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Dell (DELL -12%) is under pressure today after reporting Q3 (Oct) results last night. Dell reported EPS upside that was smaller than Q2, but still solid. Revenue rose 9.5% yr/yr to $24.37 bln, which was a bit light. The silver lining is that this was Dell's largest yr/yr revenue increase in the past 10 quarters. Growth was driven by continued strength in AI and traditional servers. However, the biggest problem was downside guidance for Q4 (Jan) for both EPS and revs.

• Infrastructure Solutions Group (ISG) revenue jumped 34% yr/yr to $11.37 bln with 13.3% segment op margin vs 12.6% last year. Server and networking revenue jumped 58% yr/yr to a record $7.36 bln. Dell's AI server momentum continued and it saw a substantial expansion in its 5-quarter pipeline. Orders were a record $3.6 bln, up 11% sequentially, primarily driven by Tier 2 cloud service providers with continued growth in enterprise customers.
• Dell shipped $2.9 bln of AI servers in Q3 resulting in an AI server backlog of $4.5 bln. Its 5-quarter pipeline grew more than 50% sequentially, with growth across all customer types. Enterprises increasingly see the disruptive nature and the innovation opportunities with GenAI. Traditional server demand improved double-digits in Q3, driven by growing units and ASPs with denser core counts, memory, and storage per server. Customers are focusing on consolidation and power efficiency by modernizing their data centers with more efficient and dense 16G servers. This frees up valuable floor space and power that will support their AI infrastructure.
• Storage revenue grew 4% yr/yr to $4.00 bln. Dell says the overall demand environment in storage continues to lag that of traditional servers.
• Turning to Client Solutions Group (CSG), segment revenue declined 1% yr/yr to $12.13 bln with 5.7% op margin vs 7.5% last year, due to a more competitive pricing environment primarily in Consumer. Commercial revenue grew 3% to $10.14 bln while Consumer revenue was $1.99 bln, down 18% yr/yr. Dell said its Consumer business was weaker than expected as demand and profitability remained challenged. The PC refresh cycle is pushing into next year.
• Finally, on the downside Q4 guidance, Dell said enterprise and large customers are being more mindful of their PC and storage IT spend in the short-term. Dell expects ISG to be up mid-20s in Q4 and CSG to be up low-single digits. While Dell did not formally guide for FY26, it did say it expects multiple tailwinds going into next year, including more robust AI demand. There's also an aging install base in both PCs and traditional servers that are primed for a refresh.

Overall, investors had high hopes going into this report, but the guidance was a letdown. AI server demand looks great but Dell's comments about enterprise and large customers being more mindful near term on IT spend has spooked investors. Also, its consumer segment was weaker than expected, which was similar to what we heard from HP, Inc. (HPQ) on its earnings call last night. Dell was pretty upbeat on its Q2 call about the PC refresh cycle taking place in Q4, but now Dell says it's getting pushed into next year. Dell should see good demand next year, we just think the stock got ahead of itself in recent months heading into this report.