Q4 2025 Summary
Published Feb 27, 2025, 11:58 PM UTC- Strong Growth in AI Business Driving Incremental Profitability: Dell's AI business grew to $10 billion in FY '25 and is expected to grow to at least $15 billion in FY '26, driving incremental operating profit and being EPS-accretive. The company has a robust AI opportunity pipeline and leverages its engineering, services, and financing advantages to capitalize on this growth.
- Anticipated PC Refresh Cycle Boosting CSG Revenue: Dell anticipates a significant PC refresh cycle due to 500 million PCs running Windows 10 that cannot upgrade to Windows 11 and an aging installed base with half of 1.5 billion PCs being over 4 years old. The introduction of new AI PCs, such as Lunar Lake-based notebooks and AMD AI PCs, is expected to drive consumer demand and future-proof customer investments.
- Expansion of High-Margin Dell IP Storage Solutions Enhancing Profitability: Dell is pivoting towards its own IP storage solutions like PowerStore, which has experienced four consecutive quarters of demand growth, with the last three quarters in double digits. By focusing on higher-margin own IP storage and expanding the customer base, Dell aims to maintain ISG margins despite increasing AI server sales.
- Newly announced tariffs on Chinese imports were not included in Dell's FY'26 guidance, potentially impacting future financial performance negatively. The company stated that whatever was announced that morning was not included in their guidance and acknowledged the dynamic environment regarding trade regulations and tariffs.
- Competitive pricing pressures in the Client Solutions Group (CSG) are leading to margin compression, with expectations of continued competition affecting profitability. The company mentioned that the competitive environment is embedded in their guidance, indicating potential impacts on margins, especially in the PC market.
- Dell's free cash flow decreased by several billion dollars in FY'25 compared to FY'24, driven by less growth in the CSG segment and increased inventory investments in the AI business. This contraction in free cash flow may pose risks to financial flexibility in FY'26.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +7% YoY increase | Strong revenue growth in Q4 2025, rising from $22,318M to $23,931M, was mainly driven by robust performance in the Infrastructure Solutions Group (ISG) that offset stability in the Client Solutions Group (CSG), echoing similar trends observed in Q3 2025 where ISG growth lifted overall revenue. |
ISG Revenue | +22% YoY increase | ISG performance surged from $9,332M to $11,352M due to heightened demand for AI-optimized and traditional server products. This growth is consistent with the strong AI-led momentum seen in previous quarters, where server and networking revenues experienced substantial increases. |
CSG Revenue | -0.7% YoY decline | CSG revenue dipped slightly from $11,962M to $11,881M as the consumer segment continued to underperform while commercial gains partially offset the decline. This mirrors earlier patterns, as previous reports indicated that weaknesses in the consumer market were a recurring challenge. |
Operating Income (EBIT) | Increased to $2,159M | Operating efficiency improved with EBIT rising to $2,159M, driven by revenue gains—especially in ISG—and disciplined cost management measures that built on past improvements seen in earlier quarters. |
Net Income | Improved to $1,532M | Net income grew to $1,532M as higher operating income and controlled expenses outweighed previous challenges, reflecting a sustained profitability improvement similar to gains reported in Q3 2025. |
Diluted EPS | Increased to $2.15 per share | Diluted EPS improved to $2.15 per share, reflecting the combined effect of higher net income and effective share repurchase activities that reduced the share count, a trend that continued from enhancements noted in earlier periods. |
Cash Flow Performance | Net decrease in cash of $1,585M | Liquidity was impacted by a net cash reduction of $1,585M, largely due to increased capital expenditures and higher working capital requirements (e.g., elevated inventory levels for AI products), diverging from previous stronger operational cash flows noted in earlier quarters. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue growth | FY 2026 | 9% | 8% | lowered |
Diluted Non-GAAP EPS | FY 2026 | $7.81 | $9.30 ± $0.25 | raised |
ISG | FY 2026 | no prior guidance | Expected to grow in the high teens | no prior guidance |
CSG | FY 2026 | no prior guidance | Expected to grow in the low to mid-single digits | no prior guidance |
Combined ISG and CSG Growth | FY 2026 | no prior guidance | 10% at the midpoint | no prior guidance |
Gross Margin Rate | FY 2026 | no prior guidance | Expected to decline by ≈100 basis points | no prior guidance |
Operating Expenses (OpEx) | FY 2026 | no prior guidance | Expected to decline in the low single digits YoY | no prior guidance |
ISG Operating Income Rate | FY 2026 | no prior guidance | Expected to be roughly flat YoY | no prior guidance |
CSG Operating Income Rate | FY 2026 | no prior guidance | Expected to decline slightly | no prior guidance |
Revenue | Q1 FY 2026 | no prior guidance | $22.5B–$23.5B, midpoint $23B, 3% growth | no prior guidance |
ISG and CSG Combined Growth | Q1 FY 2026 | no prior guidance | 6% at the midpoint | no prior guidance |
Gross Margin Rate | Q1 FY 2026 | no prior guidance | Expected to be lower sequentially | no prior guidance |
Operating Expenses (OpEx) | Q1 FY 2026 | no prior guidance | Expected to decline in the low single digits YoY | no prior guidance |
Diluted Non-GAAP EPS | Q1 FY 2026 | no prior guidance | $1.65 ± $0.10, up 25% growth | no prior guidance |
Diluted Share Count | Q1 FY 2026 | no prior guidance | 706–710 million shares | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2025 | $24B–$25B | $23.931B | Missed |
ISG + CSG YoY Growth | Q4 2025 vs Q4 2024 | 13% | 9.1% (from $21.294BTo $23.233B) | Missed |
Operating Income Rate | Q4 2025 vs Q3 2025 | Expected to be up sequentially | Up from $1,668MIn Q3 2025 to $2,159MIn Q4 2025 | Met |
Diluted Non-GAAP EPS | Q4 2025 | $2.50 ± $0.10 | $2.15 | Missed |
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Fiscal '26 Guidance and Margin Outlook
Q: Can you discuss the fiscal '26 guidance and margin assumptions?
A: Dell guided to $103 billion at midpoint for fiscal '26, up 8% with all segments growing. ISG and CSG are expected to be up a combined 10%. ISG growth will be in the high teens, fueled by at least $15 billion of AI server shipments and continued growth in traditional servers and storage, with storage growing in the low single digits. CSG is expected to grow in mid-single digits, with a refresh cycle weighted towards the second half of the year. Operating expenses are guided to be down low single digits year-over-year due to efficiencies across the company. Operating margin is expected to improve to 9.1%, up from 8.9%. Despite competitive pressures, Dell plans to balance growth and profitability while managing pricing and the competitive environment. -
AI Server Revenue and ISG Margins
Q: How will AI server growth impact ISG margins in fiscal '26?
A: Dell expects to hold ISG margins flat year-over-year while growing AI server revenue to at least $15 billion. This will be achieved by growing traditional servers and storage. The pivot to Dell IP storage, which has vastly superior margins compared to third-party IP, will improve profitability. Products like PowerStore have shown strong growth, enhancing margins. Traditional servers are also expected to contribute positively, with newer products like 16G and 17G servers driving higher revenue per unit due to more cores, memory, and SSDs. -
Durability of Server and Storage Growth
Q: What is the outlook for traditional server and storage growth?
A: Dell anticipates continued growth across the ISG portfolio, with storage growing in the low single digits and servers growing at a higher rate. The server refresh cycle is expected to continue for another four quarters, driven by consolidation and the replacement of older servers with newer, more efficient models. The conversion rates show that one 16G server can replace 3 to 4 older servers, improving efficiency and performance. Dell's focus on Dell IP storage and the decline in HCI business are factors influencing growth. -
Free Cash Flow and Operating Leverage
Q: What's driving the contraction in free cash flow, and is operating leverage durable?
A: In fiscal '25, free cash flow was down due to lower-than-expected growth in CSG and significant investments in AI inventory, impacting the cash conversion cycle. For fiscal '26, Dell expects improvements from current CCC levels, better CSG performance, and P&L growth, leading to free cash flow greater than 1x net income. Operating leverage is considered durable, driven by structural changes in the company. Dell is modernizing workflows, applying automation and AI technologies, reducing costs while investing more in innovation, sales, and services. These efficiencies are sustainable and not one-time reductions. -
Tariff Assumptions and Supply Chain Impact
Q: What are you factoring in for China tariffs, and how are you adjusting?
A: The recent announcements regarding tariffs were not included in Dell's guidance. The company operates in a dynamic environment and has built a globally diverse, agile, and resilient supply chain to minimize the impacts of trade regulations and tariffs. Dell monitors the situation closely and will take input costs into account, adjusting pricing accordingly in this competitive environment. -
Competition from ODMs in AI Servers
Q: How do you address concerns about ODM competition in AI servers?
A: Dell acknowledges that ODMs are present in large AI server opportunities but remains confident due to its significant engineering and architectural capabilities. The custom work required in AI deployments favors Dell's strengths in providing unique, differentiated solutions. Customers value Dell's end-to-end services, including integration, network expertise, global service footprint, financing capabilities, and go-to-market coverage. These factors differentiate Dell from ODMs and other OEMs in the AI server market. -
Supply Constraints in AI Servers
Q: Is AI server revenue growth constrained by supply?
A: Dell does not see supply as an issue for achieving at least $15 billion in AI server shipments. Hopper supply is available, and Blackwell is in production and ramping up. Dell is open for business and taking orders, with a growing five-quarter pipeline that is several multiples of the backlog. The company is pursuing opportunities with both CSPs and enterprises, and while customer readiness factors like data center preparation are considerations, Dell has line of sight to meet its AI server revenue goals. -
PC Refresh Cycle and CSG Growth
Q: What's the confidence level in the upcoming PC refresh cycle?
A: Dell is confident that the PC refresh cycle is forthcoming, though it has been delayed and slower than previous cycles. Factors contributing to this confidence include: 1) The impending Windows 10 end of life in nine months, affecting over 500 million PCs that cannot run Windows 11; 2) Customers seeking to future-proof their investments with new AI PCs, including Lunar Lake-based notebooks launched in January. While there was a slowdown referenced in January, data suggests that the refresh is coming at a good rate, likely extending over time. -
Storage Attach Rate to AI Servers
Q: How is Dell increasing storage attach rates to AI servers?
A: AI workloads require significant data, necessitating storage solutions closer to computational capabilities. Dell is leveraging its leading platform for unstructured data and developing offerings like Project Lightning, an AI-driven parallel file system. The sales force is incentivized to attach storage solutions with AI server opportunities, and Dell continues to see progress in this area. Attaching storage to AI deployments enhances overall margins and provides comprehensive solutions to customers. -
Exposure to U.S. Federal Government
Q: What's Dell's exposure to U.S. federal government spending?
A: Dell conducts business with the U.S. federal government, but specific percentages of revenue are not disclosed. The company recognizes the potential impact of budget cuts and spending reductions but believes that the government will continue to require technology solutions, including AI. Dell has historically navigated fluctuations in demand across countries and segments and expects to continue doing so by leveraging its broad business portfolio.