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Dell (DELL -6%) is heading lower today after reporting Q4 (Jan) results last night. Dell reported robust EPS upside, but revenue rose just 7.2% yr/yr to $23.93 bln, which was light of expectations. Also, Dell offered downside EPS and revenue guidance for Q1 (Apr). The silver lining was that FY26 guidance was a bit better with upside EPS an in-line revs.

• Growth continues to be driven by its Infrastructure Solutions Group (ISG) segment, where revenue jumped 22% yr/yr to $11.35 bln with 18.1% segment operating margin vs 15.3% last year. Server and networking revenue jumped 37% yr/yr to a Q4 record $6.63 bln. Dell continues to see strong demand across both AI and traditional servers. Dell is seeing continued progress in AI from enterprise customers. Storage revenue was up 5% to $4.72 bln, its second consecutive quarter of growth, fueled by record demand for PowerStore.
• Turning to Client Solutions Group (CSG), segment revenue grew 1% yr/yr to $11.88 bln with 5.3% op margin vs 6.7% last year and vs 5.7% in Q3 due to a more competitive pricing environment. Dell saw some promising signs in Nov-Dec with pockets of strengths in large deals, but there was a slowdown in January. Dell did see strength in SMB (small and medium business), which is historically a leading indicator.
• Commercial revenue was up 5% to $10 bln as demand continued to push into the next fiscal year. Consistent with what it saw coming out of Q3, customers are waiting to refresh in order to buy AI PCs that future-proof their purchases going forward.
• Consumer revenue was down 12% to $1.9 bln as demand remains soft and profitability remains challenged due to elevated levels of discounting. Dell expects a broader PC refresh this year as the installed base continues to age and as the industry gets closer to the Windows 10 end-of-life and as AI PCs become more broadly available. Dell says it's ready and well-positioned for a PC refresh. The good news is that Consumer is a pretty small share of total revenue.
• In terms of the guidance, Dell expects IT spending to grow in FY26. It expects ISG to grow high teens, driven by $15 bln of AI server shipments and continued growth in traditional server and storage. Dell expects CSG to grow low-to-mid single digits, more weighted towards 2H. Given a higher mix of AI-optimized servers and the current competitive environment, Dell expects gross margin to decline roughly 100 bps. For Q1, Dell expects ISG growth in the low teens and CSG to be flat.

Overall, this was a disappointing end to FY25 for Dell. The robust EPS upside was good to see but much of that margin upside stemmed from its Dell IP storage portfolio. Its ISG segment continues to perform well, driven by robust demand for AI servers. However, its CSG segment continues to be a drag on overall results. It sounds like commercial customers are holding off for now on a long-awaited PC refresh and the consumer side remains very weak. The modest silver lining is that 2H sounds like it will be better than 1H.