Dell PC Sales Fall Again As AI Server Sales Heat Up
‘We are at the front of a significant TAM [total addressable market] expansion,’ said Dell COO Jeff Clarke on the company’s earnings call. ‘The XE9680 is the fastest-ramping solution in Dell history.’
Dell Technologies revenue was down 10 percent year over year, but its growth in servers was up 9 percent quarter to quarter, with one-third of those gains coming from AI servers alone.
Demand for pricey AI power plants like Dell’s flagship XE9680 server doubled and pipeline for the devices tripled, Dell Vice Chairman and COO Jeff Clarke (pictured) said during the Round Rock, Texas-based company’s third fiscal quarter earnings call.
“We are at the front of a significant TAM [total addressable market] expansion,” Clarke said. “The XE9680 is the fastest-ramping solution in Dell history.”
While Dell shipped roughly a half-billion dollars worth of AI-optimized servers last quarter, lead times for the devices remain at 39 weeks. Dell’s XE9680, XE9640 and other GenAI-capable servers are powered by semiconductors from Nvidia. The company’s H100 chip and those like it are what is causing the nine-month bottleneck to supply, which remained unchanged from last quarter.
“I wish I could tell you the lead time was less than 39 weeks,” Clarke said. “I can’t today. We are on the phone working every available opportunity to improve supply. We’ve offered our services. We will help where we can. I’m hopeful for the day to tell you supply has improved greatly. The time is reduced and we can work the backlog down faster.”
Analysts expressed caution at some of Dell’s projections around AI and dug into questions around the supply chain and lead times on its AI servers and whether given Dell’s competition there could be double bookings on sales of the big-ticket item.
“I think there’s reasonable fidelity on the demand signals that we see today,” Clarke said. “Is it possible there are double bookings? I can’t sit here and tell you there’s not. I don’t see it from my seat.”
Clarke said Dell pegged the market opportunity for AI servers growing to $120 billion over the next four years, with an 18 percent compound annual growth rate.
Dell’s infrastructure sales for the quarter ended Oct. 28 came in at $8.5 billion, down 12 percent year over year. Clarke said demand for traditional servers has not been cannibalized by the growth in Dell’s AI server orders. During the third quarter, he said activity in those traditional accounts has increased, conversions have improved and adoption of its 16G server doubled quarter over quarter.
“Those signals tell us this eight-quarter digestion of what was bought through the course of COVID has now worked through the system,” Clarke said. “Data centers need to upgraded with additional capacity. Those workloads are going to continue to need to be fed. More data is being traded, while at the same time there is a whole new category of computing.”
The long-awaited PC refresh has yet to arrive with the slump expected to continue to the end of the fiscal year, Clarke said. PC demand had improved in June and July and early August sales were up, even exceeding its year-over-year total, he said, but then there was a slowdown in September and October.
“The big change was the number of large deals slowed over the course of the quarter as our customers again became more cautious and selective,” Clarke said. “The pricing pressure changed in PCs from August to October. Those large deals became more competitive.”
Dell’s Client Solutions Group revenue—80 percent of which is PC sales—was down 11 percent year over year to $12.3 billion. Consumer PC sales took the biggest hit, down 19 percent year over year and 30 percent over the last six months.
However, Dell said it expects 3 percent to 4 percent PC sales growth next year.
Clarke said there are several reasons to believe the PC refresh will come soon: There are 300 million PCs that are turning four years old, of the 1.5 billion PCs deployed today many of them will not be capable of running the workloads that are coming in the way of AI assistants, and by the end of the year it will have been eight quarters of downturned PC sales.
“That’s the longest I can recollect,” Clarke said. “It’s ripe for a refresh.”
This is the first full quarter reporting since Dell revamped its go-to-market around storage, with the Partner First For Storage sales model that incentivizes Dell sales reps to move storage deals through the channel.
At the same time it made the changes in its go-to-market, Dell announced more 2023 layoffs. The exact number was not released, but the severance costs were $364 million, on par with the $367 million total Dell paid when it cut 6,650 jobs in February.
Storage sales were down 8 percent quarter to quarter on the back of $3.8 billion in sales and down 13 percent year over year.
“A large concentration of storage business is among very large customers and they’re being cautious and selective,” Clarke said. “That clearly impacts our high-end product portfolio. We saw our data protection and our unstructured categories actually growing.”
He said eight quarters of server decline had impacted storage. However, Clarke said the steady uptick in server sales bodes well for storage.
“Historically, as the server business rebounds, our experience tells us that storage lags it by a couple of quarters,” he said. “That’s what we’re expecting. We see nothing that suggests it’s different.”