Dell Technologies Inc. Price & Performance (DELL)

Growth percentages refer to year over year change unless otherwise specified. Statements made during this call that relate to future results and events are forward looking statements. Based on current expectations, Actual results and events could differ materially from those projected due to a number of risks and uncertainties which are discussed in our Dell deck and SEC filings. We assume no obligation to update our forward looking statements. Now, I'll turn it over to Jeff.

Thanks, Paul. Thanks, everyone, for joining us.

I am proud of the team's execution this year. We navigated an incredibly dynamic AI environment and accelerating server consolidation a significant pivot to Dell IP storage and a lagging PC refresh and delivered results above our long term value creation framework. We grew our company while reducing our operating expenditures over the course of the year. Our modernization efforts have made us more efficient, and provided us the ability to invest in more innovation, and in areas of strategic differentiation. Our FY 2025 revenue was $95,600,000,000 up 8% with operating income of $8,500,000,000 OpEx was reduced by 4% over the course of the year. This resulted in record EPS of $8.14 up 10% and cash flow of $4,500,000,000 We continue to differentiate ourselves with consistent Differing technology buying and adoption cycles in our rapidly innovating technology ecosystem. Some examples of the innovation from this past year. We added five platforms to our AI optimized portfolio, including support of Blackwell architectures. The highlight being the PowerEdge XC9712's Dell supporting NVIDIA's NVL 72 GB200 which we were the first to ship We launched the Dell infrastructure rack scalable system, our IR 12,000 in both 21 inches and 19 inches versions, providing us to 96 GPUs in a rack and seven eighty six GPUs in a We have made significant advancements in CDU's coal plates, manifolds and power distribution with our IR 7,000 supporting up to four eighty kilowatts per rack.

Introduced our direct to chip liquid cooling version of the 9,680 providing 33% density improvement and 2.5 times improvement in energy efficiency. We've made significant advances to power Store with Power Store Prime, our mid range storage solution addressing the fastest growing portion the market And we introduced the PowerScale F9, 10 and F9 in our unstructured portfolio that is primed to support unstructured and AI workloads. We introduced the most Copilot plus PCs powered by ARM based Qualcomm Snapdragon processors and also launched the broadest portfolio of Intel LuminRite commercial PCs. Furthering our number one leadership position in commercial AI PCs We continued our number one leadership in DC Monitors with the world's first four ks monitors to achieve Five Star EyeComfort certification. We focused on expanding our peripherals portfolio selling everything [indiscernible] including the first and only holistic solution to manage your fleet of PCs and peripherals remotely creating the best possible customer experience. And finally, we simplified our branding, redesigned our PC portfolio and broaden our silicon options across Intel, AMD and Qualcomm setting us up well for the PC refresh. We are extremely well positioned to capture growth across every segment of our business and extend AI from the largest at scale CSPs into enterprise workloads and out to the edge with the PC.

These tailwinds and our unique operating model that leverages our leading product positions, our go to market engine, services and supply chain underpin our confidence that our opportunity continues to grow as we look ahead to FY '26. Moving to Q4, revenue was $23,900,000,000 up 7% driven by robust ISG growth, which executed particularly strong with substantial operating margin improvement in ISG driven by our Dell IP storage portfolio. This resulted in EPS of $2.68 up 18% growing faster [indiscernible] Turning to B results, let's start with ISG. The prospects for AI are strong and we are very well positioned. In Q4, AI orders demand was $1,700,000,000 with $2,100,000,000 in shipments ending the quarter with $4,100,000,000 in backlog as customers work through technology changes. And in February, our partnership with XAI and other customers continued we booked deals putting our AI backlog at roughly $9,000,000,000 as of today our pipeline expanded sequentially and has grown every quarter since the introduction of the ninety six-eighty. We are seeing continued progress in AI from enterprise customers, albeit still earlier in their journey with sequential growth in both orders and customers. And our engineering, services, financing and ability to optimize density and performance per watt are important differentiators for the largest at scale CSPs and provide very efficient enterprise solutions.

In traditional servers, the growth trajectory continues. Up double digits in Q4. We have now seen five quarters of year over year demand.

Our mix of 16 gs servers continues to increase as customers remain focused on consolidation to improve power efficiency and increase floor space. The server consolidation in the data center is expanding server TRUs driven by servers with more CPU cores, storage and memory. In storage, we saw P and L growth for the second consecutive quarter with very strong profitability driven by our Dell IP storage portfolio. PowerStore, our flagship mid range product has had strong demand growth for four consecutive quarters, the most recent three at double digit demand growth. As I mentioned, the software and hardware updates we made with PowerStore Prime resonate with customers and partners We have industry leading five:one data reduction, delivered 30% improvement in IOPS, native MetroSync and QLC availability.

We also saw double digit demand growth in PowerScale. Our leading unstructured storage platform and continued growth in our buyer base with power Flex. We are well positioned with some of the fastest growing categories within storage, as customers shift towards disaggregated architectures. In CSG, we are seeing the recovery coming. With strength in SMB, which historically is a leading indicator. We also saw large opportunities within the quarter, which were very competitive. Commercial was up 5% marking the second consecutive quarter of year over year growth and the fourth consecutive quarter of demand growth. Consistent with what we saw coming out of Q3, customers are waiting to refresh to buy AI PCs future proof their purchases going forward. Consumer continues to be challenged with softer demand and elevating levels of We expect a broader PC refresh this year as the installed base continues to age we get closer to the Windows 10 end of life and AIP are more broadly available. To close, I'm proud of our FY 2025 results and our to execute our strategy. Leveraging our strengths to extend our leadership positions and capture new growth. The AI hardware and services TAM has nearly doubled over the course of the year to $295,000,000,000 in 2027 Dell, growing at a 33% CAGR.

We are well positioned in AI traditional servers, storage with our focus on Dell IP and PCs including everything around the device. We continue to drive a dis disproportionate level of AI growth by demonstrating the value we provide to our customers, And I'm excited for the tailwind surrounding our business as we enter FY 2026. Now over to Yvonne for more details about Q4. Thanks, Jeff.

Let me begin with an overview of our Q4 performance then I'll move to ISG CSG cash and guidance.

In the fourth quarter, we delivered strong profitability specifically in IHG. Our total revenue was up 7% to $23,900,000,000 This was driven by continued strength in servers. Our combined ISG and CSG business grew 10%.

Gross margin, was $5,800,000,000 or 24.3% of revenue. This is down 50 basis points due to a more competitive pricing environment, predominantly in CSG. And an increase in our AI optimized server mix. Within gross margins, we discovered previously unrecognized accumulated credits from suppliers. You'll find revised financial results within our Q4 press release that reflect higher gross margin and increased earnings per share for the relevant periods. Operating expense was down 6% to $3,100,000,000 or 13.1% of revenue. FY 2025 was a transformative year. As we reevaluated reimagined and modernized how we operate. This enabled us to unlock efficiencies, and increase productivity, all while growing our core business double digits.

Now, let's look at operating income.

We delivered a 22% increase to $2,700,000,000 or 11.2% of revenue. This was driven by higher revenue and lower operating expenses partially offset by a decline in our gross margin rate. Q4 net income up 15% to $1,900,000,000 primarily driven by stronger operating income.

And our diluted EPS Was that 18% to $2.68 Now let's move to ISG, we delivered another quarter of strong performance. ISG revenue was $11,400,000,000 up 22%. Servers and networking revenue with a Q4 record at $6,600,000,000 up 37%.

We continue to see strong demand across both AI and traditional servers. Storage revenue was up 5% to $4,700,000,000 our second consecutive quarter of growth.

We executed very well in storage. We had a record demand quarter for PowerStore. PowerScale grew double digits, and our PowerFlex buyer based group.

While the overall demand environment is lagging that of traditional servers, we see some promising trends. We had record ISG operating income of $2,100,000,000 up 44% This was driven primarily by higher revenue.

Our ISG operating income rate was up again sequentially to a record 18.1% of revenue.

The rate improvement of four eighty basis points was the result of improved gross margins, especially in storage, and reduced operating expense. Within storage, we saw record profitability driven by a higher mix of Dell IP versus partner IP. Improved product profitability and revenue scaling what is seasonally our strongest quarter. Now turn to CSG. CSG revenue was up 1% to $11,900,000,000 Commercial revenue was up 5% to $10,000,000,000 while consumer revenue was down 12% to $1,900,000,000 CSG operating income was $600,000,000 or 5.3% of revenue. This is down 90 basis points sequentially due to a more competitive pricing environment.

We saw some promising signs as we went through November and December with pockets of strength in large deals. That overall saw a slowdown in January. As Jeff mentioned, we saw strength in small and medium business, which is historically a leading indicator. Profitability in commercial was weaker than expected as demand continued to push into the next fiscal year. [indiscernible] the demand environment remains soft and profitability remains challenged. We are ready and well positioned for a PC refresh. Our simplified rebrand, leading go to market engine, and focus on commercial PCs the most profitable segment of the market.

Shifting gears, Dell Financial Services continues to drive differentiated payment solutions for our customers. We exited the year with a record $15,000,000,000 in assets under management. Up 5%. And when you normalize for the exit of our VMware Dell business, and the discontinuation of our commercial revolving product, DFS originations were up 7% in Q4.

With a strong attach rate across the business.

Now let's move to cash flow and the balance sheet. Q4 cash flow from operations was $600,000,000 This was primarily driven by profitability partially offset by working capital. Our cash conversion cycle was negative thirty one days with $6,700,000,000 in inventory. We ended the quarter with $5,200,000,000 in cash and investments, down $1,400,000,000 sequentially.

Our core leverage ratio was down sequentially to 1.2x. We returned $1,100,000,000 of capital to shareholders with 6,400,000.0 shares of stock repurchased at an average price of $117.51 and paid a dividend of $0.45 per share. Since our capital return program began, the beginning of FY twenty twenty three, we've returned $10,800,000,000 to shareholders through stock repurchases and dividends. We announced an 18% increase in our annual dividend to $2.1 per share well above our long term value creation framework.

Additionally, the Board of Directors has a approved a $10,000,000,000 increase in our share repurchase authorization. This is a testament to our confidence in the business and our ability to generate strong cash flow.

Turning to FY 2026 guidance.

IT spending is expected to grow. With three underlying trends that we see. First, businesses are leveraging AI to enable competitive advantages and we are seeing that in our opportunity pipeline that continues to expand. Second, data center modernization is well underway. With a focus on consolidation and power efficiency. Third, customers are planning to refresh their PC installed base with AI enabled devices. If these trends materialize, we will leverage our operating model that has driven value creation over the last forty years. Against that backdrop, We expect revenue and EPS growth in FY 'twenty six above our long term value creation framework. We expect FY 2026 revenue to be between $101,000,000,000 and $105,000,000,000 with a midpoint of $103,000,000,000 up 8% Dell.

We expect ISG to grow high teens driven by $15,000,000,000 Dell AI server shipments and continued growth in traditional server and storage. [indiscernible] we expect CSG to grow low to mid single digits more weighted towards the second half of the year.

We expect the combination of ISG and CSG to grow 10% at the midpoint. Given the higher mix, of our AI optimized servers and the current competitive environment, we expect our gross margin rate to decline roughly 100 basis points. As our modernization efforts continue, we expect OpEx to be down low single digits year over year.

We expect ISG operating income rate to be roughly flat year over year.

With CSG down slightly. We expect INO to be between $1,400,000,000 and $1,500,000,000 Diluted non GAAP EPS is expected to be $9.3 plus or minus $0.25 up 14% at the midpoint. Assuming an annual non GAAP tax rate of 18%. For Q1, expect revenue to be between $22,500,000,000 and $23,500,000,000 up 3% at the midpoint of $23,000,000,000 ISG and CSG combined are expected to grow 6% at the mid with ISG growing low teens and CSG flat year over year. Gross margin rate will be lower sequentially given seasonally lower storage mix and a higher AI optimized server mix.

OpEx will be down low single digits year over year. We expect operating income rate to be down sequentially given typical seasonality in ISG with lower We expect our diluted share count to be between $7.00 6,000,000 and $710,000,000 shares.

And our diluted non GAAP EPS is expected to be $1.65 plus or minus $0.1 up 25% at the midpoint. In closing, we delivered solid FY 2025 results. Well above our long term value creation framework. We generated $95,600,000,000 in revenue, record EPS of $8.14 and returned $3,900,000,000 of capital to our shareholders.

We executed our strategy and expanded our lead in AI, while positioning our core business for the opportunity ahead. Internally, we began a transformation to future proof the company focusing on simplifying, automating and modernizing how we work. And as we look forward, I'm excited about the sustainable growth we see and the value we will continue to deliver to our customers and our share Now, I'll turn it back to Paul to begin Q and A. Thanks Yvonne. Let's get to Q and A. In order to ensure we get to as many of as possible, please ask one concise question Let's go to the first question operator.

Thank you. And the first question comes from Wamsi Mohan with Bank of America.

Yes.

Thank you so much.

Iwan, could you talk through the fiscal twenty twenty six guide and what sort of maybe some of the assumptions that are incorporated beyond what you stated Your revenues are going to be up roughly in total about 7.7%, EPS up about 14%. But your comments on ISG and CSG margins are flat to down and you noted a fairly competitive environment. So can you just bridge those sort of comments to your EPS growth, how much is coming potentially from buybacks? And have you made any tariff related assumptions in these margin guides? Thank you so much.

Thanks, Wamsi.

So yes, in the guide for the year, we guided to the excuse me, the $103,000,000,000 of midpoint up 8%. With everything growing, right? ISG and CSG expected to be up combined about 10%. If I look at ISG, which I think some of your questions coming from, we expect that to be in the high teens. Fueled by that $15,000,000,000 of AI server shipments that that we referred to.

As well as continued growth in both traditional server and storage And I'd say with storage in the low single digits. CSG We do expect to grow in the mid single digits coming up for the year that's just begun. With that refresh cycle that that we're expecting to be more weighted towards the second half of the year. OpEx is another area. We guided to it being down low single digits year over year. That's just a continuation of all of the efficiency entire company. And then the OpInc improving year over year to the 9.1% up from eight, nine, so an improvement there. When I think of what to expect from an ISG standpoint from an op ink level, we're saying roughly flat year over year.

And we expect there to be continued Competition, I guess, is the right way to put it in CSG. But again, we've guided and embedded that in there. And I go back to ISG real quick and say, hey, we are going to be growing the AI business while continuing to drive profitability there.

So Dell continue to balance as we have been doing our growth and profitability And we're going to manage pricing, we're going to manage the competitive environment and we're to continue to drive value for our shareholders. Thanks, Wamsi. And the next question comes from Eric Woodring with Morgan Stanley.

Great guys. Thanks so much for taking my question. Jeff, a question I often get from investors is kind of about the risk of ODM and encroachment in the AI server market. As customers get more sophisticated over time, competition intensifies, potentially margins face downward pressure. Effectively, the concern is AI servers become somewhat of a cloud two point zero type of disintermediation. Clearly your AI server backlog helps to refute this concern. But I would love if you could just maybe how would you respond to those concerns if you got that question? Thanks so much. Sure. Thanks, Eric. I mean, do we see the ODMs in these large opportunities? Of course, we do. These are multibillion dollar opportunities Everybody tends to show up and wants an opportunity to win the business.

When I step back and reflect why Dell and why we continue to be optimistic here is This is custom work. It takes significant engineering capability. It takes significant architecture capability to win. And in many cases, we're building a unique and differentiated solution for each and every customer.

And our customers have learned to value what we've been able to bring to them across their deployments.

Whether that is the service side when we extend beyond an L10 server out of the factory with L11 and L12 and full integration of Iraq. The network expertise we bring to do the install and deployment of very complex network arrays.

When I think about service, the ability that we have a global service footprint, professional servers can show up anywhere to solve any related problem or hands on in these very large deployments with full time teams literally there twenty four seven trying to get them up and running. I think about the financing capabilities that we have in our company and the ability to help these CSPs, these fast growing companies grow at the rates they want with our financing capabilities. I think about our go to market coverage and I think about the expertise we have in the top 30 or so CSP digital natives, our ability to scale this to enterprise.

Eric, every time I look at this question and I don't really focus on ODMs or for that matter other OEMs. I look at the differentiated value we are bringing to the market place with the Dell company, bringing end to end solutions and right now it's valued.

And right now, we continue to differentiate Right now, we help these large scale clusters get deployed faster than anybody else. I'll remind you, I probably did last time as Dell. We were the first to bring to market a GB200 rack.

That's not by luck. It's by a lot of hard work, detailed engineering, collaborating in this case with NVIDIA and our customer to be able to take every ounce of time and run at the speed of light, so to speak. So we're going to continue to invest in that differentiation We're going to continue to make us stand out to be different. Our customers really value the full range of our capabilities. They like the notion of a one place to go. I'm not sure others bring that. I know we do and I know we're extracting value from the marketplace for that with our customers on our deployments. [indiscernible] You, Jeff. I appreciate it. Good luck guys. You're welcome. And the next question will come from Simon Leopold with Raymond James. Thank you very much for taking the question. I was wondering if you could give us your thoughts on your exposure to the U. S. Federal government basically how big is it typically as a percent of your revenue And how are you thinking about the trends given all the noise we hear out of Washington around budget cuts and spending cuts? Thank you.

Simon, I'll take a path at that. We do business in 170 plus countries around the world. Obviously, our largest country is is The United States and we do business with the federal government, but I can't really parse out exactly what you're asking for. We're certainly going to lean into all opportunities that are ahead of us and continue to be successful in that space. I don't know. No, I would add to what Yvonne said. We've [indiscernible] numerous times in our history where a country or a particular segment demand was suppressed for various reasons. We've been able to navigate those cycles. I think pretty successfully. Our underlying belief is United States government will need technology AI plays a pretty significant role in our nation and I think the demand will materialize. We'll get through whatever's happening today. And we have a broad business to be able to do that. Whether it's PCs, servers, storage, AI solutions, our services, making it up in other parts of the world, other parts of The United States. We again proven we've done that consistently and Dell do so here. We can help drive efficiencies in every environment. Excited about the opportunity, Thanks, Evan.

And our next question will come from Aaron Rakers with Wells Fargo.

Thanks for taking the question. Just building on Eric's prior question, I'm curious Jeff, as we really start to see the materialization of the Blackwell product cycle, through your AI backlog.

I'm curious, when you're engaged in like rack scale configurations, how would you compare the margin profile of those relative to the AI business Dell, let's say, the hopper product cycle? And you talk a little bit about the levers that you see to improve that margin as we move through 2025?

Thank you. Sure, Aaron. I think I mentioned in the last call that the Blackwell margins were lower than the upper margins and remain so today.

Still early. The deals are very large upfront. There's more competitors, so it's a more competitive landscape. And I'll probably sound a little redundant The last answer with Eric.

Look, this is custom design and architecture work There's an ability to really this distinguish your engineering and value add in that step, which is an opportunity for us to extract value opportunity for us to reduce cost. These aren't reference designs or as we would affectionately call in the engineering community, they're not cookie cutter designs. We're designing a unique rack a unique power distribution unit, our cooling, our manifold, the cold plate, helping our customers attach with our networking and with our storage opportunities. And while still small, it remains an opportunity because every large cluster and for that matter, every A AI workload requires data to fulfill its need. Services, installation deployment, those are value add opportunities for us that we continue to build on And then obviously, the ability to be a time to market advantage. Those are areas that we continue to focus on.

They drive differentiation. I think Yvonne and I have been consistent for the better part of a year that AI servers are margin rate dilutive. They are margin dollar accretive. They are operating margin positive. They are profitable for us. And what's really interesting for us, if we take the work that we're doing in these large clusters that really scales nicely to the enterprise. It allows us to really take the efficiencies and learnings from what we are doing with the largest clusters in the world and build optimized solutions for very specific domain specific AI use cases, And our experience to date is the AI margins in enterprise are better.

And I think they'll continue to be and that's what we're focused on. Focusing on Okay. Thanks, Aaron. And our next question will come from Michael Ng with Goldman Sachs. [indiscernible] I just have one on the IS margin outlook of flat year over year for the upcoming year.

It's a great outlook particularly considering AI server revenues growing 50% So can you talk a little bit about the expectations for March for some of the components, traditional servers, storage, AI servers, I'm just trying to understand the ability to keep ISG margins flat despite presumably the dilutive effect from the AI server margins?

Thank you. I think, Mike, maybe the way to look at this is first and foremost, as we think about holding ISG margins flat, I love the way that you asked the question, we're going to do that by growing at least $15,000,000,000 in AI servers.

I know your question is how we're going to do that, but for us that's a very meet that operating range that we've committed in our long term framework and we're going to grow at a minimum of $15,000,000,000 in AI servers. And we're going to do that by what we've done in traditional servers and what we've done in storage. The storage leverage that Ivan talked about earlier is front and center. When we grow the storage business and we control our expenses, scale matters, the operating margins improve. When we pivot to Dell IP storage, which we have done, our margins improved. The margins of our own IP are vastly superior than third party.

IP We've been doing that for some time. We made mention, I think in our remarks about PowerStore. Has grown four consecutive quarters on the VIN line, the last three double digit. In the largest space in the external storage marketplace mid range It has differentiated features. We're going to continue to leverage our IP storage. We're building out the [indiscernible] channel program. We're continuing to invest in the innovation and differentiation in our storage and with our coverage, the broadest coverage in our industry and the deepest specialty capability we're going to continue to grow the customer base, which might I might add, the PowerFlex customer base group, the PowerScale customer base group, the PowerStore And then lastly, we're looking to attach more storage to every AI opportunity that we have. Our traditional storage business continues to go five consecutive quarters of year over year growth We've seen an expansion of TRUs as we see the consolidation continuing to occur in the data center to free up more floor space and become more power efficiency, we see our six 16G and seventeenG products ramping nicely and those are driving again more cores, more memory, more SSDs, more margin dollars per server that we put in the marketplace.

That's how we're doing it. I missed anything, Yvonne, I think you've hit it. Thanks, Mike.

And the next question will come from Ben Reitzes with Melius Research.

Hey, thanks guys. Appreciate it. You be more specific on the guidance for this year with regard to tariffs? What are you factoring in for China in particular? Is it the 10% or today, this morning's 20%? And then are you instituting any remedies and what are your thoughts about remedies like raising prices, moving stuff around? And how are you adjusting for that? Thanks a lot. Well, Ben Dell, I'll take a swing at it and then Avon can play cleanup on this one here.

Whatever was announced this morning, which we know things were announced this morning is not reflected in what we just said.

That said, this is a pretty darn dynamic environment as represented what we heard this morning. It's fluid We've built an industry leading supply chain that's globally diverse, agile, resilient that helps us minimize the impacts of these trade regulations tariffs to our customers and shareholders. We've been monitoring this for some time. We've taken our digital supply supply chain with our digital twins actually using some AI modeling to look at every possible scenario that you might imagine of this country, that country, restrictions here, rates here. To help us understand how we optimize our network and how we do that in the least amount of time at the speed of Dell Dell. And whatever tariff we cannot mitigate, we view that as an input cost And as our input costs go up, it may require us to adjust prices.

That's what we've done in the past. I can't imagine we're going to do anything differently. Ivan, if I missed something, No, I think you hit it. We'll take into account the input costs and price accordingly. This competitive environment that we're operating. Continue onward. Thanks Ben.

And we'll take a question from David Vogt with UBS. Great.

Thanks guys. Maybe just on ISG ex AI. So if we take maybe Yvonne for you, if we take your kind of outlook at face value, it points to incredibly strong growth in traditional server and storage know you just posted relatively good numbers. But what are you seeing in the marketplace vis a vis your traction versus your competitors?

And kind of how do we think about getting to high single digit growth in that part of the business given sort of the macro environment that we just talked about? Thanks.

So David, we are expecting to have growth across the full portfolio in ISG. We as I talked about, we're expecting to have storage growing in the low single digits server higher than that and then the $15,000,000,000 at least in AI. Servers. So I guess Dell continue. There's lots of opportunities out there. There continues to be multiples of of what we've already seen The pipeline continues to grow. I don't know, Jeff, what what you'd add to that around ISG. I feel confident and comfortable in the guide that we've laid out for the full year. The opportunity that we have Yes, maybe a little bit of color. Let's take storage as an example. You're seeing a pivot to our Dell IP storage. Modern workloads demand a architecture that can be flexible, sufficient, optimizes performance and we think a disaggregated architecture is the right answer with the modern workloads.

That presents a headwind large position that we have in HCI which will become smaller we're going to overcome that by taking share in our Dell IP storage portfolio across Our softer defined project like power or product like PowerFlex and then PowerScaling the unstructured space.

So I mean, I think that gives you a sense of a headwind that may exist there that on the surface May not be obvious, but it's certainly something that were challenges we pivot towards our storage, which is more profitable.

Was going to say it's more profitable to do our own. There is revenue that Dell go away at a lower margin rate, the HCI business. We have a secular decline in the high end space where we're the market leader with our PowerMax product. So we're going to overcome those and drive the growth that Yvonne mentioned. And then traditional servers I don't know if you've seen some of the recent market forecast, it's low single digit growth.

We're going to take share We've now had five consecutive quarters of year over year growth That's coming off eight quarters of a consolidation period.

Or of a consumption period, I should say. And we think this consolidation continues but the consolidation drives fewer units. Those units are actually higher in TRU because of the more cores, memory and SSDs I mentioned earlier. And we continue to see that driving our traditional server business. I hope that context helped a little bit. Great. Thanks, Jeff. Thanks, Ivan. Thanks, David.

And moving on to Amit Daryani with Evercore. Thanks a lot. I guess a question on free cash flow. In fiscal twenty twenty five, it looks like your free cash flow is down couple of billion dollars versus 2024. Can you just talk about what driving this contraction in free cash flow? And maybe Yvonne, you can help us kind of understand how do we think about free cash flow expectations as we head into fiscal twenty twenty six? What are sort of puts and takes around it? Really helpful to kind of get the context at least of fiscal twenty twenty six what's going on. Jeff, if I could just have you talk a little bit more about while I think it's really impressive that you focused on operating leverage in fiscal twenty twenty six, despite the mix going negative. I think the fear everyone seems to have is, is this really durable or is it really driven by one off headcount reduction or something else? So just maybe you can touch on the durability of that would be great as [indiscernible] You go Tyler, then I'll come in on the durability of the structural changes we're making to this company.

Hey Amit.

So again, look, I think as I was sitting here last year, I definitely thought cash flow was going to be a little bit stronger. You look at what's laid out, one, we didn't see the growth in CSG that we were expecting. And as you know, that throws off really good cash. And then two, we invested a lot in our AI business through inventory. And so you can see that our inventory has gone up and that had a big impact to CCC. Now if I look where I am today and I think about FY 'twenty six, I would say I've got a few things working in my favor. So one, we're at a CCC level where historically we've always shown the And that will throw up good cash. We expect good CSG this year and that will throw off good cash. And if I think about the growth in the P and Dell, that will throw off good cash. So look, I think we feel pretty good about cash. I do expect it to be greater than one times [indiscernible] And then to your second question, I probably won't give you as much detail as you like, as we think some of the changes we're making are very proprietary and different fact that we can grow while reducing our operating expenditures.

But Yvonne hit on it on it [indiscernible] standardize, Automate. We are building a new company. We are what we call modernizing it. We've made reference to modernization. If you prefer, we're future proofing the company and we're systematically going throughout all of the value streams in the company and we are modernizing the work the workflows, taking steps out of processes taking out manual touches simplifying and standardizing those processes, applying automation in the very technologies that we've talked about that get us excited in this market we are deploying AI in the enterprise.

The broad categories of use cases, are industry known, whether that's content creation and management, support assistance, natural language search, design and data creation, code generation or doc use cases. We are deploying this types of technologies inside our company and seeing tremendous efficiency from that and it is durable. It's not a one timer.

What's so exciting is we're making all these changes. We're making investments. But we're driving all of this efficiency to enable that. So the net, what you're seeing us guide to is lower spend but it's because we're driving all of these efficiencies. That will enable us to invest Bob's spending.

Well, I think that's very important. I think I mentioned it in the remarks on it that we are reducing the cost and we've built, if you will, the ability to invest more in our innovation engines more in our areas where we drive distinct advantages our sales force, we've invested in our sales force over the past year, we've invested in services, We've invested in the supply chain while reducing our cost.

No, it's just the beginning. [indiscernible] And the next question will come from Matt Nittnam with Deutsche Bank.

Thanks so much for taking the question. My question is on CSG. I can ask about a different segment. The guidance implies an acceleration over course of the year. And I'm just wondering what sort of visibility or confidence level you have there that this long awaited PC refresh will finally materialize And I ask that in context of relative slowdown that was referenced in January.

Yes, Matt, maybe this will shed some optimism and and why we believe [indiscernible] this refresh that we've talked about in the making. And clearly, we've talked about there's $1,500,000,000 or so PCs in the twelve days We'll say half of them are four years or older.

It's got to flip three sixty million turned four years old that provided in 2021 this year. Those are normally flags for opportunity for refresh. But probably the more compelling reasons and I think that two, we're nine months away from the Windows 10 end of life. There's over 500,000,000 PCs running today that can't running Windows 10 that can't run Windows 11. There's more than 200,000,000 PCs today running Windows 10 that can run Windows 11. Those are prime targets for upgrades. It's just a large pool of old machines running an older version of the operating system that can be upgraded. If you were to reflect on where we were with the Windows seven end of life, compared to where we are today, let's just say we have a long way to go in the next nine months to catch up and be ready for the end of life.

We made reference that SMB for us had strength That's always an indicator that things are beginning to move.

One of the countries that really show a traditional or historical perspective that the refresh is underway is Japan. [indiscernible] it is clearly moving through refresh as it will get done towards the end of October, And then probably the last thing and the most exciting thing and what is actually driving some of the I think, BretaSense to refresh right now is AIPCs. And the number of new AIPCs that are coming out in the first half of the year, we clearly just launched a bunch of Lunar Lake based notebooks in January suffice to say there's more coming We've announced AMD, AI PCs, customers are going to want to look under the hood at each of those. And then make a decision that will future proof their decision of what is the right correct AIPC for them because they'll have the asset for at least four years All of that makes us Dell more confident that the refresh is coming albeit delayed slower than any that I've encountered in my career, but all of the data suggest it's there it's coming at a good rate and probably extends Does that help? It did. Thank you. Thanks, Matt. You're welcome.

And the next question will come from Ananda Booray with Loop Capital. Yes. Good afternoon, guys. Thanks for taking the question. Really appreciate it. One for me maybe two parts, but related Could you talk to Jeff how you guys are just thinking about the server refresh durability, I believe, also last call you talked about part of the current catalyst is folks sort of refreshing older PCs for space and power savings in some part to prepare for Gen AI. And this is ahead of processor refreshes. So I guess sort of the context and durability of the traditional server growth you see going on now? And then just the thought let's sort of add on to that as you had mentioned, focusing on or targeting increased attach storage attached to your Gen AI servers. We just love what you're thinking about there. And what are the mechanics to getting that taken care of over time? And that's it for me. Thanks guys.

Sure. Let me try the server one again.

As I mentioned, we're five quarters now of year over year growth.

That's coming off an eight quarter digestion period. [indiscernible] guide and what we're trying to articulate is that continues for another four quarter. So five quarters becomes nine quarters of growth.

Tempering a little bit, Still driven by the same dynamics that you so well said is freeing up floor space and driving energy efficiency and cooling efficiency. The consolidation occurs as you look at the [indiscernible] of 13 gs and 14 gs servers.

All right to be replaced with a new 16 gs server and 17 gs or a 17 gs server. Those conversion rates are roughly a three to four of the old servers can be if you will, replace by a single 16 gs server and six to seven of the old servers can be replaced by a single 17 gs server. Why? Because they have more cores or more more memory, more storage, they're more energy efficient. And again, that continues, we believe, throughout fiscal twenty six calendar twenty five We've seen no signs that is going to go away from us in that period of time.

If you flip over to your other question, again the fundamental premise is AI needs data, it devours data, you got to feed the beast. The feeding of that beast, if you will, has to be closer to where the computational capability is So hot and warm storage, the notion of parallel file systems, unstructured file systems, data management tools that help find data and help data be ingested are the opportunities. We have the leading platform for unstructured data. We continue to make it better with the F-nine ten and seven ten I mentioned earlier.

Nearly a year ago, we talked about a parallel file system that we are building, Project Lightning, we referred to it. So we're coming to the marketplace with a AI driven parallel file system and our Dell Dell lakehouse allows us to help customers prepare their information manage their information and adjust their information. Our sales force is incented to attach storage with AI opportunities They will continue to be incented.

We inspect that and we continue to see progress in that area. Okay. Thanks, Nanda.

And our next question will come from Samek Chatterjee with JPMorgan. Again, Sumit Chatterjee. Your line is open. Please go ahead with your questions. Perhaps you placed us on mute.

Hopefully, you can hear me now. Jeff, I just wanted to go back to some of your prepared remarks and about the $15,000,000,000 of AI server revenue that you were highlighting.

You at least expect to grow to that level. Just wondering how much of that is gated by sub supply, particularly what's the visibility into supply that you're getting? And how much of that of commentary around sort of at least growing there is a supply dynamic versus the demand dynamic and should we be expecting more sort of linear growth through the quarters as we think about the year with visibility on supply? Thank you.

Well, I think clearly hopper supply is available today.

I believe there is references yesterday that Blackwell is in production and ramping we're open for business and taking orders. The message that I really wanted to drive in our remarks is on day 27 of the fiscal year, we're trying to communicate that we are at least $15,000,000,000 in AI shipments. Our five quarter pipeline continues to grow It's several multiples of our backlog. We are going to pursue every opportunity with the CSPs and an enterprise. These large scale systems are accelerating and getting bigger.

Models are quickly moving to reasoning models, which consume and require more computational capability I. E. More computers, And the use cases continue to get clear for enterprise to drive the return on investments they want to see to actually use AI more broadly.

Algorithm innovation continues to accelerate Again, these reasoning models are consumed Dell consume more computational capability. They're moving to be multimodal, which even consumes more. I kind of like where this is going.

We're optimistic I don't see supply as an issue. Clearly, these are about building the right architecture There's a customer preparation or customer readiness component of this, new data centers, getting power, getting water, getting cooling, There's other materials beyond the GPU, getting the rack, getting the coal plates, getting the CDUs, the PDUs, all of that is what we orchestrate. We have line of sight that is at least $15,000,000,000 We'll continue to update as that might change and we're all in.

I don't know what else I can tell you.

I hope that helped.

Thanks a lot, Samik. Justin, we'll take we'll take one more question please and then we'll hand it over to Jeff for Post.

Our final question will come from Asea Merchant with Citigroup.

Great. Thank you for squeezing me in here. Jeff, if I can just ask about your pipeline and the backlog itself. I mean, to the extent that you see enterprises and sovereigns in that makes how has that changed relative to a quarter ago and how you see that progressing as you ramp up or as you flush through your pipeline and your backlog? Thank you.

Well, it's maybe a slightly repetitive to the previous question. The 05/9680 was launched. The CSP component grew the enterprise component grew, the enterprise customer base grew sectors like education, technology, manufacturing and government Our buyer basin AI continues to grow. What we shipped in the Q4 The revenue in Q4 was up The number of new buyers was up. Or well over several a couple of thousand of unique customers So it has a healthy mix of enterprise. It clearly has a healthy mix of CSPs. It continues to grow to this notion of several multiples It's with the technologies that are out and available today. And we're excited to see that. And quite honestly, I can't remember the second half year question. So if you refresh me, my memory, I will answer it.

No, that's good. And then just to the extent that you see your attach, with those enterprises, how much of that's really factored into your fiscal twenty twenty six guide?

To the best of our ability, we factor in the attach of services, our professional services, our deployment services, our installation services, ability to sell networking and network installation, the ability to sell storage, when we look at that at least $15,000,000,000 of AI servers in the marketplace. Shipped in the marketplace.

Assia, thank you and hand it over to Jeff for a close.

Thanks, everybody.

I hope you can tell FY 2025 was a strong year We delivered 8% revenue and 10% EPS growth.

With $3,900,000,000 in capital return to shareholders Our AI business grew to $10,000,000,000 while also improving ISG margins year over year.

In FY 2026, we expect to grow revenue and EPS and excess of our long term value framework.

We expect our AI business will grow to at least $15,000,000,000 given our robust opportunity pipeline, our engineering, our services and financing advantages. This AI business drives incremental operating profit and is EPS accretive. We'll continue to modernize the company reducing operating expenses as we grow, driving further leverage in the P and L we remain committed to our capital allocation framework where we've announced an 18% increase in our annual dividend and our share repurchase authorization increased by $10,000,000,000 We're excited for the year ahead. Thanks for your time today.

Thank you.

This concludes today's conference call. We appreciate your participation. You may disconnect at this time.