Dell (Minutes): AI servers, shipment volumes relatively balanced between the first and second half of the year
The following are the minutes of Dell Technologies' DELL FY2026 Q2 earnings call. For an analysis of the earnings report, please refer to "Dell Technologies: AI Server 'Frenzy Orders', Just a 'Flash in the Pan'?"
I.$Dell Tech(DELL.US) Key Financial Highlights:
(1) Business Unit Performance
Infrastructure Solutions Group (ISG):
1. Revenue reached a record $16.8 billion, up 44% year-over-year, marking six consecutive quarters of double-digit growth.
2. Server and networking revenue was $12.9 billion, up 69% year-over-year.
3. AI server orders amounted to $5.6 billion, with quarterly revenue of $8.2 billion and backlog orders of $11.7 billion. The AI server shipments in the first half of the year have already surpassed the total for the entire previous year.
4. Storage revenue declined 3% to $3.9 billion, but PowerStore achieved six consecutive quarters of growth, five of which were double-digit; the all-flash storage portfolio achieved double-digit growth.
5. ISG operating profit was $1.5 billion, up 14% year-over-year, with an operating margin of 8.8%.
Client Solutions Group (CSG):
1. Revenue was $12.5 billion, up 1% year-over-year.
2. Commercial revenue was $10.8 billion, up 2% year-over-year; consumer revenue was $1.7 billion, down 7% year-over-year.
3. CSG operating profit was $800 million, with an operating margin of 6.4%.
4. The increase in the proportion of small and medium business and transactional business drove profitability improvement; consumer business profitability improved due to product positioning optimization and a deflationary environment.
(2) AI Business Progress
AI infrastructure orders in the first half of the year reached $17.7 billion, with revenue already reaching $10 billion, surpassing the total for the entire previous year.
The full-year AI server shipment guidance has been raised from $15 billion to $20 billion.
Potential order reserves continue to grow quarter-over-quarter, with both enterprise customer orders and sovereign fund-related orders achieving double-digit growth. The company's current potential order reserve size is still several times the backlog order size.
Enterprise orders and customer numbers have grown quarter-over-quarter, covering industries such as financial services, healthcare, and manufacturing.
(3) Product and Technology Innovation
Launched AI factory solutions based on NVIDIA RTX Pro 6000, offering air-cooled and PCIe options, supporting full lifecycle AI management.
First to deliver NVIDIA GB200 NVL72 and GB300 NVL72 solutions globally.
Completed the release of the 17th generation server product portfolio, focusing on performance, reliability, and security, supporting workload consolidation to free up space for AI.
Introduced new commercial laptops aimed at capturing the entry-level commercial PC market.
(4) Supply Chain and Operational Efficiency
The core leverage ratio reached the target of 1.5 times.
The supply chain demonstrated agility and resilience, effectively responding to geopolitical environments and tariff complexities.
II. Detailed Content of Dell Technologies' Earnings Call
2.1, Executive Statements on Core Information
Business Development and Group Strategy:
1. The company adheres to the strategic direction of "modernization, AI-driven, efficient operations," with ISG and CSG businesses growing by a combined 22%.
2. Core competencies lie in engineering differentiation, scalable solution capabilities, and close relationships with partners like NVIDIA.
3. Growth is driven by strong demand for AI servers, continued growth in traditional servers, and the commercial PC refresh cycle.
4. Future focus on four key areas: driving revenue growth and market share increase, achieving profitable growth, continuing modernization efforts, generating strong cash flow, and maintaining a strong capital return record.
Financial Performance:
1. Revenue and profit both grew, with solid earnings quality.
2. Gross margin remained stable, reflecting product mix optimization and cost control capabilities.
3. Operating expenses decreased, reflecting efficiency improvements and process modernization results.
4. Ample cash flow, with leverage ratio at target level, providing funding assurance for long-term strategy.
2.2, Q&A Analyst Questions and Answers
Q: AI server shipment guidance has been raised to $20 billion. Is there further upside potential?
A: The order reserve for the next five quarters continues to grow, particularly exciting is the double-digit growth in orders from sovereign and enterprise customers. It should be noted that this business has certain complexities, primarily because related deployments are often large-scale projects: many orders have set delivery schedules, and the delivery progress depends on a series of external conditions, such as construction completion, power system installation, and cooling system deployment.
The core goal is to convert the large order reserve into new orders, striving to achieve the $20 billion full-year shipment target — and from the current situation, there is still room for upward adjustment of this target. Additionally, the company has sufficient capacity, and as long as orders can be converted into actual production demand in a timely manner, it is fully capable of fulfilling delivery tasks.
Q: Based on the third-quarter performance guidance and the resulting fourth-quarter expectations, it seems that as we enter the fourth quarter, profit transmission efficiency will significantly improve?
A: CSG's performance in the second half of the year will be slightly better than the first half; for the AI server business, we expect shipment volumes to be relatively balanced between the first and second halves of the year; for the storage business, we expect better quarter-over-quarter performance in the second half. On one hand, the proportion of Dell's self-developed intellectual property (Dell IP) related products will increase; on the other hand, the storage business typically experiences seasonal growth in the fourth quarter; for the traditional server business, growth is also expected in the second half. Operating expenses will continue to decline. The focus of profit growth will further shift towards the fourth quarter.
Q: How is the growth of the storage business? Can it be sustained?
A: From the second quarter's performance, the company's third-quarter guidance indicates that the business's quarter-over-quarter growth rate will exceed the usual level. The company expects the performance of Dell's self-developed intellectual property (Dell IP) storage products to outperform the overall market. Although the overall storage market is in a growth trend, and the company expects its own growth rate in the second half to outpace the market, this growth momentum is partially offset by decision adjustments from hyper-converged infrastructure (HCI) customers — these customers are currently reconsidering their private cloud deployment plans.
Q: Why is the profit margin of AI servers improving? What is the approximate range of improvement? The market seems to generally believe that the operating profit margin of this business is in the low single digits, and in the long term, it is expected to reach higher levels. What specific factors will drive the improvement in profit margin?
A: The server business in North America will recover (this business itself is profitable), and the profit margin of the storage business is also improving. These two changes will reshape the overall business structure in the second half of the year and are the core reasons for performance improvement.
In the second quarter, the company delivered a large number of early "Blackwell series" orders. These orders are part of highly competitive large projects and were continuously delivered throughout the quarter; at the same time, some one-time costs were incurred — to meet customer demand, we urgently allocated supply chain materials, and due to changes in the geopolitical environment, we restructured the supply chain, which brought additional expenses.
The profit margin of AI servers will be improved through the following measures: first, optimize design and processes to reduce costs, second, expand business scale, and third, expand the enterprise customer base. It is worth mentioning that the second quarter was our best-performing quarter for AI business in the enterprise customer field — many enterprise customers' purchase amounts set historical highs in this field. Especially in the enterprise market: the company has the opportunity to sell AI factories bundled with networking, storage, and supporting services, which will further drive profit margin improvement.
Q: What is the composition of sovereign AI in the order reserve? The profit margin of AI business is expected to improve in the second half of the year, so I would like to further ask what specific factors will drive the improvement in profit margin? And what is your expected range for profit margin improvement?
A: In the order reserve, the parts for sovereign and enterprise customers both achieved double-digit growth, and the growth rate is faster than that for cloud service providers (CSPs). Currently, the potential customers covered by this order reserve exceed 6,700, all of which are our potential business opportunities.
From the product composition perspective, the highest proportion in the order reserve is mainly the Blackwell series. More noteworthy is that the newly launched RTX 6000 has also entered the order reserve, and it has brought demand growth for air-cooled and PCIe interface-related products — these are clear signals of strong demand from enterprise customers. So in summary, the characteristics of the order reserve composition are: from the customer type perspective, it covers client solutions group (CSG) customers, enterprise customers, and sovereign customers; from the technical product perspective, it is mainly the Blackwell series, while the demand for PCIe interface products is gradually increasing.
Q: Has the profitability of Dell IP storage and traditional servers improved? Will ISG's gross margin decline year-over-year due to the high proportion of AI?
A: The profit margin of Dell IP storage is higher than that of partner IP, and the profit margin of each product line continues to improve. Although the increase in the proportion of AI has a dilutive effect on the gross margin, the decline in the proportion of AI in the second half of the year and the increase in the proportion of traditional business will drive profitability improvement. Storage has a seasonal advantage in the fourth quarter.
Q: In the full-year guidance, revenue increased by $4 billion, and net profit increased by about $100 million to $110 million. What is the reason for the low profit conversion rate of incremental revenue?
A: The guidance adjustment reflects changes in demand dynamics. The improvement in profitability in the second half of the year is mainly driven by the seasonal nature of storage. Although AI server revenue increased, the expectations for traditional servers and storage were lowered, but overall profit growth remains strong.
Q: What are the reasons for the poor performance of traditional servers and storage? Has federal government demand had an impact?
A: The demand for traditional servers in North America continues to be weak, and the decline in federal spending has had an impact. The trend of server consolidation is driving content enhancement (more cores, memory, SSD), but 70% of the installed base servers are still 14th generation or earlier products. In terms of storage, the demand from large North American customers in the second and third months of this quarter was below expectations, but Dell IP products continue to perform strongly.
Q: How is the progress of enterprise AI demand? Is it related to the growth of NVIDIA Hopper business?
A: Enterprise AI demand has grown significantly, with both customer numbers and revenue setting quarterly records, covering multiple industries. From the customer structure perspective, the proportion of new customers and repeat customers is about 50:50. The implementation of AI factories will ultimately bring opportunities for the company to sell network equipment, storage products, and professional services.
Many enterprises are currently not ready — their existing data centers cannot support the higher power density required by some advanced technologies. When Hopper Air products suitable for existing data centers and RTX 6000 are launched, we will see significant growth in demand for such products.
Q: What is the proportion of GB300 in the AI server backlog orders? From the customer demand structure perspective, has the demand proportion of the GB300 series and 200 series changed, and has it put pricing pressure on the old platform?
A: The backlog orders are mainly composed of various variants of the Blackwell series, with customers choosing different configurations based on their needs. Customers who have previously started deploying the 200 series are still continuing their deployment work; at the same time, many customers are migrating to the GB 300 series. The components of various models of the Blackwell series have fully entered mass production, with the capability for large-scale supply, and all models have begun shipping to customers.
Q: What is the source of confidence in PC growth and profitability in the second half of the year? Will growth continue in 2026?
A: The end of support for Windows 10 brings an update opportunity, with half of the installed base PCs still not upgraded. The company's goal: achieve business growth, outperform the market, and consolidate market share. The PC business is a scale business and a customer acquisition tool, with significant importance.
Q: To achieve operating profit growth, the gross margin needs to improve by 1.5-1.6%. What are the driving factors?
A: The proportion of the storage business will significantly increase in the fourth quarter, and the infrastructure solutions group (ISG) business will also gain momentum in that quarter, with profitability in the second half of the year slightly better than the first half.
The AI server business will stabilize, with its profit margin gradually improving; the profitability growth of the storage business is not only due to its seasonal characteristics, but also due to the business structure tilting towards Dell's self-developed intellectual property (Dell IP) products, bringing higher profitability; for the traditional server business, growth is expected in the second half of the year
Q: Why not expand the high-margin service business to improve profitability?
A: The company enhances the service contribution by upselling various services (Pro Support, professional services, deployment services), which is the best way to increase the service proportion.
Q: What is the proportion of liquid cooling and air cooling in AI servers? What is the impact on profit margin? Revenue was raised by about 4%, but earnings per share (EPS) was only raised by 1.5%. Why is the full-year EPS increase lower?
A: If we consider the potential order reserve for the next five quarters, its structure will mainly consist of direct liquid cooling products; the large-scale deployment of the GB 200 and GB 300 series is the fastest and most accurate reflection of the current undelivered order structure.
The EPS guidance considers the balance between the increase in AI server revenue and the downward adjustment of expectations for traditional servers and storage, with profit growth driven by product mix and efficiency.
Q: What changes are there in supply chain dynamics (inbound and outbound) in the second half of the year?
A: Q2 was affected by a deflationary environment, and it is expected to stabilize in the second half of the year, with tariff complexities effectively managed.
In the second quarter, the deployment and shipment of GB 200 series products were advanced, incurring certain costs in expedited material delivery; in addition, restructuring adjustments made to optimize the supply chain also incurred some expenses. These costs were one-time costs in the second quarter, and are not expected to recur in the third and fourth quarters.
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