Customer demand for AI servers drove Dell revenues to a scorching $43.8 billion in its first fiscal 2027 quarter.
This was 88 percent higher than a year ago and GAAP net income rocketed up as well, by 256 percent from $965 million to, wait for it, $3.44 billion. Its ISG (Infrastructure Solutions Group) servers, networking and storage business brought in $29 billion; a 181 percent increase, while its PC-oriented CSG (Client Solutions Group) unit recorded revenues of $14.6 billion, increasing by a relatively paltry 17 percent.
Dell’s Vice Chairman and COO Jeff Clarke said: “Our record Q1 performance reflects strong in-quarter demand, as well as our pace of innovation across the full stack of PCs, compute and storage. We booked $24.4 billion in AI orders and recognized $16.1 billion of AI server revenue. We’re increasing our AI server revenue expectations for FY27 to $60 billion, which only goes to show the AI opportunity shows no signs of slowing.”
Financial summary
Gross margin: 17.8 percent vs 21.1 percent a year ago
Operating cash flow: A record $4.1 billion vs prior quarter’s $2.8 billion
Free cash flow: $3.12 billion vs $2.23 billion a year ago
Cash, cash equivalents, and restricted cash: $11.75 billion vs $7.85 billion a year ago
Diluted EPS: $5.24 vs $1.37 a year ago
Inside the ISG results, Dell separated out its AI-optimized servers revenue of $16.1 billion, an amazing 291.7% Y/Y increase, from its traditional servers and networking revenues; $8.5 billion, up 92 percent. Storage revenues rose at a much more pedestrian rate, by 8 percent to $4.3 billion. Dell said that there was double-digit Dell-IP storage growth, and that it’s had five consecutive quarters above the market.
The $4.3 billion in storage revenues compares to NetApp’s $1.95 billion in its latest quarter; Dell is still the storage market leader, with IDC giving it the number one slot in external RAID, high-end, mid-range, all-flash arrays, unstructured data, and purpose-built backup target appliances.
Clarke said: "In primary storage, we saw notable strength in PowerMax and PowerStore. We continue to see momentum in the midrange ecosystem with PowerStore delivering its eighth consecutive quarter of double-digit demand growth. In unstructured, we saw strong performance from PowerScale and ObjectScale with 3 consecutive quarters of growth, including double digit in each of the last 2 quarters."
ISG profitability improved Y/Y to 10.5 percent, driven by the strong storage growth and profitability. But ISG's revenue growth is predominantly down to AI servers.
Clarke said: "In AI, the opportunity remains exceptionally strong, underscored by durable broad-based demand. In Q1, we booked $24.4 billion in AI orders and recognized $16.1 billion of AI server revenue. We exited the quarter with a record $51.3 billion of AI backlog, and our pipeline continued to grow sequentially and remains multiples of our backlog even after converting $24.4 billion into orders. Demand continues to exceed supply with memory as the primary constraint, and we expect to exit the year with meaningful backlog."
The AI server customer count went past 5,000 with growth across Neocloud, Sovereign, and Enterprise customers. The AI pipeline was described as being exceptionally strong.
In the CSG unit Dell said commercial revenue grew for the seventh straight quarter, up 18 percent Y/Y, with demand growth across regions and a second consecutive quarter of share gain.
Dell Technologies returned $2.1 billion to shareholders in the first quarter through $1.6 billion of share repurchases and $464 million dividends.
Next quarter’s revenue outlook is $44.5 billion ± $500 million, a 49 percent Y/Y rise at the mid-point. The full fy2027 guidance is $167 billion ± $2 billion, a 47 percent mid-point rise. It expects $60 billion of AI-optimized server revenue in fiscal 2027.
Fy 2027 storage revenue growth in the mid single-digits will still distantly lag server growth, with trad servers up 60 percent and AI servers expected to grow faster, by 2.4x (140 percent).
Dell's customers are convinced they need AI to keep their enterprises' efficiency and productivity high, and are virtually buying every server Dell can make.