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Q & A Highlights

Q: Yvonne, could you talk through the fiscal '26 guide? What assumptions are incorporated beyond what you stated, especially regarding ISG and CSG margins? How much is coming from buybacks, and have you made any tariff-related assumptions in these margin guides? A: Thanks, Wamsi. We guided to $103 billion at midpoint, up 8%, with ISG and CSG expected to grow about 10% combined. ISG is expected to grow in the high teens, fueled by $15 billion of AI server shipments and continued growth in traditional server and storage. CSG is expected to grow mid-single digits, more weighted towards the second half of the year. OpEx is expected to be down low single digits year-over-year, continuing our efficiency drive. We expect ISG operating income to be roughly flat year-over-year, with continued competition in CSG. We are balancing growth and profitability, managing pricing, and driving shareholder value.

Q: Jeff, how do you respond to concerns about ODM encroachment in the AI server market, potentially leading to margin pressure? A: Thanks, Erik. We do see ODMs in large opportunities, but Dell's strength lies in custom work requiring significant engineering and architecture capabilities. Our customers value our end-to-end solutions, including service, global footprint, financing capabilities, and go-to-market coverage. We differentiate by providing unique solutions, and our ability to deploy large clusters faster than competitors is a key advantage. We continue to invest in differentiation and provide a one-stop solution that others may not offer.

Q: Could you give us your thoughts on your exposure to the US federal government and how you see trends given budget cuts and spending cuts? A: We do business in over 170 countries, with the US being the largest. While I can't parse out specific details, we continue to lean into opportunities and navigate cycles successfully. The US government will need technology, and AI plays a significant role. We expect demand to materialize, and we have a broad business to support this, whether in PCs, servers, storage, or AI solutions.

Q: Jeff, as the Blackwell product cycle materializes through your AI backlog, how do you compare the margin profile of rack scale configurations relative to the Hopper product cycle? A: Blackwell margins are lower than Hopper margins, as deals are large and competitive. However, system design and architecture work allow us to extract value and reduce costs. We focus on engineering unique solutions, attaching networking and storage, and providing services. AI servers are margin rate-dilutive but margin dollar-accretive and operating margin-positive. Our experience shows better margins in enterprise AI, and we continue to focus on this area.

Q: Can you talk about the expectations for ISG margins, considering AI server revenues growing 50%? How do you plan to keep ISG margins flat despite the dilutive effect from AI server margins? A: We plan to grow at least $15 billion in AI servers while maintaining ISG margins by leveraging traditional servers and storage. Storage leverage is crucial, with a focus on Dell IP storage, which has superior margins. PowerStore has shown strong growth, and we continue to invest in innovation and differentiation. Our broad coverage and specialty capabilities help grow the customer base, and we aim to attach more storage to AI opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.