Analyst(s): Olivier Blanchard
Publication Date: September 3, 2024
Dell Q2 FY 2025 earnings report highlighting how the growing demand for AI solutions and Dell’s partnership with NVIDIA are already producing record results for Dell’s Infrastructure Solutions Group and why softness in Dell’s Client Solutions Group numbers for the quarter suggests that the PC refresh supercycle, which kicked off just a few weeks ago, may take a few more quarters to gain momentum.
What is Covered in this Article:
- Dell’s Q2 FY 2025 financial results
- Record revenue from server and networking solutions
- Strong demand for AI solutions continues to be on-ramp for growth
- PC refresh supercycle kicked off this quarter with Copilot+ PC launches
- PC refresh cycle may take several quarters to build momentum
- Outlook for Dell’s trajectory through upcoming quarters
Dell Q2 FY 2025 Earnings Deliver Record Server and Networking Revenues
The News: Dell Technologies (NYSE: DELL) announces financial results for its fiscal 2025 second quarter. Revenue was $25.0 billion, up 9% year over year (YoY). Operating income was $1.3 billion, and non-GAAP operating income was $2.0 billion, up 15% and 3% YoY, respectively. Diluted earnings per share were $1.17, and non-GAAP diluted earnings per share were $1.89, up 86% and 9% year over year, respectively.
“In Q2, our combined ISG and CSG revenue was $24.1 billion, up 12% year over year, positioning us well for the second half of the year and beyond,” said Yvonne McGill, chief financial officer of Intel’s entry into the Copilot+ PC ecosystem with x86 machines—alongside Qualcomm’s Apple-like Snapdragon X Arm-based platform—Dell Technologies. “Our momentum in ISG is a significant tailwind, with record ISG revenue of $11.6 billion, up 38% yearly.”
Dell Q2 FY 2025 Earnings Deliver Record Server and Networking Revenues
Analyst Take: Summarizing Dell earnings for Q2 FY 2025, we see $25 billion revenue (up 9% YoY), with record Infrastructure Solutions Group (ISG) revenue of $11.6 billion (up 38% YoY) and record servers and networking revenue of $7.7 billion (an 80% increase YoY). Dell’s Client Solutions Group (CSG) revenue for the quarter landed at $12.4 billion, down 4% YoY, with commercial client revenue coming in flat at $10.6 billion.
Infrastructure Solutions Group (ISG)
Overall, ISG delivered good news, with the group delivering record Q2 revenue of $11.6 billion, up an impressive 38% YoY (and beating estimates of $10.8 billion). Servers and networking revenue brought a record $7.7 billion (up 80% YoY), driven by strong demand for AI and traditional servers. Storage revenue, however, landed at $4 billion, down 5% YoY. Operating income was $1.3 billion.
Dell’s partnership with Nvidia is clearly paying off already: 8-9 out of 10 of Dell’s server customers look to be Tier-2 CSPs (cloud services providers). In addition to the enterprise, Dell is now also better equipped to attract mid-sized customers looking for more AI capabilities from their servers.
Per Jeff Clarke, vice chairman and CEO of Dell Technologies: “Our AI momentum accelerated in Q2, and we’ve seen an increase in the number of enterprise customers buying AI solutions each quarter. AI-optimized server demand was $3.2 billion, up 23% sequentially, and $5.8 billion year to date.” These include Dell’s flagship PowerEdge XE9680. Clarke also noted that the group’s pipeline has grown to “several multiples” of the company’s $3.8 billion backlog, further signaling that momentum outlook should remain positive into the next few quarters (probably in the neighborhood of $12 billion).
Client Solutions Group (CSG)
CSG, however, delivered disappointing Q2 revenue of $12.4 billion, down 4% YoY and slightly missing consensus expectations of $12.6 billion for the quarter. Commercial client revenue remained flat at $10.6 billion, but Consumer segment revenue was $1.9 billion, down a concerning 22%, with operating income at $767 million.
As concerning as Dell’s PC numbers for the quarter are, bear in mind that we are only two months removed from Copilot+ PCs’ first round of launches. The AI PC supercycle’s kickoff started just a few weeks ago, with a very limited number of Dell Copilot+ PCs hitting the market between June and August.
Four critical factors will come into play as the AI PC category drives the PC segment’s reset of the refresh cycle into 2025 and through 2028:
- Significant performance improvements and lower TCO from new AI-optimized (NPU-equipped) PCs create a value proposition that will be difficult to argue against, even if the “AI” piece of the value proposition remains elusive for some time.
- AMD and Intel entering the Copilot+ PC ecosystem with x86 machines – alongside Qualcomm’s Apple-like Snapdragon X Arm-based platform- will bring peace of mind and scale to the new category.
- Microsoft’s end of support for Windows 10 in October of next year will prompt ITDMs to accelerate their PC refresh efforts at scale in the commercial segment.
- Primarily in the consumer segment (but also in the commercial segment over time), the Snapdragon X platform’s Apple-like performance (outstanding performance-per-watt, all-day battery life, and lap-friendly thermal envelope) will finally give Windows users a reason to upgrade their Windows laptops and resist the Apple siren song.
Dell is well positioned to leverage all four of these factors in the coming quarters as the Copilot+ category and AI PCs, as a whole, begin to build momentum and replace increasingly obsolete pre-AI PCs. This quarter’s numbers don’t yet reflect the on-ramp demand that I expect to start seeing in the fall and winter as these new PCs get into the hands of early adopters and IT departments. We are seeing similar softness in PC shipments from other PC OEMs for the quarter, so this is by no means limited to Dell.
In summary
In summary, it was a great quarter overall for Dell. Despite some softness in the Client Services Group, current growth is mostly attributable to growing demand for AI-optimized servers, which should continue to be a growth driver for Dell’s Infrastructure Services Group well into 2025. On the Client Services Group side of the aisle, patience may be in order as the PC segment’s engine ramps up momentum towards what is promising to be a multi-year PC refresh supercycle.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Dell’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Olivier Blanchard is Research Director, Intelligent Devices. He covers edge semiconductors and intelligent AI-capable devices for Futurum. In addition to having co-authored several books about digital transformation and AI with Futurum Group CEO Daniel Newman, Blanchard brings considerable experience demystifying new and emerging technologies, advising clients on how best to future-proof their organizations, and helping maximize the positive impacts of technology disruption while mitigating their potentially negative effects. Follow his extended analysis on X and LinkedIn.
