Dell Technologies Inc.'s recent AI boost was derailed slightly on Tuesday, as the computer maker's weaker outlook - due to a double whammy of AI product transitions in both servers and PCs - disappointed investors.
Shares of Dell (DELL) tumbled 11% in after-hours trading, a big move in the wrong director for a company that has seen its shares jump 88% so far this year, as it has become a leading AI-server provider.
While Dell still sees a "robust opportunity" for its AI servers, and saw record revenue growth of 58% in its fiscal third quarter for servers and networking, it forecast revenue below expectations for the fiscal fourth quarter. Dell said it shipped $2.9 billion of AI servers in the most recent quarter.
Read more: Dell sees AI-server boom gain more steam, but overall revenue falls short
Dell Chief Financial Officer Yvonne McGill said she expects fiscal fourth- quarter revenue to come in a range between $24 billion and $25 billion, while the consensus on FactSet is for revenue of $25.6 billion.
"There's two elements. PCs, it's not a matter of if the refresh is going to happen, it's when, and ... we're seeing that move more into next year," McGill said, while also citing "the unpredictability of the AI shipments," referring to Nvidia Corp.'s (NVDA) transition to its new Blackwell chips.
Dell executives said that the anticipated customer refresh to new AI-enabled PCs is going slower than expected, in part because of the response by companies regarding the end-of-support date for Microsoft Corp.'s (MSFT) Windows 10 in October 2025, though customers can extend their security updates if they are willing to pay an extra $30.
That could put off some upgrades among consumers, at least. Hewlett-Packard Inc. (HPQ), on its earnings call with investors on Tuesday, said that it agrees with industry forecasts that the PC industry will grow in 2025 by the mid-single digits. IDC forecast in September that the PC market will grow about 4.3% in 2025, due to the Windows refresh cycle.
"While AI has been a buzzword of late, it has yet to be a purchase driver among PC buyers," IDC analyst Jitesh Ubrani said at the time.
On the AI-server front, Dell said its backlog of orders grew to $4.5 billion, up from a backlog of $3.8 billion in the second quarter. Wamsi Mohan, a BofA Securities analyst, had predicted that Dell's backlog would increase to about $4.45 billion. He had forecast a decline of 8% in Dell's AI-server revenue at $2.85 billion for the third quarter, but added there's "potential for higher revenues if Dell can get all the parts it needs."
Dell's larger-than-expected backlog of orders led one analyst to ask if that was due to the woes of an unnamed competitor, likely a reference to the accounting problems at Super Micro Computer Inc. (SMCI).
"We see a formidable stack of competitors at each and every opportunity," Dell Vice Chairman Jeff Clarke told analysts. "We're showing up, we believe, with a very, very differentiated offering. That's why our pipeline is growing."
But as Dell is reliant on other companies in its orbit to provide other pieces of its products, its revenue in the AI realm is being tempered, for now.
-Therese Poletti
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