Press release·03/27/2025 02:15:22

Overview

During Fiscal 2025, Dell Technologies saw strong operating results, generating 8% growth in net revenue and 15% growth in operating income compared to the prior year. This was driven by an increase in the Infrastructure Solutions Group (ISG) segment, which offset declines in the Client Solutions Group (CSG) segment and the company’s other businesses.

The demand environment was robust for Dell’s servers and networking offerings, contributing to overall revenue growth. The company also benefited from increased demand for AI-optimized solutions, with backlog levels for these offerings remaining elevated. However, the company experienced a shift in business mix towards the higher-margin ISG segment, which put pressure on gross margins.

Dell remained focused on executing its strategic priorities, building long-term value, and addressing customer needs. The company continued to make investments to change how it works, improve business outcomes and the customer experience, and reduce costs through technology and process optimization. Dell also took actions to align its investments and headcount with strategic priorities, including limiting external hiring, employee reorganizations, and other cost reduction measures.

Segment Performance

Infrastructure Solutions Group (ISG):

• ISG net revenue increased 29% year-over-year, driven by 54% growth in servers and networking. This was partially offset by a 1% increase in storage revenue.
• The increase in ISG revenue was attributable to strong demand for AI-optimized server offerings as well as growth in traditional server and networking products.
• ISG operating income increased 30%, with the operating margin expanding 20 basis points to 12.8%. This was driven by the revenue growth and disciplined cost management, which offset a decline in gross margin rate due to the shift in mix towards AI-optimized servers.

Client Solutions Group (CSG):

• CSG net revenue declined 1% year-over-year, with a 3% increase in commercial revenue offset by a 17% decrease in consumer revenue.
• The decline in CSG revenue was due to lower unit sales and, to a lesser extent, lower average selling prices, particularly in the consumer business.
• CSG operating income decreased 20%, with the operating margin declining 150 basis points to 6.1%. This was primarily due to the competitive pricing environment, which pressured gross margins, partially offset by lower operating expenses.

Other Businesses:

• Revenue from the company’s other businesses, which include VMware resale and Secureworks, declined as Dell no longer acts as a distributor of standalone VMware offerings following Broadcom’s acquisition of VMware.

Profitability and Cash Flow

• Gross margin and non-GAAP gross margin increased 1% to $21.3 billion and $21.8 billion, respectively, driven by the ISG segment. However, gross margin as a percentage of revenue declined 160 basis points to 22.2% due to the shift in mix towards lower-margin AI-optimized servers and competitive pricing pressures in CSG.
• Operating income and non-GAAP operating income increased 15% to $6.2 billion and 8% to $8.5 billion, respectively, primarily due to the ISG segment’s performance. Operating margin increased 40 basis points to 6.5%, while non-GAAP operating margin remained flat at 8.9%.
• Net income and non-GAAP net income increased 36% to $4.6 billion and 8% to $5.9 billion, respectively, driven by the increase in operating income and lower income tax expense.
• Cash provided by operating activities was $4.5 billion, down from $8.7 billion in the prior year, primarily due to working capital dynamics related to the growth in AI-optimized offerings.

Liquidity and Capital Allocation

• As of January 31, 2025, Dell had $3.6 billion in cash and cash equivalents, as well as $6.0 billion in available borrowings under its revolving credit facility.
• The company’s total debt decreased by $1.4 billion to $24.6 billion, driven by net repayments of DFS debt and Senior Notes.
• Dell continued to return capital to shareholders, repurchasing approximately 22 million shares of Class C Common Stock for $2.6 billion and paying $1.3 billion in dividends during Fiscal 2025.
• The company plans to continue its balanced capital allocation strategy, using available cash to fund growth, maintain its investment grade credit rating, and return capital to shareholders through share repurchases and dividends.

Outlook and Strategic Priorities

• Dell expects demand growth across its servers, networking, and storage offerings in Fiscal 2026, which should result in ISG net revenue growth. The company also anticipates modest CSG net revenue growth, driven in part by an anticipated PC refresh cycle.
• The company expects a modest decline in input costs during the first half of Fiscal 2026, though cost trends will continue to fluctuate based on demand and supply dynamics.
• Dell remains focused on executing its key strategic priorities, including building long-term value, addressing customer needs, and making prudent decisions in response to the environment. The company expects margin rate pressure due to the continued shift in mix towards AI-optimized servers and a competitive pricing environment.
• To drive efficiencies and align investments with strategic priorities, Dell plans to continue its disciplined cost management efforts, including limiting external hiring, employee reorganizations, and other actions to reduce costs.

Analysis and Outlook

Dell Technologies demonstrated its ability to navigate a dynamic market environment, delivering strong operating results in Fiscal 2025 despite headwinds in certain areas of the business. The company’s focus on high-growth, higher-margin segments like ISG, particularly AI-optimized solutions, has been a key driver of its performance.

However, the shift in business mix towards ISG has put pressure on the company’s overall gross margins, which declined during the year. Dell will need to carefully manage this dynamic, balancing profitability and growth as it navigates competitive pricing pressures, especially in the CSG segment.

The company’s strategic investments in areas like AI, cloud, and digital transformation are positioning it well to address evolving customer needs. Dell’s efforts to modernize its own operations and align its cost structure with strategic priorities should also help drive long-term value creation.

Looking ahead, the company’s outlook for Fiscal 2026 is cautiously optimistic, with expectations of revenue growth in both the ISG and CSG segments. However, Dell will need to continue monitoring macroeconomic conditions, supply chain dynamics, and competitive pressures that could impact its performance.

Overall, Dell Technologies appears well-positioned to capitalize on the ongoing demand for its IT infrastructure and client solutions offerings. By executing its strategic priorities, maintaining financial discipline, and adapting to market changes, the company should be able to drive sustainable growth and profitability over the long term.