Dell (DELL, Financial) saw its stock drop by 6% following its Q4 earnings report. While it posted a strong EPS, revenue increased only 7.2% year-over-year to $23.93 billion, falling short of expectations. Additionally, Dell provided lower-than-expected EPS and revenue guidance for Q1. However, its FY26 guidance showed some promise with better EPS projections and in-line revenue expectations.

• Infrastructure Solutions Group (ISG): Revenue surged 22% year-over-year to $11.35 billion, with an operating margin of 18.1%, up from 15.3% last year. Server and networking revenue hit a Q4 record of $6.63 billion, driven by strong demand for both AI and traditional servers. Storage revenue increased by 5% to $4.72 billion, marking its second consecutive quarter of growth, thanks to high demand for PowerStore.
• Client Solutions Group (CSG): Revenue grew by 1% year-over-year to $11.88 billion, with an operating margin of 5.3%, down from 6.7% last year. Despite some strength in large deals during November and December, a slowdown occurred in January. However, Dell noted strength in the SMB sector, a key indicator of future demand.
• Commercial Revenue: Increased by 5% to $10 billion, with demand expected to carry into the next fiscal year. Customers are delaying purchases to wait for AI PCs, which are expected to future-proof their investments.
• Consumer Revenue: Dropped by 12% to $1.9 billion due to soft demand and profitability challenges from high discounting. Dell anticipates a broader PC refresh this year as the installed base ages and AI PCs become more available. The consumer segment remains a small portion of total revenue.
• Guidance: Dell forecasts IT spending growth in FY26, with ISG expected to grow in the high teens, driven by $15 billion in AI server shipments and continued growth in traditional server and storage. CSG is projected to grow in the low-to-mid single digits, with more growth expected in the second half. Dell anticipates a 100 basis point decline in gross margin due to a higher mix of AI-optimized servers and competitive pressures. For Q1, ISG growth is expected in the low teens, and CSG is expected to remain flat.

Overall, Dell's FY25 ended on a disappointing note, with a strong EPS overshadowed by revenue challenges. The ISG segment continues to thrive due to high demand for AI servers, but the CSG segment remains a concern. Commercial customers are delaying PC refreshes, and consumer demand is weak. However, the outlook for the second half of the year appears more promising.