(Reuters) -Dell Technologies said on Thursday it expects its adjusted gross margin rate to decline about 150 basis points in fiscal 2025, sending its shares down 18% after the bell despite an upbeat quarterly earnings report.
“Given inflationary input costs, the competitive environment and higher mix of AI optimized servers, we do expect our gross margin rate to decline,” CFO Yvonne McGill said on a post earnings call.
A surge in demand for high-performance computing and large-scale data centers to support growing adoption of generative AI has spurred investments in AI-capable products, triggering demand for servers offered by companies such as Dell.
Shipments of the company’s AI-optimized servers more than doubled to $1.7 billion, and the backlog grew more than 30% to $3.8 billion, Chief Operating Officer Jeff Clarke said in a statement.
“Their margin decline reflected the competitive pricing environment as the market had not fully recovered yet and Dell’s competitors tried to grab the shares in this tight market,” Mikako Kitagawa, director analyst at Gartner said.
The results come days after Dell unveiled a range of AI-enabled PCs powered by Qualcomm processors and said that a new server, which supports Nvidia’s latest chips, will be available from the second half of 2024.
Fueled by optimism about demand for its AI-optimized servers, Dell’s stock has more than doubled this year and hit a record high earlier this week.
Dell’s revenue for the first quarter ended May 3 rose about 6% to $22.24 billion, beating analysts’ average estimate of $21.64 billion, according to LSEG data.
Excluding items, its first-quarter adjusted profit came in at $1.27 per share, compared with estimate of $1.26 per share.
The company’s revenue for infrastructure solutions group – which includes its storage, software and server offerings – rose 22% to $9.23 billion, while that of the client solutions group – home to PCs, was flat at $11.97 billion.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Alan Barona)
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