Dell’s Earnings Disappoint: Is There Hope in AI?

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Key Takeaways

  • Dell's Q1 earnings fell short of expectations, causing a 23% drop in stock price over five days.
  • Despite a 42% growth in server revenue, operating income decreased by 14% year-over-year.
  • Dell plans strategic partnerships with Ericsson for cloud infrastructure and Nvidia for AI factory development.

Dell Technologies (DELL) has released its Q1 earnings report, which fell short of market expectations, leading to a significant drop in its stock price.

Dell Technologies (DELL) released its Q1 earnings, which failed to meet expectations. The shares fell 23% in the recent five days, as the results disappointed the investors.

Dell shares plunge | Source: Google Finance
Dell shares plunge | Source: Google Finance

Dell’s Earnings Call: Details

The company announced a $1.27 per share adjusted earnings of $22.24 billion in sales. This was exactly as per the poll by Factsheet, which anticipated earnings of $1.27 on $21.69 billion in sales.

Source: Dell Technologies
Source: Dell Technologies

Sales increased 6% year over year, while earnings fell 3%. Dell’s sales increased after falling for six consecutive quarters. The company’s operating income stood at $920 million, down 14% from last year.

However, there are some positive takeaways as well. With the substantial increase in the demand for artificial intelligence, DELL has capitalized by doubling the shipment of AI servers consecutively to $1.7 billion. At the end of the January quarter, the pending order of AI-driven servers spiked from $2.9 billion to $3.8 billion.

Dell’s Infrastructure Solutions Group focuses on providing products related to storage, servers, and networking. This year, the company witnessed a 42% growth in server revenue, leading to a total revenue generation of $9.2 billion. This figure has surpassed the Street consensus of $9 billion. Moreover, it is 22% more than its own performance a year ago.

For its July quarter, the company expects revenue of $23.5 billion to $24.5 billion. It would be $24 billion at the midpoint, a 5% increase and more than the consensus of $23.3 billion. The profits for the quarter after adjustment are expected to come at $1.65, below the expectation of $1.88 per share.

The Chief Financial Officer of Dell Technologies, McGill, said that they expect challenges in the current quarter due to increased pressure from other businesses and high inflation, including higher costs for NAND and DRAM memory.

Furthermore, for FY January 2025, the company projects revenue of $93.5 billion to $97.5 million, up 8% above the old midpoint of $93 billion. The company said that it expects a growth of 20% in the infrastructure solutions group, while the growth for Client Solutions is said to be in the low digits. However, with a 25-cent variation, the company sees a profit of $7.65 billion for the year.

Dell’s Future Perspectives

Dell Technologies is planning a strategic partnership with Ericsson to develop network cloud infrastructure. They plan to introduce Ericsson Cloud RAN, which will be hosted on Dell PowerEdge servers.

A new study by MeriTalk highlighted that 96% of communication service providers aren’t satisfied with their network transformation. The partnership will also focus on improving the deployment process (from factory to installation), continuous integration testing, and lifecycle management.

The company is also in talks with Nvidia about building an AI factory. The announcement was made at the Dell Technologies World conference. The factory will integrate both hardware and software, helping companies with Generative AI initiatives. Dell will also introduce new hardware updates that will better integrate with Nvidia GPUs.