Dell Technologies (DELL) shares continued to fall on Friday, despite first-quarter results beating revenue and profit expectations. Arthur Lewis, president of Dell Infrastructure Solutions Group, appears on Market Domination to discuss margin pressures weighing on the stock.
Lewis highlighted “great momentum” in Dell's AI infrastructure business and noted that the company is on a continued growth trajectory. Dell expects growth in its server business over the coming quarters.
“We have a significant backlog, but a lot of our demand is project-based and also dependent on our suppliers' ability to deliver,” Lewis explained of the weak guidance outlook, adding, “This is really nonlinear demand and it can be a little bit difficult to forecast.”
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Video Transcript
Dell handily won both sales and profits in its most recent quarter.
Strong demand for its AI server business has sent shares plummeting in trading today as questions remain about the company's profit margins.
Now we're pleased to invite Arthur Lewis, president of the Infrastructure Solutions Group at Dell Technologies, to join the discussion.
I'm glad you appeared on the show.
So, Arthur, let's look into this issue in more detail. The problem seems to be in the margins around the AI servers.
As you know, Tony Sakan-I from Bernstein is on the line.
Did you hear about Arthur?
And he said that the operating margins on the AI services servers appear to be essentially zero, and I think he hits the nail on the head here.
So Arthur, can you elaborate on this?
What are the advantages and disadvantages here?
What do you think about the outlook for the future, and do you think the market is missing something, Arthur?
Hi Josh, thank you so much for having me on the show.
We are seeing incredible momentum in infrastructure projects.
Well, we look at $2.6 billion in orders, $1.7 billion in shipments, $3.8 billion in backlog and the pipeline for the next five quarters.
That's multiples and there's a lot of momentum.
But think about it: this is a startup business for us, and we only started shipping in Q2 of the last four quarters.
We've shipped $3.5 billion worth of AI-dedicated servers.
Well, we are growing our share in Tier 2 C SPS and helping any enterprise customer consider adopting generative AI.
In addition, as you know, our server business has seen two consecutive quarters of year-over-year growth and four consecutive quarters of quarter-over-quarter growth.
We are very excited about the server recovery, and as I said before, storage recovery will lag behind server recovery by a quarter or two.
We expect growth to accelerate in the second half of the year, which is why we have increased our ISG guidance to above 20% and delivered operating profit well within our long-term growth framework of 11% to 14%.
Arthur.
Hi Julie, I saw some analysts say they don't see much growth in AI servers for the full year.
Can you tell us about that?
So if we break down your predictions in more detail, what does that mean in that respect?
Yeah.
So we're looking at sequential growth going into the second quarter and then flattening out in the second half because while we have a significant backlog, a lot of the demand is project-based and also dependent on supplier capacity, particularly for our Black World 200 processors.
So this is a really nonlinear demand and it can be a little difficult to predict.
I think that's what's in our guidance.
