Dell Technologies (NYSE:DELL) Q3 2026 Earnings Call November 25, 2025 04:30 PM ET Company ParticipantsMichael Eng - VP of Corporate DevelopmentAmit Daryanani - Senior Managing DirectorSimon Leopold - Managing DirectorJeff Clarke - COOPaul Frantz - Head of Investor RelationsDavid Kennedy - CFOErik Woodring - Managing DirectorBen Reitzes - Managing Director and Head of Technology ResearchAsiya Merchant - Technology Equity ResearchConference Call ParticipantsDavid Vogt - Managing Director and Senior Equity Ana ...

Financial Data and Key Metrics Changes - Total revenue reached $27 billion, up 11% year-over-year, with year-to-date revenue up 12% [5][12] - Earnings per share (EPS) increased 17% to $2.59, driven by improved profitability in AI and storage [5][12] - Gross margin rose 4% to $5.7 billion, or 21.1% of revenue, primarily due to a mix shift to AI servers [12][14] - Operating income grew 11% to $2.5 billion, or 9.3% of revenue, supported by higher revenue and lower operating expenses [12][14] Business Line Data and Key Metrics Changes - Infrastructure Solutions Group (ISG) revenue was a record $14.1 billion, up 24%, marking seven consecutive quarters of double-digit growth [13][14] - Client Solutions Group (CSG) revenue increased 3% to $12.5 billion, with commercial revenue up 5% and consumer revenue down 7% [9][14] - AI server orders reached a record $12.3 billion in the quarter, with shipments totaling $5.6 billion [6][13] Market Data and Key Metrics Changes - Demand for traditional servers grew double digits, particularly in EMEA and North America [7][14] - The backlog for AI servers ended the quarter at a record $18.4 billion, indicating strong future demand [6][13] - International growth in CSG accelerated sequentially, up double digits year-over-year [9] Company Strategy and Development Direction - The company aims to capitalize on AI infrastructure buildouts and the ongoing PC refresh cycle [11][19] - Focus on engineering bespoke, high-performance solutions and rapid deployment capabilities in AI [11][36] - Continued emphasis on operational discipline and cash generation to drive shareholder value [10][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current commodity supply environment, expecting to secure supply and adjust pricing as needed [10][19] - The outlook for Q4 includes expected revenue between $31 billion and $32 billion, with ISG and CSG combined expected to grow 34% at the midpoint [17][18] - Management remains optimistic about AI demand, with a strong conviction in the AI business supported by a growing backlog and pipeline [18][56] Other Important Information - The company returned $1.6 billion of capital to shareholders, including share repurchases and dividends [15][16] - The core leverage ratio stands at 1.6x, indicating a strong balance sheet [15] Q&A Session Summary Question: Customer reaction to pricing discussions across product categories - Management acknowledged the unprecedented cost increases across various components and emphasized their experience in navigating such cycles [22][25][26] Question: Impact of NVIDIA's vertical integration on AI servers - Management highlighted their differentiation in complex large-scale deployments and their ability to engage with customers early in the technology cycle [33][36] Question: AI server margins and future expectations - Management indicated that AI server margins are expected to remain in the mid-single digits, with a positive customer mix contributing to margin stability [41][42] Question: Outlook on the PC refresh cycle - Management noted that the Windows 11 transition is not complete, with significant opportunities for upgrades remaining [47][49] Question: AI business growth and financing issues - Management expressed confidence in AI demand across various customer segments, with a strong pipeline supporting future growth [55][56] Question: ISG margins and future guidance - Management reported improved ISG margins driven by strong demand for Dell IP storage and disciplined pricing [63][66] Question: Traditional server demand and upgrade cycle - Management indicated that a significant portion of the install base consists of older generation servers, presenting opportunities for modernization [70][71] Question: Commodity cost recovery and pricing strategies - Management discussed their ability to recover costs through strategic pricing and supply chain management, emphasizing their agility in response to market conditions [74][76]

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Strategic Investment & Market Dynamics - Nvidia's $5 billion investment in Intel is viewed as a strategic move, not a major foundry commitment, potentially aimed at appeasing the government and maintaining market competition [2][3][7] - The investment could provide Nvidia with access to the PC refresh cycle and potentially influence access to the Chinese market for high-end chips [4][9] - Nvidia aims to maintain a competitive landscape, preventing any single company from achieving a monopoly position, similar to concerns raised with Google [4][5] - The US government has a 10% stake in Intel, influencing the deal's approval and direction [3] Intel's Position & Future Prospects - The investment from Nvidia and government support create a "Goldilocks scenario" for Intel, improving its standing after previous challenges [6][10][12] - Intel's x86 ecosystem and dominance in the PC world remain significant factors in its strategy [2][9] - The deal is considered a positive development for Intel, potentially changing its stock multiple and viewed favorably in Washington D C [6] - The investment signals a doubling down on US investment and an olive branch to the Trump administration [8][9] China Market & Geopolitical Implications - China's push for domestic technology production and national champions poses a challenge to US tech giants like Nvidia [10] - Nvidia's continued access to the Chinese market for advanced chips is questioned, given the US's desire for independence from China [10] - Despite efforts to promote domestic alternatives, Chinese tech companies heavily rely on Nvidia's chips, highlighting Nvidia's technological lead [11][12]

Core Viewpoint - The recent investment by Nvidia in Intel is seen as a significant move that could reshape the competitive landscape in the semiconductor industry, particularly in the context of U.S. government support and the ongoing PC refresh cycle [6][10]. Group 1: Nvidia's Strategic Position - Nvidia's investment of $5 billion in Intel is relatively small given its strong balance sheet, indicating a strategic move rather than a major financial commitment [2][7]. - The investment is perceived as a way for Nvidia to maintain a competitive edge while avoiding a monopoly classification, as it keeps Intel as a competitor without allowing it to dominate [5][10]. - Nvidia's reluctance to engage with the TSMC ecosystem suggests a strategic decision to avoid direct competition in foundry services, focusing instead on co-developing chips with Intel [3][4]. Group 2: Intel's Recovery and Future Prospects - The investment is viewed as a turning point for Intel, which has faced challenges in recent years, and could enhance its market position amid government support [6][12]. - Intel's involvement in the PC upgrade cycle and its x86 ecosystem may provide new growth opportunities, especially as the company seeks to recover from past setbacks [9][10]. - The collaboration with Nvidia may also open doors for Intel to access high-end chip markets, particularly in China, which could be beneficial for its long-term strategy [4][10]. Group 3: Government Influence and Market Dynamics - The U.S. government's stake in Intel and its investment in the semiconductor sector highlight the strategic importance of domestic chip production amid rising competition from China [3][12]. - The dynamics of the semiconductor market are shifting, with Nvidia positioned strongly while also navigating the complexities of U.S.-China relations regarding technology and chip sales [10][11]. - The emphasis on strengthening domestic chip manufacturing aligns with broader national interests, potentially impacting future collaborations and market strategies [12].

Core Insights - Dell Technologies' Client Solutions Group (CSG) is experiencing growth, particularly in the commercial PC market, which includes notebooks, desktops, workstations, and peripherals for enterprise customers [1] Group 1: Financial Performance - The commercial PC segment's growth is a critical driver for Dell's CSG, with a 5% revenue increase to $12.5 billion in Q1 of fiscal 2026 [2] - Commercial Client revenues increased 9% year over year to $11.04 billion in the fiscal first quarter [2] - Dell's shares have gained 17.4% year to date, outperforming the broader Zacks Computer & Technology sector's return of 13.9% [9] Group 2: Market Dynamics - Dell is benefiting from the recovering demand driven by the PC-refresh cycle, particularly with enterprise customers upgrading to new AI-capable Windows 11 devices [3] - The strongest demand for Dell's commercial PCs is in North America, where it holds a 32.4% market share [4] - Regions like EMEA and APJ have seen double-digit growth in Q1 of fiscal 2026, showcasing Dell's ability to cater to diverse markets globally [4] Group 3: Product Innovation - Product innovations, including a streamlined AI PC portfolio with advanced processors, longer battery life, and enterprise-grade security, have positioned Dell as a leader in the AI era [5] - The growing interest in generative AI-enabled PCs is expected to drive fresh demand for PCs in the coming years, benefiting competitors like HP [6][7] Group 4: Competitive Landscape - Dell faces stiff competition from HP and Apple, with HP focusing on launching innovative products and Apple benefiting from strong demand for its M4 chip series [6][8] - Apple's Mac sales reached $8.05 billion in Q3 of fiscal 2025, reflecting a 14.8% year-over-year increase [8] Group 5: Valuation and Estimates - Dell's forward 12-month Price/Sales ratio is 0.85X, significantly lower than the Computer & Technology sector's 6.74X [12] - The Zacks Consensus Estimate for Q2 fiscal 2026 earnings is $2.28 per share, indicating a year-over-year increase of 20.63% [14]