Dell Q2FY25 Earnings - Episode 230 - Six Five Podcast

Dell uh earnings Dell had quite a banger in their uh Q2 FY 25 earnings uh I alluded it alluded uh to a little bit of it uh but they had an absolute Banger uh in their in their data center uh Group isg which is the data center group up 38% but what was fire with the AI servers up freaking 880 uh perc amazing storage was off by 5% and you know what storage usually follows servers uh in the call they talked about how good the profitability was I believe that that storage being off was about nonell Technologies storage maybe vast data so they pull in the revenue for vast data but it's at a lower margin compared to their own and again vast state is not a storage company it's a software company but they did need to likely pull in a a third party for that uh maybe it wasn't vast data maybe it was pure probably pure not vast data but uh they're not giving those uh types of details and the interesting point too the thing I really loved and Jeff Clark just did a great job on bringing this out and guys I really recommend to go listen uh to a conference call you need to go in and read the transcript or look at the conference call but Jeff just did a m Masterwork of talking about what is going on here uh isg uh is targeting uh two AI server categories tier 2 csps these are not the non hyperscalers and then Enterprises um you know tier two is be like xai right we saw Michael Dell uh tweet about that installation and we we see that half that went to Dell and half that went to Super Micro uh you have these G uh GPU focused uh companies that um uh again do GPU uh as a service uh Dan you've been uh talking a lot about these guys but those are very much on the move and then there's Enterprises you know Jeff talked about uh okay we got through experimentation and we're just going into uh POC so not like these large installations of poc's I was a little a little surprised by that uh but that would also um indicate kind of how HP and and their numbers uh not moving as much in Enterprise AI big in HPC AI but but not so much in Enterprise uh a uh AI um backlog 3.x billion and the pipeline was multiples didn't give us a number 4X 5x uh 3x but multiples on top of that so the pipeline looks strong a good uh backlog which is about twice as much as they did in the in the last uh quarter final comments you know a little surprised a little bit surprised on uh CSG the PC group particularly what we saw from HP and Lenova was off 4% huge consumer declines around 22% and commercial was flat HP commercial was was up not too certain what's going on there there weren't a lot of insights on the call there was a lot of discussion about the win 10 to win 11 transition October 2025 they're optimistic about the aip's but can't figure out uh the market share uh sorry the uh the numbers compared to HP in Lenovo yeah you you covered it well um first of all you know side note but probably worthwhile um I think Dell got a real lift this quarter um and will more so into the future as some of these question marks rise around um super micro you know we saw Hindenberg published this short seller report they've been a bit of a they were a bit of a Wall Street darling and then they saw almost a 50% decline off their peaks I think as people started to kind of piece together that there was a bit of a house of car there you know the the value ad is going to be so important and Dell is so much better equipped on the value ad on these systems oh my gosh Jeff talked about you know Ed terms I'd never heard about but yeah you know like and and I said this you know when I was talking to some of the folks when we were getting briefed on everything and I said you know look I don't know that the market fully understands all the important contributions that Dell does to make AI optimized so and like I said it's not really servers it's racks it's not just you know it's buildout and then it's in you know it's really being able to help companies understand the full requirements to integrate and you know this goes back to what some of the alarm Bells were with the AMD acquisition with ZT is that kind of who owns this sort of system design buildout and and I think it is a bit of a village and especially by the way um on AMD side if they want to compete with Dell or sorry they want to compete with Nvidia but on the Dell side if they want to really be able to drive margin which has been where all the all the concern has has been around the fact great Revenue growth but you're it was at a lesser margin than in the past and that has been one of the push and pulls is where do they keep adding value so they can stack more margin into every one of these deals and I think that's what Jeff really talked quite a bit about um they're really well positioned Pat on these tier tws really really well positioned and I do think you know I don't I mean Super Micro this isn't going to like be like world ending but I think there's going to be some hesitation that Dell could capitalize on immediately as people are kind of wondering what they're up to over there um the I'll spend a minute longer on CSG just because you really covered isg well um Pat look I know that we and at times you know we were talking back in the beginning of the year at CES about this devic driven super cycle and I want to just basically say that I you said earlier let's take that word off the table I still believe in it I do think we're seeing a bit of a of a push that's going on right now in terms of the biggest demand like I think I expected a little more Q4 Q3 Q4 demand um I think we're seeing a bit more wait and see um I actually said I think apple is going to surprisingly drive a wave of co-pilot plus and aipc growth because people are going to start to see this on device experience and Enterprises are still more commercially attuned to um Windows based um but it's just showing up in the numbers csg's numbers were even softer than some of the others but you know Lenovo um HP we'll talk about here in a few none of them had particularly optimistic we talked to Enrique about it a little bit and we'll talk again on HP but like I think everybody's kind of starting to admit that there's a lot of excitement there's a lot of enthusiasm but it may be more q12 of 25 and even Beyond before this goes to scale and some of this tat with the best features like call really only being reintroduced here in Q4 um there's still a little work to be done by the ecosystem and Pat you know you and I are going to try to be Educators to the market on what people can get from a co-pilot plus and an aipc but I think that's part of this n these numbers being a little soft is but it's also a reason for optimism that some of the best is still to come this buy cycle could be huge but it it hasn't happened quite as fast as I had initially anticipated yeah and just to clarify I didn't say that I don't believe in the super cycle I actually do it's just the definition of it and when I was on stage in January at CES on Intel stage calling this I said the second half would be the beginning of it and I I do feel like recall not going and that was the sexiest feature out there it's having an unlimited memory of of everything and it didn't get delivered right and I think that's an issue interestingly enough lunar Lake uh could be a real shot out there for volume and you know there's this rumored 8 core Qualcomm right that that uh you know Cristiano Qualcomm CEO uh alluded to right the expansion of price points uh I will absolutely make a difference you know I think Enrique said 2025 50% sorry uh 26 it would be 50% but again the reason that number sound so low first off it's a premium offering and it's a little muddy what the desktop Market's going to be which is almost half of the entire PC market excuse me um and that's directly uh related to the Intel and AMD uh road maps and are they going to put big npus uh in their in their desktop parts right now the answer is no yeah yeah by the way there's a massive sort of opportunity for each of this the Silicon providers to sort of differentiate each of the oems to differentiate in this category you know of course there's some benefit to some to see more standardization there's benefits to some for them to actually individualize these products a little bit Pat and I think we also heard something like a 79% increase in ASP tied to I've heard different numbers but that's a pretty good range of what I've heard so you'll see Revenue grow just because these devices are more expensive um and so as it goes to volume you're going to see you know on a per device basis more Revenue should be more profitable too um as we see this turn hey I want to end this uh I want to end this one want to read a quote from Jeff Clark uh on the call and and just to be factual here uh their AI margins uh were higher uh this quarter than they were in previous that they got raked over the coals uh and he says um we improved margins of our AI portfolio we did that with the same sort of price discipline but more importantly the engineering value ad and the technical value add are bringing to our customers and the expansion beyond the specific node to the rack level deployment so our ability to add l11 l12 capabilities first time I heard those terms which are expert deployment system validation and testing the ability to help engineer the solution at our customer site the extension into networking the ability to Cable these things up and deploy them at scale that is allowing us to extract additional value in our AI deployments uh we have talked about all of this in our previous shows but the biggest reason that training runs do not complete is a uh networking breaking down and secondly it comes down to just to be brutally honest gpus flaming out