Dell conference call highlights: AI server backlog orders "based on NVIDIA", profit margin "can be improved"

Early this morning Beijing time, Dell announced higher-than-expected first-quarter total revenue and segment revenue, but due to a decline in EPS, the stock price plummeted by 20% after hours.

During the earnings conference call, company executives responded to performance guidance, profit margins, AI server backlog orders, and opportunities in artificial intelligence.

Raised full-year performance outlook, second-quarter performance guidance exceeds analyst expectations

During the conference call, Dell provided guidance for the second quarter, fiscal year 2025, and the Infrastructure Solutions Group (ISG).

Chief Financial Officer Yvonne McGill stated that Dell expects second-quarter revenue to be between $23.5 billion and $24.5 billion, slightly above consensus expectations.

Furthermore, Dell has raised its full-year performance outlook from the previous quarter's $91 billion to $95 billion to between $93.5 billion and $97.5 billion. The consensus full-year revenue expectation is $94.07 billion.

McGill mentioned that driven by artificial intelligence, Dell expects ISG business growth to "exceed 20%", in line with analysts' forecasts.

AI server backlog orders and NVIDIA

When asked about Dell's AI server backlog orders, Dell's Chief Operating Officer Jeff Clarke stated that Dell's AI server backlog orders include enterprise customers and some large cloud service providers.

He mentioned that the completion of backlog orders mainly depends on the timely supply of NVIDIA GPUs. Clarke believes that although the availability of H100 is good, the supply of H200 is expected to improve in the second half of this year, and NVIDIA's Blackwell server B200 is currently in production.

NVIDIA's supply has been unable to keep up with the surging demand in the era of artificial intelligence. Analysts suggest that the improvement in Hopper chip supply indicates high demand from enterprise customers for NVIDIA's new products, which may mean that Blackwell chips will be sold out by 2025.

ISG business operating profit margin to expand

Clarke told analysts:

In terms of profit margins, we can do better in traditional servers and storage products.

Dell reported that its gross margin decreased by 4% compared to the same period last year, which McGill attributed to "a more competitive pricing environment and a higher mix of AI-optimized servers". She mentioned that the decrease in gross margin led to a 14% decline in operating income.

She also pointed out that the first quarter is usually the weakest in terms of ISG department profitability, and the company expects that over time, with the rebound in enterprise customer spending and expansion opportunities, the ISG business operating profit margin will expand

Artificial Intelligence Opportunities and Cooperation

Dell executives assured investors that as enterprise customers integrate artificial intelligence, the company will be in a favorable position to benefit from it. Clarke stated that Dell "has unique advantages in helping customers achieve artificial intelligence" and pointed out that "the strong momentum of artificial intelligence continues."

This quarter, Dell's orders for artificial intelligence-optimized servers increased to $2.6 billion, up from $800 million in the previous quarter.

Clarke also emphasized Dell's "open partner ecosystem," including Nvidia, Meta, Microsoft, and Hugging Face. Nvidia CEO Jensen Huang referred to Dell as an important partner in their earnings call last week.

Following the earnings conference call, Dell's stock price rebounded slightly, narrowing its post-market decline to 16%