The Six Five team discusses Dell Q2FY25 Earnings
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Transcript:
Patrick Moorhead: Dell earnings. Dell had quite a banger in their Q2 FY25 earnings. I alluded to a little bit of it, but they had an absolute banger in their data center group. ISG, which is the data center group, up 38%, but what was fire were the AI servers up freaking 80%, amazing. Storage was off by 5%. And you know what, storage usually follow servers. In the call, they talked about how good the profitability was. I believe that that storage being off was about non-Dell technologies storage, maybe VAST Data. So, they pull in the revenue for VAST Data, but it’s at a lower margin compared to their own. And again, VAST Data is not a storage company, it’s a software company, but they did need to likely pull in a third party for that.
Maybe it wasn’t VAST Data, maybe it was Pure, probably Pure, not VAST Data, but they’re not giving those types of details. And the interesting point too, the thing I really loved, and Jeff Clarke just did a great job on bringing this out and guys, I really recommend to go listen to a conference call. You need to go in and read the transcript or look at the conference call, but Jeff just did a masterwork of talking about what is going on here. ISG is targeting two AI server categories, tier two CSPs, these are not the non-hyperscalers, and then enterprises. Tier two used to be like XAI. We saw Michael Dell tweet about that installation, and we see that half that went to Dell and half that went to Supermicro. You have these GPU-focused companies that again, do GPU as a service. Dan, you’ve been talking a lot about these guys, but those are very much on the move.
And then, there’s enterprises. Jeff talked about, okay, we got through experimentation and we’re just going into POCs, so not like these large installations of POCs. I was a little surprised by that. But that would also indicate how HPE and their numbers not moving as much in enterprise AI, big in HPC AI, but not so much in enterprise AI. Backlog, 3.X billion and the pipeline was multiples, didn’t give us a number, 4X, 5X, 3X, but multiples on top of that. So, the pipeline looked strong, a good backlog, which is about twice as much as they did in the last quarter. Final comments, a little surprised. A little bit surprised on CSG, the PC group, particularly with what we saw from HP and Lenovo was off 4%. Huge consumer declines, around 22%, and commercial was flat. HP commercial was up. Not too certain what’s going on. There weren’t a lot of insights on the call. There was a lot of discussion about the Win 10 to Win 11 transition, October 2025. They’re optimistic about AI PCs, but can’t figure out the market share… Sorry, the numbers compared to HP and Lenovo.
Daniel Newman: Yeah, you covered it well. First of all, side note, but probably worthwhile. I think Dell got a real lift this quarter and will more so into the future as some of these question marks rise around Supermicro. We saw Hindenburg publish this short seller report. They were a bit of a Wall Street darling, and then they saw almost a 50% decline off their peaks. I think as people started to piece together that there was a bit of a house of cards there. The value add is going to be so important and Dell is so much better equipped on the value add on these systems.
Patrick Moorhead: Oh my gosh, Jeff talked about… Use terms I’d never heard about, but yeah, wanted to-
Daniel Newman: And I said this when I was talking to some of the folks when we were getting briefed on everything and I said, “Look, I don’t know that the market fully understands all the important contributions that Dell does to make AI optimized.” And like I said, it’s not really servers, it’s racks. It’s build out and it’s really being able to help companies understand the full requirements to integrate. And this goes back to what some of the alarm bells were with the AMD acquisition with ZT is that who owns this system design build out? And I think it is a bit of a village, and especially by the way, I know AMD said they want to compete with Dell… Or sorry, they want to compete with NVIDIA. But on the Dell side, they want to really be able to drive margin, which has been where all the concern has been around the fact, great revenue growth. But it was at a lesser margin than in the past. And that has been one of the push and pulls is where do they keep adding value so they can stack more margin into every one of these deals? And I think that’s what Jeff really talked quite a bit about. They’re really well positioned, Pat, on these tier twos, really, really well positioned.
Supermicro, this isn’t going to be like world ending, but I think there’s going to be some hesitation that Dell could capitalize on immediately as people are wondering what they’re up to over there. I’ll spend a minute longer on CSG just because you really covered ISG well. Pat, look, I know that we, and at times, we were talking back in the beginning of the year at CES about this device-driven super cycle. And I want to just basically say that you said earlier, let’s take that word off the table. I still believe in it. I do think we’re seeing a bit of a push that’s going on right now in terms of the biggest demand. I think I expected a little more Q3, Q4 demand. I think we’re seeing a bit more wait and see. I actually said I think Apple is going to surprisingly drive a wave of Copilot+ and AI PC growth because people are going to start to see this on-device experience and enterprises are still more commercially attuned to Windows based, but it’s just showing up in the numbers. CSG’s numbers were even softer than some of the others.
But Lenovo, HP, we’ll talk about here in a few, none of them had particularly optimistic. We talked to Enrique about it a little bit and we’ll talk again on HP, but I think everybody is starting to admit that there’s a lot of excitement, there’s a lot of enthusiasm, but it may be more Q1, 2 of ’25 and even beyond before this goes to scale. And some of this too, Pat, with the best features like recall really only being reintroduced here in Q4, there’s still a little work to be done by the ecosystem. And Pat, you and I are going to try to be educators to the market on what people can get from a Copilot+ and in AI PC. But I think that’s part of these numbers being a little soft is, but it’s also a reason for optimism that some of the best is still to come. This buy cycle could be huge, but it hasn’t happened quite as fast as I had initially anticipated.
Patrick Moorhead: Yeah. And just to clarify, I didn’t say that I don’t believe in the super cycle. I actually do. It’s just the definition of it. And when I was on stage in January at CES and Intel stage calling this, I said the second half would be the beginning of it. And I do feel like recall not going, and that was the sexiest feature out there. It’s having an unlimited memory of everything and it didn’t get delivered. And I think that’s an issue. Interestingly enough, Lunar Lake could be a real shot out there for volumes. And there’s this rumored eight core Qualcomm that Cristiano, Qualcomm’s CEO alluded to. The expansion of price points will absolutely make a difference. I think Enrique said 2025, 50%… Sorry, ’26 it would be 50%. But again, the reason that number sounds so low, first off, it’s a premium offering and it’s a little muddy what the desktop market is going to be, which is almost half of the entire PC market. And that’s directly related to the Intel and AMD roadmaps. And are they going to put big NPUs in their desktop parts? Right now, the answer is no.
Daniel Newman: Yeah. And by the way, there’s a massive opportunity for each of the silicon providers to differentiate, and each of the OEMs to differentiate in this category. Of course, there’s some benefit to some to see more standardization. There’s benefits for them to actually individualize these products a little bit, Pat. And I think we also heard something like a 7% to 9% increase in ASP tied to, I’ve heard different numbers, but that’s a pretty good range of what I’ve heard. So, you’ll see revenue grow just because these devices are more expensive. And so, as it goes to volume, you’re going to see on a per device basis, more revenue should be more profitable too as we see this turn.
Patrick Moorhead: Hey, I want to end this one. I want to read a quote from Jeff Clarke on the call. And just to be factual here, their AI margins were higher this quarter than they were in previous, that they got raked over the coals. And he says, “We improved margins of our AI portfolio and we did that with the same sort of price discipline, but more importantly, the engineering value add and the technical value add we’re bringing to our customers and the expansion beyond the specific node to the rack level deployment. So, our ability to add L11, L12 capabilities,” first time I heard those terms, “which are expert deployment, system validation and testing, the ability to help engineer to solution at our customer site, the extension into networking, the ability to cable these things up and deploy them at scale, that is allowing us to extract additional value in our AI deployments.” We have talked about all of this on our previous shows, but the biggest reason that training runs do not complete is A, networking breaking down. And secondly, it comes down to just to be brutally honest, GPUs flaming out.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
