Please stand by. Good afternoon. And welcome to the fiscal year 2026 third quarter financial results conference call for Dell Technologies Inc. I'd like to inform all participants this call is being recorded. At the request of Dell Technologies. This broadcast is a copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question and answer session. If you have a question, simply press star then 1 on your telephone keypad at any time during the presentation. I'd now like to turn the call over to Paul Frantz, Head of Investor Relations. Mr. Frantz? You may begin. Thanks everyone for joining us. With me today are Jeff Clark, David Kennedy, and Howard Johnson. Our earnings materials are available on our IR website and I encourage you to review these materials. Also, please take some time to review the presentation, includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call. all references to financial measures During this call, unless otherwise indicated, refer to non GAAP financial measures. Including non GAAP gross margin, operating expenses, operating income net income, diluted earnings per share, free cash flow and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release. Growth percentages refer to year over year change unless otherwise specified. Statements made during this call 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 web deck and our SEC filings. We assume no obligation to update our forward looking statements. Now I'll turn it over to Jeff.

Thanks, Paul, and thanks, everyone, for joining us. Before we get started, I'd like to congratulate David on his appointment to CFO. We worked together closely for the past couple of decades, and I look forward to what's ahead. Now moving to our results. We delivered a strong third quarter. With a record for both revenue and earnings per share and an all time high in AI server orders. Total revenue reached $27 billion, up 11%. CSG and ISG combined were up 13%. Year to date, total revenue was up 12% with ISG revenue up 28%. EPS was up 17% to $2.59 driven by improved profitability in AI and storage and continued operational scaling. Our strong performance and operational led to continue robust cash flow and significant capital returns for shareholders. Now let's move to AI, where momentum has accelerated meaningfully the second half of the year building on an already strong first half. AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year to date orders to $30 billion, both record figures. The large scale customer base continues to broaden with expansion across Neo Clouds, which tier two CSPs and sovereigns. Our strong orders and customer base expansion clearly shows customers value unique ability to design, deploy, and maintain large at scale AI factories especially our engineering and rapid deployment capabilities. We have AI racks operational within twenty four to thirty six hours of delivery with up time exceeding 99%. We shipped $5.6 billion in AI servers during the quarter for a total of $15.6 billion year to date. We ended the quarter with a record backlog of $18.4 billion. Our five quarter pipeline continue to grow sequentially across Neo Cloud sovereigns and enterprises and remains multiples of our backlog even when…

Thanks, Jeff. I'm pleased with the team's strong execution this quarter. Delivering Q3 records for both revenue and EPS along with strong cash generation and above trend capital return. Total revenue was up 11% to $27 billion ISG and CSG combined grew 13%. Gross margin was up 4% to $5.7 billion or 21.1% of revenue. Gross margin rate was driven primarily by a mix shift to AI servers with shipments doubling year over year partially offset by improved profitability in storage. Operating expense was down 2% to $3.2 billion or 11.8% of revenue as we continue to drive scale within the P and L. Operating income grew 11% to $2.5 billion or 9.3% of revenue. The increase in operating income was driven by higher revenue and lower operating expenses partially offset by a decline in our gross margin rate. Q3 net income was up 11% to $1.8 billion primarily driven by stronger operating income. And our diluted EPS increased 17% to $2.59 a Q3 record. Moving to ISG. ISG revenue was a Q3 record $14.1 billion up 24% marking seven consecutive quarters of double digit revenue growth. Servers and networking revenue reached a Q3 record $10.1 billion up 37% and is up 43% year to date. AI server demand accelerated. With a record $12.3 billion in orders dollars 5.6 billion in AI server shipments, and a record ending backlog of 18.4 billion. In traditional servers, we saw demand improve throughout the quarter and stability within the P and L. Storage revenue was $4 billion down 1% with strong demand across parts of our Dell IP portfolio. PowerStore continued its double digit growth trajectory with seven consecutive quarters of growth. ISG operating income a Q3 record $1.7 billion up 16% marking six consecutive quarters of double digit growth. This was driven…

Thanks, David. Let's get to Q and A. In order to ensure we get to as many of you as possible, please ask one concise question. Operator, let's go to the first question.

Thank you. We'll take our first question question from Samik Chatterjee with JPMorgan.

Hi. Thanks for taking my question. Jeff and David, I mean, maybe since this is sort of the topic of investor conversation mostly at this point, if you can flesh out your thoughts on the kind of reaction you expect from customers in relation to the pricing discussions by sort of the product categories do you think it's more sort of easier to take some of those pricing actions versus not relative to your overall portfolio? And David, if I heard you correct, you're saying to sort of use your invested targets for about mid teens EPS growth as still a starting point for next year despite those sort of dynamics of headwinds on the memory side. If Can I just clarify that as well? Thank you.

Sure, Samik. Let me, wade my way through that. I it will be the first question this afternoon. Or the only question I should say. Look, we're in a very unique time. It's unprecedented. We have not seen costs move at the rate that we've seen. And by the way, it's not unique to DRAM. It's NAND, It is hard drives. Leading edge nodes, across the semiconductor network, There is a if you will, I'd categorize it as demand is way ahead of supply. And as we wait our way through that, we're gonna lean on the things that we've always done. We we have a lot of experience at this. This isn't our first DRAM cycle. There have been seven, I think, in the last forty years. Michael and I have been here navigating the organization in various ways. Through that time. Our senior leadership team and our supply chain has been through everyone this decade. First rule of our supply chain is to get the parts. Supply matters. Mix matters. And as we get to supply and mix, our job is to minimize the impact of that to our customers. But clearly, we're in a situation that is not typical. We've learned a a great deal since COVID. Since previous cycle of this last super cycle of this magnitude was 2016 through 2017. And we're gonna do everything we can to minimize the impact, but the fact is the cost basis is going up across all products. No one more unique than others, Everything uses a CPU, has DRAM, has storage in it. So with that said, we're gonna do things we've always done. We're gonna work on configurations. We're going to work on availability, adjust mix, Our direct model allows us to move demand where supply is.…

Yeah. Hey, Samik. Yeah. Like we said, it's very, very early in our planning process, obviously. But the framework from our security analyst meeting is is a good reference point to start with. Know? So I think EPS included in that is the ZIP code will be in. We'll be looking out to leverage our go to market engine, which is differentiated. All the things Jeff has just outlined there in relation to our supply chain, We'll continue to drive significant scale in our OpEx. And then obviously stay committed to our capital return KPIs, right, whether it's share repurchase, or staying committed to our dividend. So look, we feel we have many tools in that toolbox that allow us to stay agile and deliver on our EPS numbers. But like I said, it's still very, very early in the the planning process here. You. Thank you both. Thank

Thanks, Eric.

And we'll take our next question from Mark Newman with Bernstein.

Hi. Thanks for taking my question. Congrats on a great quarter, particularly impressive on the AI server orders. I I wondered on AI servers, if you could talk about some of the recent comments that have been coming from NVIDIA around the potential vertical integration that they're doing, getting a little bit more involved in in in the supply chain, and how that may impact on how or how Dell is navigating around that. And, also, on AI servers, any any color on the mix of AI servers, any change on the mix, for example, enterprise as a portion of AI server orders would be useful. Thanks very much.

For Mark, let me make my way through that. I mean, first of all, as we look forward to the new technologies that are in front of us, we remain excited We think there's ample opportunity for us to continue to differentiate. These large scale deployments are very complex. Our value add is at the rack level, is at the solution level, l 11 and beyond. That differentiation, we believe, remains for the next several cycles easily. In fact, the our ability to engage with customers early, which we can on the next generation technology, to work through their needs to bring these very complex offers to the marketplace fast in it, scale with a significantly better uptime and outcome, we believe is a differentiation. We focus on optimizing performance per watt. Performance per dollar at the data center level, We focus on our services, our value add and deployment, our financing side, the ecosystem that we bring to our customer base, none of that changes in the next generation of technology. And I to be honest, I I I think the opportunity for us gets greater in the future as we head towards 500 kilowatts of rack of power density moving to a megawatt in beyond, the engineering skill required to do that at rack scale is significant. We've invested in that ahead of the curve and we believe that gives us the opportunity to differentiate remain the leader in time to market, drive broad installation and deployment capabilities ahead of our competition at a higher level, uptime of 99% or better. And that's why we win, and I don't see that changing. When I look at the mix, two forms of the mix that I'll address is we saw a change in the quarter towards GB 300. So in our backlog of $18.4 billion there's been a significant shift towards GB 300 as expected. And then lastly, we continue to see great build on our five quarter pipeline around sovereigns and around enterprise and remain very encouraged about the opportunities in both. Thanks, Mark. Great. Thank you very much. Of course.

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

Hey. Great. Good with the commodity environment guys, and I'll try to be concise for Paul. The question is around your AI server margins. You mentioned it was up sequentially. Was wondering if you guys can talk about, you know, order order of magnitude there. And is that gonna continue into the four q? And are you starting to see more product attach, more high margin attach? To that end? Thanks.

I'll take a run at it, Ben, and then David can certainly add to this. Clearly, we made reference in Q2 that we had some onetime cost elements that hit us. If you recall, we talked about expedites and supply chain reconfiguration. Those went away in Q3 as expected. We also talked about shipping a lot of the early aggressive GB200 deals in the quarter. Those went through the system. And we continue to now see the ability to add differentiation as I just mentioned in in the previous question that we see in the GB two hundred and three hundred designs. And our margins move to safe right in that range that we've talked about, mid single digits. We see that continuing as part of our long term value creation framework that we laid out eight weeks ago. It's what we'll continue to talk about here, and we we believe that we can operate going forward in that range. In fact, we're very confident of that. And then we also had a mix change or, if you will, a change in customer mix to the good. When you look at the broad portfolio and diverse customer set that we have within the AI portfolio, portfolio shipping to a broader set of customers across a greater range of solutions helps margin. Hope that answered your question about AI margins. Yeah. Thanks a lot, Jeff. Appreciate it. Of course. Thanks, Ben.

And our next question will come from Eric Woodring with Morgan Stanley.

Hey guys. Thank you for touching my question tonight. I wanted to touch on PCs. Jeff, you sound very bullish on the PC opportunity into year. Some of the channel partners earlier in earnings were talking about maybe the seventh inning of a PC refresh. And I'd love to just get your comments because you sound more bullish So where do you think we are on the PC refresh? And is that still Windows end of life upgrades that still need to get done? Or are there new factors that you think could elongate the PC cycle well into 2026? Thank you. Sure, Eric. I mean, I mean, a couple of things. One, we we have not completed the Windows 11 transition. In fact, if you were to look at it relative to the previous OS, end of service. We are 10, 12 points behind at that point with Windows 11 than we were the previous generation. So we still have ample opportunity to convert. If memory serves me right, the installed base is roughly $1.5 billion or dollars. 1.5 billion units. We have about 500 million of them capable of running Windows 11 that haven't been upgraded. And we have another 500 million that are four years old that can't run Windows 11. Those are all rich opportunities to upgrade towards Windows 11 and modern technology. Equally important AIPCs. Small language models, more capable applications, improvements in operating systems and their capabilities in the embedded AI there, the use of an MPU, the capability of an MPU and future piece PCs, gives me the view that the PC market will continue to flourish going forward. Now let's define flourish. We have the PC market in our outlook roughly flat year over year. That's after a year that we grew mid to high single digits, I think it's flat as we look into next year's planning horizon, and we're building plans accordingly that would take share against that outlook. Thanks, Eric. Awesome. Thank you, Jeff. Of course.

And the next question will come from Wamsi Mohan with Bank of America.

Yes. Thank you so much. I was wondering if you could just, maybe give some color around this AI business. You noted very strong conviction going into fiscal twenty seven. Obviously, you you just raised your your guide here from 20 to 25 billion. Can you just put that in context of some of financing issues at NeoClouds? And how much of of your conviction and growth is predicated on some of these neo clouds being able to procure financing versus maybe other customers that you might have visibility into? And Jeff, if you could just clarify, you mentioned the cost base moving up across the product portfolio, and I was wondering if you could maybe share at the highest level how much of that conceptually could you recover from pricing how much of OpEx reductions are are possible to offset some of these pressures? You so much. Maybe I'll start once and Jeff can add some color. Look. I think if you start answer first, you look at our Q4 guidance, $9.4 billion. That represents $25 billion obviously for a full FY '25. So you look at that appetite for AI demand, and it's across the neo clouds. Sovereign opportunities, and obviously within the enterprise. shipments of $5.6 billion in Q3, orders of $12.3 billion. That's year to date at $30 billion. Backlog at $18.4 billion. And as Jeff referenced in his opening remarks, the next five quarter pipeline is multiples of that. So every conversation we're in which is also being very aware of all the opportunities that are out there, It's about demand. It's about opportunity. And eagerness to to work and see the opportunities in front of us. So we actually see huge scale to come Every opportunity, reality is we're not going to win them…

And our next question will come from Amit Daryanani with Evercore.

Thanks a lot for taking my question. Know, I guess, maybe you could just spend a little bit of time on i's margins that improved rather well by about 350 basis points sequentially. Can you just touch on like what drove the strength in ISD margin in Q3 versus Q2? And then, you know, your guide, I think, reflects the largest AI server revenue number you guys gonna put up in Q4 at $9.4 billion plus. How should we think about that impacting your P and L? And do you think gross margins should remain in the Q2 levels, or is there kind of further movement from there, as we think about the P and L impact from the I s from the AI numbers in Q4? Thank you. Yes. Thanks, Amit. Yes, look, really pleased with the team's execution in Q3 around ISG, ARP Inc, at 12.4%, like you said, up three fifty basis points quarter on quarter, so a lot to like here. I guess a couple of things to call out First, on the storage side. Look, Q3 was no different than what we've seen year to date. Where we've seen demand growth at a premium to market for our Dell IP storage portfolio. You know, probably a strong call out there will be PowerStore also. Six consecutive quarters with double digit growth. So obviously, that Dell IP portfolio gives us better operating margins as you'd expect. So there's a natural mix effect that creates a tailwind there. Secondly, in storage, our pricing discipline was something I was very pleased with also. And then thirdly, look at the focus of the teams looking to find improvements at a by product level within the portfolio also. So again, like I said, a lot to like on the storage…

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

Yes. Thanks for taking the question. I want shift gears a little bit away from the AI to the more traditional server business. Jeff, I think in your prepared comments, you've mentioned double digit demand growth. I think if my math's correct, I don't think revenue grew necessarily at that clip. So I'm curious if you could talk a little bit about what you're seeing as far as the aged installed base, where we're at in the upgrade cycle. For traditional servers? And do you think double digit growth is a good baseline that we could think about going into fiscal twenty twenty seven as that demand follows through to revenue? Sure. A couple of comments, yes. So the double digit was demand, the P and Ls certainly didn't track that, but we obviously would have built backlog as a result. We talked about North America recovered or improved quarter over quarter and that the international market demand were double digits, and that's two in a row now off last quarter's double digit performance. We continue to see modernization in the data center consolidation in the data center, which is reflected in the fact that our TRU's continue to go up, our content continues to go up, the number of cores, how much DRAM, how much NAND per server, is corresponding with that. And we still see a pretty significant opportunity with roughly 70% of our install base is still the older generation servers. That we have shipped many years ago. So the ability to continue to upgrade them modernize them, is the opportunity that we have in front of us. And then we see that cycle continuing into next year. This has been a longer consumption cycle. We're encouraged by what we see. That's reflected in the Q4 guidance that we just talked about. And that momentum as we update you on '27, we'll give you the the best look we have. But right now, that momentum of consolidating, modernizing, refreshing old servers to new one continues, and we're working on making sure our pipeline grows and we can convert it into orders as quickly as we can. Thank you. Of course. Thanks, Aaron.

And we'll take our next question from Michael Ng with Goldman Sachs.

Hey, good afternoon. Thank you for the question. I just wanted to follow-up on the commodity costs recovery point, which was encouraging to hear. When you talk about the actions that you've taken to help mitigate the impacts I guess, do you expect to see a benefit from below market costs, strategically purchased commodities and you know, if if so, you know, how long can that be you know, a benefit for And, I I think you may have alluded to opportunities to maybe, like, reprice longer term commercial contracts. In response to the rising commodity costs. Just wanted to see if that was the case or are there any kinda longer term contracts that might inhibit your ability to price at all? Thank you very much. Well, I mean, maybe working backwards towards the the first parts of your questions. And clearly, we have to do what's right by customers. And where we have contracts, we have contracts and we we will honor those contracts and work through the situation. I I think what maybe I didn't convey correctly or to the right balance that's needed is we tend to talk about the commodity cost here. There's a commodity scarcity too. In other words, there's not gonna be enough parts. So there's a combination of the demand that's in the marketplace, one's ability to procure the part, which is why job one of our supply chain is to get the material never run out of parts, and then price it to the commensurate value with having that material. That's what we're gonna work our way through. We're I think, very skilled at this. The last two cycles have certainly honed our skills. And we'll use all of the tools available from configurations. It's not uncommon in the PC industry…

And our next question will come from Asiya Merchant with Citigroup.

Great. Thank you for taking my question. Just looking ahead into storage, seems like that business, you know, is doing perhaps, you know, a little bit better than what was previously expected. As you look into the server demand that is driving up the revenues for this the core server, And as you look into next year, just given all the, obviously, the backdrop of commodities, headwinds here, how are you thinking about storage from here on? And if we can get that inflection towards more Dell IP storage, which is obviously positive for your margins, quicker relative to some of the unwinding of the HCI storage, if that can happen faster than what was previously communicated at the Analyst Day. Thank you. Yeah. I think, again, just to clarify, I guess, in Q4, what we're looking at in terms of guidance, Continuing to show that Dell IT storage growth and seeing that sequentially hopefully above our expected to be above normal sequentials. That'll allow us, along with the pricing discipline, keep that margin improvement coming along for the p and l. On the server comment again, strong demand in Q3, particularly in month three. So to Jeff's point earlier, building a bit of that backlog. So I think you can expect you know, high single digit growth in that business for Q4, which would you know, end us on a high point as we exit the quarter. That said, look, as we head into FY twenty twenty seven, still very early. Obviously, it's a lot happening in the market and changing. I would still reference you back to the long term framework that we've got. I think it's a good reference starting point. We'll work from there. And then, obviously, be agile as we assess and and see how…

And our next question will come from Simon Leopold with Raymond James.

Thanks for taking the question. I wanted to see if you could maybe unpack the elements that contribute to the roughly $5 billion of incremental AI revenue for the full year. I I guess what I'm trying to get at is how much is this about your ability to get key components new orders, or existing orders occurring earlier? Just help us unpack what factors led to the raised forecast for AI. Thank you. Well, at the highest level, $12.3 billion of new orders and a growing backlog and then a supply chain that I think is unmatched that finds materials and gets materials lined up with customer availability. This is equal parts customer readiness. Buildings, power, direct liquid cooling, So we've used the word lumpy before, which we purposely didn't use here, but it's really driven by a customer's readiness and our ability to deliver matched up with the supply chain's ability to get the material and matched up with our sales force out winning new opportunities across the Neo Cloud customer base. The sovereign customer base, and enterprise customer base. So it's that combination and why you see one quarter five billion dollars, 1 quarter $9 billion in shipments. It really is equal parts customer readiness customer delivery acceptance, that drives that. And The stars align in Q4. With the amount of orders with the GB 200 and GB 300 business that we have booked that we'll be able Deliver at that rate in Q4. Thanks, Simon.

And the next question comes from David Voigt with UBS.

Great. Thanks, guys. Maybe just one for David. So you talked about margins and commodity pressures quite extensively. Can we look at your purchase commitments as barometer for how you're thinking about margins going into next year? I know a big chunk of that is probably tied to the AI server business. But is there anything in sort of those purchase commitment numbers that we could look at as sort of evidence of how you're thinking about where DRAM and NAND prices could be? And I think last quarter, you exited the queue north of $5 billion but most of that is for this fiscal year. So if you can give us any update on kind of how to think about purchase commitments going into fiscal twenty seven, and as an indicator, that would be great. Thanks. Yeah. Sure. Look, have no discernible change in the pattern of our you know, purchase commitments. Or in relation to positioning on things like inventory, etcetera. So if you think of AI, and this is a good kind of litmus test for us within the finance side as well as we observe it. You take that $12.3 billion that Jeff just referenced, sequentially, we actually took down our inventory values about $300 million. If you look at it in the year on year, the year on year inventory is roughly flat, give or take. Yet our year to date demand is up over $19 billion in that period too. So obviously, we have our normal supply chain procurement processes kicked in. As part of it. So no no real discernible change from last quarter. Or anything to read in as we look into FY twenty seven just yet. Yeah. Thanks a lot, David. Operator, we'll take one more question, and then we'll hand it over to Jeff We're closed.

We'll take our final question from Tim Long. With Barclays.

Thank you for squeezing me in. Two parter, if I could, on on gross margins. First part, talking about the mix in AI servers, as you start to convert more of the Neo Cloud and sovereign and enterprise, to revenues, would you expect to change to that mid single digit operating margin? Could that move higher? Or how meaningful would that be? And the second part, on the PC side, think there was a comment at the analyst day about you know, really doing well in the high end commercial but trying to recapture share in other parts of the PC market. Is that something that we could expect might impact operating margin on the on the PC business? Thank you. Yes. Maybe let's let's start with the AI side. Look. We're gonna stay consistent on our single digit delivery in terms of operating profit. You will stay within that range Yep. While we'd like to in every deal, the reality is we won't write on a lot of those can be competitive, particularly the larger ones. So look, we'll remain judicious as we manage the profitability and the ongoing activities there. Some will flow slightly lower. Other deals will be slightly higher, but we'll stay pretty consistent as an objective within that mid single digit. Momentum. As we kind of go forward. And that's if you like, the bedrock of which we'll build it on. The other element for me is which is part of it, is making sure every deal is accretive from a dollar perspective too. So, again, cash flow is something that at the forefront of all our operations. We think that's a good thing. In fact, we think it's a great thing. We wanna make sure we keep it front and center as we look…

Thanks, Jim. Sure. Thank you all for joining us today. A few a few as we wrap up. First, we achieved record Q3 results across both revenue and EPS underscoring disciplined execution and the strength of our business models. Second, our AI momentum remains exceptional. We saw record orders in Q3 and have booked $30 billion through the first three quarters of this year. Our pipeline and customer base continues to expand and we remain well positioned to capitalize on accelerating demand for AI solutions. And lastly, we saw improved profitability and strong cash generation enabling above trend capital return to shareholders. We are set up well to close the year strong and to drive long term value. Thanks for joining us today and happy Thanksgiving everybody.

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