- 2024-06-12
- News
Dell Exceeds Profit Forecasts, AI Division Exhibits Positive Momentum
After the market closed on Tuesday, Dell Technologies released its financial report for the third quarter ending November 1st. Although the company's profit for the third quarter exceeded expectations and it made optimistic comments related to the growth in artificial intelligence (AI) sales, its revenue for the quarter and the outlook for the next quarter's revenue and profit both fell short of expectations due to a halt in the recovery momentum of the personal computer market, causing Dell's stock to drop by 10% after hours.
1) Key financial data:
Revenue: The total net revenue for the third quarter increased by 10% to $24.37 billion, missing analysts' expectations of $24.59 billion.
Operating profit: The adjusted operating profit for the third quarter was $2.2 billion, which was above analysts' expectations of $2.16 billion.
EPS: The adjusted EPS for the third quarter was $2.15, higher than analysts' expectations of $2.05.
2) Business segment data:
The Infrastructure Solutions Group (ISG) revenue increased by 34% to $11.37 billion in the third quarter, meeting analysts' expectations of $11.34 billion. ISG includes AI servers, storage, networking components, and traditional servers. The growth of ISG was primarily driven by AI sales.
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Dell's Client Solutions Group (CSG), which sells personal computers and laptops to consumers and businesses, saw a year-over-year decline of 1% to $12.1 billion, missing market expectations.
3) Performance guidance:
Revenue: The company expects operating revenue to be between $24 billion and $25 billion in the fourth quarter, below market expectations of $25.57 billion.
EPS: The company expects adjusted earnings per share to be $2.50, while the market expects $2.65.
Before the financial report was released on Tuesday, Dell's stock closed down nearly 1.7%. After the report was released, Dell's stock plummeted by over 10% in after-hours trading. Morgan Stanley analyst Erik Woodring stated that investors had high expectations for Dell's financial performance.
Artificial Intelligence Business
This year, the AI craze has revitalized the 40-year-old computer giant, Dell, reaching a historical high of nearly $180 in May. Although Dell's stock price has retreated from its historical peak, it still recorded a year-to-date increase of nearly 90% as of Tuesday's closing price, mainly due to its new AI server business line. Dell is considered one of the key companies providing tools and systems to AI developers.
Dell is a top supplier in the field of computer clusters, which are essential for the development and deployment of AI, especially those based on Nvidia chips. Dell's competitors in the server manufacturing field include Supermicro, HPE, and others. There is a strong demand from cloud service providers, enterprises, and government agencies for Nvidia AI accelerators, who often purchase systems equipped with tens of thousands of AI chips, and Dell sells complete systems.
This year, Nvidia CEO Jensen Huang praised Dell and its founder Michael Dell, suggesting that customers order Nvidia's new generation of Blackwell AI chips through Dell. Earlier this month, Dell announced that it would deliver servers equipped with Nvidia Blackwell to cloud infrastructure provider CoreWeave.
From the latest financial report, the strongest performance in Dell's ISG business is its servers and networking sub-department, which includes AI systems. Revenue in this department increased by 58% to $7.4 billion. Dell delivered $2.9 billion worth of AI servers in the third quarter, exceeding analysts' estimates of $2.8 billion. The company also stated that customers had booked $3.6 billion worth of future AI server orders for the quarter, with order volumes increasing across all customer types.
Dell stated that the increase in AI server orders has driven a year-over-year "double-digit" increase in demand for its traditional servers. Traditional servers are based on Intel or AMD CPU chips, have lower power consumption, and can free up data center space or power for companies investing heavily in AI infrastructure.
Dell executives stated that some customer demand is shifting to the next few quarters, waiting for Nvidia's Blackwell chips, which are currently in production but have not yet been shipped in large quantities to end-users. Dell stated that much of the growth in its AI systems is reflected in $4.5 billion worth of future orders.
Dell's Chief Operating Officer (COO), Jeff Clark, told investors during a conference call on the financial report that the growth of AI-related business will be quarterly volatile. He pointed out:
This business will not grow linearly, especially as customers face a constantly changing underlying chip technology roadmap. We saw orders quickly shift to our Blackwell design in the third quarter.
We are still in the early stages of enterprises learning how to deploy AI. AI is a strong opportunity for us, and there is no sign of slowing down.
Dell's computer storage system revenue growth was not as strong as servers, increasing by 4% year-over-year to $4 billion.
PC Business
Dell's personal computer business declined by 1% to $12.1 billion, below expectations. Although the amount spent by business customers on personal computers for their employees increased by 3% year-over-year to $10.1 billion, the company's consumer personal computer sales plummeted by 18% year-over-year to $2 billion.
In recent years, driven by the surge in demand for home office by students and corporate employees at the beginning of the pandemic, the PC market once experienced prosperity but then underwent a historic decline. Although there were signs of recovery this year, according to a report released by industry analysis firm IDC in October, PC shipments declined again in the third quarter.
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