Q3 2025 Earnings Summary
- Strong Growth in AI Servers and Pipeline Expansion: Dell's AI server momentum continued with orders demand reaching a record $3.6 billion, up 11% sequentially, primarily driven by Tier 2 cloud service providers and enterprise customers . The company shipped $2.9 billion of AI servers in Q3, resulting in an AI server backlog of $4.5 billion . Their 5-quarter pipeline grew more than 50% sequentially, demonstrating strong future demand .
- Improved ISG Operating Income and Margins: Infrastructure Solutions Group (ISG) revenue grew 34%, with server and networking revenue up 58% . Operating income for ISG increased by 230 basis points quarter-over-quarter and is up 530 basis points since Q1, driven by improving gross margins, especially in servers, and reduced operating expenses percentage . Dell expects ISG operating income rates to continue to improve in Q4 .
- Storage Growth and Market Share Gains Expected: Dell expects the storage marketplace to grow next year and aims to take share with their Dell IP storage portfolio, having invested in new solutions and capabilities . The company is focusing on high-margin, differentiated products like PowerStore, PowerFlex, and PowerScale to drive future growth and profitability .
- Dilutive Gross Margins in AI Servers: Despite the high average selling prices (ASPs) of AI-optimized servers, Dell acknowledges that the gross margin rate is dilutive, which could impact overall profitability. The company is working to improve rates through services and other offerings, but the competitive landscape remains challenging.
- Lag in Storage and Services Demand from AI Servers: Dell expected that AI server sales would drive growth in storage and services demand. However, there is indication that this opportunity hasn't materialized yet, which may limit the company's ability to capitalize fully on the AI market.
- Supply Constraints Affecting AI Server Shipments: Due to component availability and shifts towards new products like Blackwell, Dell anticipates that AI server shipments will be down slightly quarter-over-quarter in Q4, despite a growing backlog. Supply constraints could hinder near-term revenue growth in the AI segment.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q4 2025 | no prior guidance | $24B–$25B (midpoint $24.5B, +10% y/y) | no prior guidance |
ISG + CSG Combined Growth | Q4 2025 | no prior guidance | 13% | no prior guidance |
IHG Revenue Growth Rate | Q4 2025 | no prior guidance | mid-20s y/y | no prior guidance |
CSG Revenue Growth Rate | Q4 2025 | no prior guidance | low single digits y/y | no prior guidance |
Operating Expenses | Q4 2025 | no prior guidance | decline by mid single digits | no prior guidance |
Operating Income Rate | Q4 2025 | no prior guidance | up sequentially | no prior guidance |
Diluted Share Count | Q4 2025 | no prior guidance | 715M–719M | no prior guidance |
Diluted Non-GAAP EPS | Q4 2025 | no prior guidance | $2.50 ± $0.10 (+14% y/y) | no prior guidance |
Full Year Revenue Growth | FY 2026 | no prior guidance | 9% | no prior guidance |
Full Year Diluted Non-GAAP EPS | FY 2026 | no prior guidance | $7.81 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2025 | $24B to $25B | $24.366B | Met |
ISG YoY Revenue Growth | Q3 2025 | “low 30s”% YoY | 33.66% YoY (from $8,499To $11,368) | Met |
CSG YoY Revenue Growth | Q3 2025 | “flat to up low single digits”% YoY | -1.18% YoY (from $12,276To $12,131) | Missed |
Diluted Non-GAAP EPS | Q3 2025 | $2 ± $0.10 | $1.58(GAAP figure shown; no separate non-GAAP figure provided) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI server growth and pipeline expansions | Q2: $3.1B shipments, backlog $3.8B / Q1: $2.6B orders, $1.7B shipped / Q4: $800M shipped, $2.9B backlog | Shipped $2.9B in AI servers, backlog $4.5B, pipeline up 50% | Recurring with increasing momentum |
Shifts toward next-generation GPU technologies (Blackwell) | Q2: Delays in Blackwell availability (backlog flat) / Q1: No mention / Q4: Transition to B100/B200 adds complexity | Rapid shift to Blackwell (GB200), impacting backlog and Q4 guidance | Expanding focus on Blackwell |
Traditional server modernization and consolidation | Q2: Consistent growth, ending long digestion / Q1: Continued strength (second consecutive Y/Y growth) / Q4: Ongoing Y/Y demand growth | 16G servers replace 3–7 older models, freeing space for AI | Ongoing modernization cycle |
Operating margin trends in ISG and CSG | Q2: ISG 11% margin, CSG 6.2% / Q1: ISG 8%, CSG 6.1% / Q4: ISG 15.3%, CSG 6.2% | ISG OI up 41% Y/Y to $1.5B (13.3%), CSG at 5.7% | Recurring updates, ISG margins rising, CSG stable |
Delays in the PC refresh cycle | Q2: Refresh slower than expected, shifting to late 2024 / Q1: Delays noted but optimism around AI / Q4: Demand recovery pushed out, Windows 10 EOL a catalyst | Refresh cycle pushed out, enterprise awaiting AI PCs | Prolonged delays, potential future spike |
Storage business performance and rebounds | Q2: Down 5% Y/Y but double-digit demand in core / Q1: Flat at $3.8B / Q4: Down 10% Y/Y, up 16% sequentially | Storage up 4% to $4B, strong midrange demand, AI driving opportunity | Recurring, signs of rebound |
Competitive pricing environment and margin pressures | Q2: 21.8% gross margin, competitive + AI mix / Q1: 22.2% gross margin, -250 bps Y/Y / Q4: Pressures from AI mix + inflation | Gross margin 22.3% of revenue (-140 bps Y/Y), AI mix + competition | Persistent margin pressures |
Rising component costs (DRAM, SSD) impacting margins | Q2: No mention / Q1: Expected cost spike in H2, up 15–20% / Q4: Inflationary environment | No mention in Q3 2025 | No current mention |
Supply chain and GPU availability constraints | Q2: Supply improving but backlog remains / Q1: Managing backlog with H100/H200 launches / Q4: Demand outpaced GPU supply | Blackwell transition constraining shipments, though supply chain remains resilient | Ongoing constraints, improving supply |
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AI Server Shipments Outlook
Q: Will AI server revenue decline in Q4?
A: Yes, AI server shipments are expected to be slightly down sequentially in Q4 due to the shift in orders towards Blackwell products, which are now ramping up in production. The backlog reflects when we will receive components and can ship them. Despite this, our 5-quarter AI pipeline grew over 50% quarter-over-quarter, and we continue to work on converting this pipeline into shipments. -
Guidance Revision Reasons
Q: Why did full-year guidance decrease?
A: The midpoint of our full-year revenue guidance decreased from $97 billion to $96.1 billion due to two main factors: the delay in the PC refresh cycle, pushing demand into calendar 2025, and the shift in AI demand towards Blackwell, affecting shipment timing. These factors impact our fiscal year and Q4 outlook. -
AI Pipeline Growth and Composition
Q: How is the AI pipeline growth and customer mix?
A: Our 5-quarter AI pipeline expanded over 50% quarter-over-quarter, with the enterprise customer portion growing even faster. We have now sold AI solutions to over 2,000 enterprise customers, and as enterprises increasingly adopt AI, we see significant growth opportunities ahead. -
AI Server Margins
Q: How are AI server margins trending?
A: While AI servers have lower gross margin rates, they are margin dollar accretive. We've seen rate improvements fueled by services, installation, financing solutions, and opportunities in networking and storage. We are focused on continuing to improve margins across the portfolio. -
Storage Business Outlook
Q: What's the outlook for storage growth?
A: We expect storage to grow next year, driven by investments in new solutions like our Dell IP storage portfolio. AI is creating new demands in storage architecture, and our offerings—such as PowerStore, PowerScale, and PowerFlex—are well-positioned to meet high-performance AI workloads. -
Enterprise Server Growth Sustainability
Q: Is enterprise server growth sustainable?
A: Yes, we believe the growth is sustainable as we're in the early stages of a modernization cycle. Customers are consolidating servers to free up resources for AI, with our 16G servers offering significant consolidation benefits. We've seen six consecutive quarters of growth, indicating a strong recovery in the server market. -
Tariffs and Supply Chain Resilience
Q: Any impact from tariffs on operations?
A: We have a resilient global supply chain and extensive experience navigating geopolitical and macroeconomic challenges, including tariffs. We're well-equipped to respond to any changes in the best interests of our customers and shareholders. -
Customer Concentration in AI Backlog
Q: What's the customer mix in the AI backlog?
A: Our AI backlog includes both large enterprises and Tier 2 cloud service providers. The enterprise portion is growing faster, and we're only in the early stages of enterprise AI adoption. Our scale and go-to-market footprint position us well to capitalize on this expanding market. -
Federal Spending Impact
Q: How is federal spending affecting business?
A: We had a strong federal government business in Q3, with robust demand across all product types. Our AI pipeline currently has minimal sovereign demand, presenting additional future opportunities as we engage globally. -
Advantage of Full Stack Solutions
Q: How does offering full stack benefit attach rates?
A: Offering a full stack of servers and storage is a significant advantage, especially in AI. GPUs require substantial data storage, and our portfolio meets the high-performance needs of modern AI workloads, driving higher attach rates for storage and services. -
Shift to Blackwell Architecture
Q: How does migration to Blackwell affect product mix?
A: We have demand for both Hopper and Blackwell architectures, with orders shifting notably toward Blackwell. Our open-based architecture allows us to quickly adapt to new designs and meet customer needs at scale and speed, leveraging platforms like our new IR 7000 rack. -
Outlook for Fiscal 2026
Q: What's the early view on fiscal 2026?
A: While it's early, we're optimistic about fiscal 2026, expecting multiple tailwinds such as robust AI demand, an aging installed base of PCs and servers, and an upcoming enterprise refresh cycle. We anticipate growth across ISG, including AI servers, traditional servers, and storage, and expect CSG revenues to be up.
Research analysts covering Dell Technologies.