Dell’s outlook for the upcoming year indicates a steady state for PC sales, despite the promising prospects of AI-enhanced personal computers and the gradual transition from Windows 10. During the Q3 earnings call on Tuesday, COO Jeffrey Clarke highlighted the challenges ahead, stating, “We have not completed the Windows 11 transition.” He elaborated that the company is lagging behind previous operating system transitions by approximately 10 to 12 percentage points, which translates to around 500 million PCs that are unable to run Windows 11. This situation contrasts with the previous generation, where a similar number of devices did not require an upgrade.
Market Dynamics and AI Growth
Despite these hurdles, Clarke expressed optimism for the PC market, suggesting it will “flourish,” albeit he defined this as resulting in “roughly flat” sales. This comes after Dell experienced mid-to-high single-digit growth in PC sales over the past year. The company is well-positioned to navigate this stagnation, thanks to a burgeoning enterprise AI hardware portfolio. In the quarter ending October 31st, Dell secured orders totaling .3 billion for AI servers and shipped products valued at .6 billion. Revenue from servers and networking equipment surged to .1 billion, marking a remarkable 37 percent increase year-over-year.
Clarke noted that the five-quarter pipeline continues to expand across various sectors, including neo-clouds, sovereigns, and enterprises, significantly outpacing the current backlog. He remarked, “As expected, AI server profitability improved sequentially,” indicating a positive trend in this segment.
Challenges in Supply Chain Management
Interestingly, there is a growing interest among buyers in traditional servers as well, often driven by the need to consolidate existing fleets into more efficient configurations. This trend necessitates systems with increased memory and storage, presenting a challenge for Dell amid rising costs for RAM and NAND. These price hikes are largely attributed to memory manufacturers pivoting production towards high-margin products required for AI workloads, thereby reducing capacity for more conventional equipment.
In response to these challenges, Clarke assured investors that Dell would employ its extensive supply chain management expertise, honed during the COVID-19 pandemic and in recent months amid fluctuating tariff policies. “Our model gives us tremendous flexibility,” he stated, emphasizing the company’s ability to adjust pricing strategies, reconfigure products, and manage demand generation effectively.
Financial Performance and Future Projections
In the latest quarter, Dell reported billion in revenue, reflecting an 11 percent increase year-over-year. Looking ahead, the company anticipates revenues of .5 billion in Q4 and 1.7 billion for FY 2026, representing jumps of 32 percent and 17 percent, respectively. A significant portion of this growth is expected to stem from server sales, as approximately 70 percent of Dell’s customers are still operating on 14th generation servers or older models. The current 17th generation machines are designed to replace between three to seven older units, offering higher average selling prices due to the increased memory and storage capabilities.
As buyers seek to modernize their server infrastructure, the onus is on Dell to leverage its self-proclaimed supply chain prowess, or alternatively, customers may need to reassess their budgets to accommodate these changes.
