AI server sales are hot, Dell's Q2 performance exceeds expectations

According to the financial news app Zhitong Finance, after the US stock market closed on Thursday, Dell Technologies (DELL.US) announced that its second-quarter revenue exceeded expectations, driven by increased sales of servers used for handling artificial intelligence (AI) workloads. Data shows that Dell's second-quarter revenue increased by 9% to $25 billion, surpassing the market's expectation of $24.5 billion. Earnings per share, excluding certain items, were $1.89, also higher than the market's expectation of $1.71. Strong Demand for AI Servers Orders for AI-optimized servers in the second quarter amounted to $3.2 billion, up from $2.6 billion in the previous quarter. Dell's Chief Operating Officer Jeff Clarke stated in a release that the backlog value of these devices is $3.8 billion, with the imminent deals being "multiple times" of this figure. Clarke mentioned during the earnings conference call that most of the AI server business is done in collaboration with smaller cloud service providers, but there is a new opportunity emerging with enterprises and governments. The sales in the server division reached $11.6 billion, exceeding the market's expectation of $10.9 billion. The AI server trend has driven Dell's infrastructure division revenue to a record high. Dell expects third-quarter revenue to be around $24.5 billion, in line with analysts' expectations. Over the past year, this hardware technology company has gained favor among investors for its high-performance AI servers. However, concerns are rising about Dell, as well as competitors like Super Micro Computer (SMCI.US) and Hewlett Packard Enterprise (HPE.US), regarding the profitability of selling devices that require expensive computer chips produced by companies like NVIDIA (NVDA.US). The operating profit margin for Dell's servers and other infrastructure business divisions is 11%, higher than the previous quarter's 8% and above analysts' average expectation of 10.7%. Bloomberg Intelligence analyst Woo Jin Ho stated that this improvement "should alleviate concerns about the profit margins of AI servers." However, Chief Financial Officer Yvonne McGill mentioned during the conference call that the profit margin was negatively impacted by the increase in the mix of AI servers and intensified pricing competition. PC Recovery Still Awaited Dell's more well-known personal computer (PC) business revenue was $12.4 billion, a 4% decrease from the same period last year, slightly below expectations. Revenue from commercial PCs remained almost unchanged, while revenue from consumer PCs decreased by 22% year-on-year. In comparison, competitor HP (HPQ.US) announced an 8% growth in enterprise PC sales for the quarter on Wednesday. After experiencing a surge in demand during the pandemic, the PC market has seen a historic decline. This year, the long-awaited rebound has begun. Research firm IDC reported in July that in the second quarter, the industry's shipment volume grew by 3%, marking the second growth since the end of 2021 On the other hand, Clarke stated in a conference call that the recovery of the personal computer market is "later than previously expected" for Dell. In June of this year, Dell mainly laid off employees in the sales department, but did not disclose the number of affected employees. The company's severance pay for the quarter was $328 million. McGill mentioned regarding the layoffs: "A significant part of this optimization work is to use artificial intelligence to reshape our business processes and improve productivity." Furthermore, according to earlier reports by the media, Dell is exploring the possibility of selling the cybersecurity company SecureWorks Corp. Dell, which owns the majority of SecureWorks shares, attempted to sell the company in 2019 but was unsuccessful. SecureWorks is valued at approximately $772 million. As of the time of writing, Dell rose by 3.60% after hours, with a previous increase of up to 8.7%. The stock has accumulated a 45% increase since the beginning of this year