budgets grow. We're seeing budgets shift. Obviously, we're one quarter into the year. We'll see how the second half plays out. I think that's part of the prudence that we're trying to convey of where's the demand signal. The demand that we see continues to be robust. We in the supply chain have to go find more parts for the businesses and for our customers to fulfill that demand. I hope that helps.

I'd add maybe a couple of things, Jeff. I think as we talk about demand outpacing supply in that environment, we would expect to exit the year with meaningful backlog as we enter next year. I think that's an important point. The other piece would be from our financing and DFS element, which again, is a competitive advantage for us. We're engaged with many customers who in normal course of business would not need to take advantage of financing offerings, but the opportunity to partially use our facility to get as much gear in their environments in year to manage their potential budget issues is a great way to balance that, and we're seeing double-digit origination growth across our CSG business, our traditional server business, our storage business, as well as AI, which you'd expect.

We're seeing different ways we can help our customers get as much technology into their environments as quick as we can.

The next question will come from Katherine Murphy with Goldman Sachs.

Thank you for the question. I was wondering if you could further talk to the raised full year guidance for AI servers to $60 billion, and where across your customer base, the 5,000 customers you mentioned, you're seeing that $10 billion of incremental opportunity for the fiscal year. As a follow-up, how much capacity can you support in the AI server space with your current manufacturing partners? Thank you very much.

A strong start to the year, Kath, $16.1 billion of shipments, $24.4 billion of orders. Our backlog now sits at $51.3 billion. Just 90 days into the quarter, we're raising our full year guide by $10 billion. We'll continue to work through those deployments as we match up our supply. Obviously, these are complex designs that we're engaged on. We're actively involved in the technology transition as we get ready for Vera Rubin, working with all these customer bases in relation to data center readiness, and making sure they can receive the product. As you look at our portfolio, it's expanding and growing across all our verticals, whether that's neoclouds, our sovereign relationships, our enterprise customers. You would've heard Michael last week at Dell Technologies World talk about our 5,000 customers, which is up over 50% in the last six months.

You can see the traction that's coming, and I guess the other data point I'd add is as we look at our pipeline over the next five quarters, that's multiples of our backlog and it's growing across each individual vertical there, again, across neoclouds individually, sovereign individually, and the enterprise space. It's broad-based and it's prevalent either geography-wise or vertical-wise.

Well, there's no capacity issue, it's parts.

The next question will come from Samik Chatterjee with JPMorgan.

Hi. Thanks for taking my question, congrats from my side as well on the strong results here. Maybe just to focus on one specific comment that you made in your prepared remarks, where the gross margin outlook for the year ex-AI is better than you had 90 days ago. If you can just flesh that out a bit more in terms of, is that a function of price increases that you've been able to take, or is that a function of the sort of mix of products that you're now selling or where customer demand is focused relative to what you envisioned 90 days ago? Just curious to hear what's driving that better outlook there. Thank you.

Yeah, sure, Samik. I think it starts with our Dell IP storage portfolio. We've taken up our revenue guide not only for Q2 but also for the back half of the year. We're seeing our Dell IP portfolio resonate in the marketplace, whether that's the unstructured product from a PowerStore perspective in the mid-range. All of that obviously drives from a Dell IP mix perspective, tailwinds from a margin perspective, and array perspective. On the other elements of the business, both CSG and traditional server, we've made the commitment to make sure we sustain our margin rates. We see a path to that. We will continue to manage that as we see the growth. You put that basket of goods together from a core business perspective, and you see the lift in the overall margin rate as a result.

We'll take a question from Asiya Merchant with Citigroup.

Great. I'll add my congrats here, too. Thank you for taking my question. If we could just talk a little bit about the attach rates that you're seeing for the AI servers, especially as you're talking about greater enterprise demand here. You talked about 5,000 customers now. That's up from where it was a quarter ago. If you could just flesh out how you're seeing that attach rate for storage and services, and is the recent uptick in Dell IP storage a function of attach to AI servers as well as on services, if you could just comment on that, and how that fleshes out into the margin outlook for AI servers. I think I heard maintaining a mid-single-digit margin outlook for AI servers. Thank you.

Sure. Lots into the question. We'll start with the broader topic of we are increasing the amount of storage and services that we're providing AI customers. Michael made reference at Dell Technologies World last week with our unstructured data solutions, the portfolio of products, and how we had won across several major customers, which I think are important bellwethers of what's changing in the marketplace and how our products are being perceived. We are making progress with our AI customers, neoclouds, Sovereigns, the high-frequency traders, and some of the biggest technology companies in the world, semiconductor companies in the world, where we are selling more storage, more Dell IP storage, in fact, only Dell IP storage. You're seeing it in our work. Our unstructured portfolio of products had its best quarter in demand ever.

Unstructured data is the data set that feeds the beast, so to speak, in AI. That's where we're seeing the greatest growth and making the most traction. If you think about the portfolio broadly, David mentioned five straight quarters of growth of Dell IP. It's five in PowerMax, it's nine in PowerStore, it's four in PowerScale, it's three in ObjectScale. Our data protection product is two. We are seeing the entire portfolio gain momentum, a combination of more competitive products designed for the AI era. I would point to Lightning as being an example of an AI parallel file system specifically designed for this class of devices and customers. We're seeing increased traction. We're certified across NVIDIA's stack.

We are engineering with them on how to make data ingest and data management and the whole data estate easier for enterprises to adopt to accelerate their AI needs. Quite frankly, we're in an era where architecture matters more than it ever has. I think of our PowerStore Elite product. We get real excited. We had fun with this last week at Dell Technologies World. It's got 3x the performance of its predecessor, 1.5 million IOPS, 6:1 data reduction. Buy one petabyte of raw storage, store six petabytes of data. I think about it's 70% faster in reads. It's got 4x more throughput. I think about the exascale storage we built purposely for this class of customers. I think about the rack scale architecture that Arthur talked about last week on stage, where we talk about the role of storage, networking, compute coming together, driving more performance.

I think about what's happening in the world of data protection where architecture matters again in 75:1 compression rates. Ultimately, our fundamental architecture that drives fewer servers and fewer SSDs to store equivalent amounts of information versus our competitors. All of that is being packaged up and presented to our entire customer set and then specifically targeted to our AI customers. Whether it's sovereign, whether it's a neocloud or an enterprise, and we're seeing traction. Optimistic, not claiming victory here. We have a lot of work to do. We're committed to the space. If you look at the payload that we delivered at DTW last week, it was the biggest and broadest storage payload we've ever brought out at any given time, and there's more to come.

Using AI inside our R&D organizations, we are delivering larger payloads in shorter periods of time, and storage is the primary vehicle to deliver that through. I hope that gives a sense, and obviously we're still seeing one of the differentiators we have in the marketplace is services, our ability to deploy service product, keep up times greater than anyone else, continues to be a differentiator in the marketplace and we'll continue to invest in that broadly across all customers.

We'll take a question from Erik Woodring with Morgan Stanley.

Hey, guys. A big congrats from me on the quarter. Just an amazing result. I realize we're having a lot of conversations here about sustainability, but I'd love to maybe ask you if we could go back to last October, and knowing what you know now about the market and incremental agentic and ways that traditional servers are being used, perhaps in different ways, and your ability to take share from peers. If we went back to the October Analyst Day, how would you change that 7%-9% revenue guide and 15%+ EPS guide? Ultimately, I'm trying to get an understanding of the sustainability of what you're seeing across multiple years. I realize you might not have numbers, but I would just love your thoughts on where maybe that 7%-9% and 15%+ would go, knowing what you know today. Thank you so much.

Yeah, I don't think we'd work a five-year program on the Q1 earnings call. Obviously, as we go through, what we'll do is obviously validate what we're seeing. We were very keen on the back of the Q1 momentum that we see, where the growth is real, it's durable, it's accelerating, it's more broad-based, it's expanding beyond the GPU. All of those proof points, as they evolve and emerge, give us and gave us the confidence not only to take up our Q2 guide, which pretty much mirror images what we did in Q1, but also look at the second half, and build out incremental guidance across every level, whether it's PCs, server, storage, and AI. As we do that, Jeff touched on earlier, we're always pretty confident as we look out over a two and a half quarter lens in our pipeline as we do that.

The other obviously dialogue there is, as we talked about an AI pipeline over the next five quarters, building out multiples of our backlog. All of those, again, indicate that strong reference points of a broader-based demand element. Obviously core to that will be the agility for our EPS over time. That said, like I said earlier, we'll look to drive meaningful backlog as we exit this year. I think that's where we are, Erik, in terms of looking out any horizon for now.

Erik, I might add the following perspective. I don't think applying historical models or historical views about the market and how it's going to act are appropriate today. We're finding new uses. The way that I get asked this, or I'll ask you this is: What's the value of adding intelligence into every workflow, every decision, every product, every customer interaction? I would assert the value is pretty darn high. That's what's been really, I think, the game changer since that October time, is what's really happened in agentic. What you're seeing are new categories of TAM expanding. You had the three microprocessor leaders talk about an expansion of CPU TAMs. Why? It's driven by agentic. What's happening in agentic? Agentic is really the movement of AI from an advisor to an operator. It's actually going to do something now. It's going to do something meaningful.

To do something, that agent needs support, just like a human needs support. That agent needs support, in this case, of a CPU. You have all of this wonderfulness that a GPU drives, but you have this work that has to be done around IO, around branch, retries, managing state. They're very sequential. They're very serial in nature as a result of that. That's a workload that's for the CPU. If you think about this notion, that's generally called a harness. If you think about that harness, the CPU runs it. It's going to make those calls, it's going to manage memory, and it's in the loop in every decision that an agent makes. We didn't know this in October.

Dell Technologies (DELL) Q1 2027 Earnings Call Transcript

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