(Reuters) – Dell Technologies Inc on Thursday said it expects its adjusted gross margins to fall by about 150 basis points in fiscal 2025. Its shares fell 18 percent after the close despite reporting strong quarterly results.
“Given inflationary input costs, the competitive environment and the growth of AI-optimized servers, we expect our gross margins to decline,” Chief Financial Officer Yvonne McGill said on a conference call after the earnings release.
Surging demand for high-performance computing and large data centers to support the growing adoption of generative AI is spurring investments in AI-enabled products and increasing demand for servers from companies such as Dell.
The company's AI-optimized server shipments more than doubled to $1.7 billion, and its order backlog grew more than 30% to $3.8 billion, Chief Operating Officer Jeff Clark said in a statement.
“Dell's declining margins reflect an environment in which the market has yet to fully recover and intensified price competition as Dell's competitors sought to grab share in this tough market,” said Mikako Kitagawa, director analyst at Gartner.
The announcement comes days after Dell unveiled a range of AI-enabled PCs powered by Qualcomm processors, and said new servers supporting NVIDIA's latest chips would be available from the second half of 2024.
Fueled by optimistic outlook for demand for AI-optimized servers, Dell's shares have more than doubled this year, hitting an all-time high earlier this week.
Dell's sales rose about 6 percent to $22.24 billion in the first quarter ended May 3, beating analysts' average estimate of $21.64 billion, according to LSEG data.
Excluding other items, first-quarter adjusted earnings were $1.27 per share, beating the forecast of $1.26 per share.
The company's Infrastructure Solutions Group, which includes storage, software and server products, saw sales increase 22 percent to $9.23 billion, while sales for its PC-focused Client Solutions Group were flat at $11.97 billion.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Alan Barona)
