Technology

Dell benefits from AI demand: Profit margin falls

Dell presents quarterly figures – U.S. computer manufacturer releases results for the past fiscal quarter.

Eulerpool News May 31, 2024, 4:31 PM

In the first quarter of fiscal year 2025, Dell achieved earnings of $1.27 per share, a decline of 3 percent compared to the same quarter last year. Nonetheless, the company exceeded analysts' expectations of $1.25 per share. Revenue increased by 6 percent to $22.244 billion, also surpassing forecasts.

The server and networking business recorded a record revenue of $5.5 billion, up 42 percent compared to the same period last year. At the same time, operating income in the infrastructure solutions sector decreased by one percent to $736 million, even though revenue in this segment increased significantly.

Dell benefited significantly from the current trend toward artificial intelligence. Orders for AI-optimized servers rose to $2.6 billion, while deliveries of AI servers generated sales of $1.7 billion, more than double the amount in the same period last year. The order backlog for AI servers increased by more than 30 percent to $3.8 billion.

For the second quarter, Dell forecasts revenue between 23.5 and 24.5 billion US dollars, and for the entire fiscal year, revenue of 93.5 to 97.5 billion US dollars. CFO Yvonne McGill expressed the expectation that the positive AI momentum will continue and lead to further revenue growth.

Nevertheless, Dell expects a gross margin about 150 basis points lower for the fiscal year 2025, attributed to higher input costs, competitive pressure, and a larger share of AI-optimized servers. Analysts like Michael Ng of Goldman Sachs expressed concerns about the low margins in the AI sector and their long-term impact on profitability.

Dell shares fell 5.18 percent on Thursday on the NYSE to $169.92 and temporarily dropped another 17.34 percent in pre-market trading on Friday to $140.31. Despite this decline, the shares have increased by 122.12 percent since the beginning of the year.

In contrast, NVIDIA, a key hardware supplier for Dell's AI servers, recorded a pre-market price increase of 1.30 percent to $1,119.56. COO Jeffrey Clarke emphasized the reliance on NVIDIA hardware in Dell's AI server division, highlighting the close partnership between the two companies.

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