Dell Technologies delivers record Q3 revenue of $27 billion and EPS of $2.59, fueled by exceptional AI server orders and robust cash flow, with positive guidance for Q4.

Please stand by. Good afternoon and welcome to the fiscal year 2026 third quarter financial results conference call for Dell Technologies, Inc. I'd like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is a copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question and answer session. If you have a question, simply press Star then one on your telephone keypad at any time during the presentation. I'd now like to turn the call over to Paul Franz, Head of Investor Relations. Mr. Franz, you may begin.

Thanks everyone for joining us. With me today are Jeff Clark, David Kennedy, Kennedy, and Tyler Johnson. Our earnings materials are available on our IR website and I encourage you to review these materials. Also, please take some time to review the presentation, which includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income, diluted earnings per share, free cash flow, And adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our Webdeck and our press release. Growth percentages refer to year over year change unless otherwise specified. Statements made during this call that relate to future results and events are forward looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties which are discussed in our web deck and our SEC filings, We assume no obligation to update our forward looking statements. Now I'll turn it over to Jeff.

Thanks Paul and thanks everyone for joining us. Before we get started, I'd like to congratulate David on his appointment to CFO. We've worked together closely for the past couple of decades and I look forward to what's ahead. Now moving to our results. We delivered a strong third quarter with a record for both revenue and earnings per share and an all time high in AI server orders. Total revenue reached $27 billion, up 11%. CSG and ISG combined were up 13% year to date. Total revenue was up 12% with ISG revenue up 28%. EPS was up 17% to $2.59, driven by improved profitability in AI and storage and continued operational scaling. Our strong performance and operational discipline led to continued robust cash flow and significant capital returns for shareholders. Now let's move to AI where momentum has accelerated meaningfully in the second half of the year. Building on an already strong first half, AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year to date orders to $30 billion, both record figures. The large scale customer base continues to broaden with expansion across NEO clouds or tier 2 CSPs and sovereigns. Our strong orders and customer base expansion clearly shows customers value our unique ability to design, deploy and maintain large at scale AI factories, especially our engineering and rapid deployment capabilities. We have AI racks are operational within 24 to 36 hours of delivery with uptimes exceeding 99%. We shipped $5.6 billion in AI servers. During the quarter for a total of. $15.6 billion year to date. We ended the quarter with a record backlog of $18.4 billion. Our five quarter pipeline continued to grow sequentially across NEO cloud sovereigns and enterprises and remains multiples of our backlog even when accounting for the robust demand we've seen. As expected, AI server profitability improved sequentially moving to traditional servers. Overall demand grew double digits with growth accelerating sequentially. In both Europe, the Middle East, and Africa (EMEA) and North America we saw growth across units through our buyer base and the mix of the 16th and 17th generation platforms reflecting customers preference for dense, high performing compute configurations. Traditional x86 compute demand continues to benefit from workload expansion and AI driving broader IT modernization and consolidation. Moving to storage While revenue declined 1% year over year, demand for our Dell IP portfolio remains strong for two consecutive quarters. Our All Flash array portfolio has delivered double digit demand growth supported by strong double digit growth from powerstore, powermax, objectscale and powerflex. Powerstore demand has now grown for seven consecutive quarters with six quarters of double digit growth. Profitability improved as we increased both the mix and margin of Dell IP offerings, underscoring the differentiated value of our platforms. In CSG we saw momentum continue. CSG revenue increased 3% with commercial up 5%. International growth accelerated sequentially up double digits year over year. North America also showed improvement. Demand for small and medium business remains strong and we now have five consecutive quarters of P&L growth and seven consecutive quarters of commercial demand growth. Consumer revenue declined 7% although the demand environment turned to growth as we refocused on expanding where we play in the market. Commercial profitability was stable while consumer and education were competitive. The PC refresh cycle remains durable supported by an aging installed base and a significant portion of systems not yet upgraded to Windows 11. And before I wrap up, I'd like to briefly touch on the Commodity supply environment. We are well positioned across our commodity basket. Q3 was deflationary and our outlook for Q4 is largely unchanged from last quarter. Looking ahead to next year, there will be dynamics that we will have to navigate, but we are confident in our ability to secure supply and adjust pricing as needed. As always, we'll leverage our world class supply chain to deliver the best outcomes for our customers and shareholders. In closing, we delivered a record third quarter with strong performance across all segments and continued operational discipline. Revenue and EPS reached Q3 highs supported by growth in ISG, CSG and improve profitability in AI and in storage. AI momentum remains exceptional with record orders backlog and a growing diverse customer base. Our competitive edge in AI is our ability to engineer bespoke high performance solutions, deploy large scale clusters rapidly and support them globally, all backed by an unmatched ecosystem and flexible financing offerings. This end to end capability is why Dell continues to win in AI. We are well positioned to capitalize on AI infrastructure buildouts, expanding traditional infrastructure demand and the ongoing PC refresh cycle. Now let me turn it over to David to talk more about Q3 in detail.

Thanks Jeff. I'm pleased with the team's strong execution this quarter, delivering Q3 records for both revenue and EPS along with strong cash generation and above trend capital return. Total revenue was up 11% to $27 billion. ISG and CSG combined grew 13%. Gross margin was up 4% to $5.7 billion or 21.1% of revenue. Gross margin rate was driven primarily by a mix shift to AI servers, with shipments doubling year over year, partially offset by improved profitability in storage. Operating expense was down 2% to $3.2 billion or 11.8% of revenue. As we continue to drive scale within the P and L, operating income grew 11% to $2.5 billion or 9.3% of revenue. The increase in operating income was driven by higher revenue and lower operating expenses, partially offset by a decline in our gross margin rate. Q3 net income was up 11% to $1.8 billion, primarily driven by stronger operating income and our diluted EPS increased 17% to $2.59, a Q3 record. Moving to ISG, ISG revenue was at Q3 record $14.1 billion, up 24%, marking seven consecutive quarters of double digit revenue growth. Servers and networking revenue reached a Q3 record $10.1 billion, up 37% and is up 43% year to date. AI server demand accelerated with a record 12.3 billion in orders, 5.6 billion in AI server shipments and a record ending backlog of 18.4 billion in traditional servers. We saw demand improve throughout the quarter and stability within the PL. Storage revenue was $4 billion, down 1% with strong demand across parts of our Dell IP portfolio. Powerstore continued its double digit growth trajectory with seven consecutive quarters of growth. ISG operating income was a Q3 record $1.7 billion up 16% marking six consecutive quarters of double digit growth. This was driven primarily by higher revenue. Our ISG operating income rate was up 360 basis points sequentially to 12.4% of revenue. This improvement was driven by mix of AI servers, sequential improvement in AI server margins and stronger profitability from storage. Turning to CSG, CSG revenue was up 3% to $12.5 billion. Commercial revenue grew for the fifth consecutive quarter up 5% to $10.6 billion while consumer revenue declined 7% to $1.9 billion. CSG operating income was $0.7 billion or 6% of revenue. Commercial profitability was stable driven by steady pricing sequentially as customers prioritize rich config AI ready devices in consumer. Profitability improved year over year and demand returned to growth. Moving to cash and the balance sheet, we delivered another strong cash quarter with cash flow from operations of $1.2 billion. This was primarily driven by profitability and working capital improvements. We ended the quarter with $11.3 billion in cash and investments, up $1.6 billion sequentially. Our core leverage ratio is 1.6x. We returned $1.6 billion of capital to shareholders, including 8.9 million shares of stock repurchased at an average price of $140 per share and paid a dividend of approximately $0.53 per share through three quarters. We have returned 5.3 billion and repurchased over 39 million shares. With record Q3 results in hand, I now walk you through our outlook for Q4 in ISG. We expect to ship roughly 9.4 billion of AI servers in Q4 and a record bringing full year shipments to roughly 25 billion or over 150% year over year. Our Q4 outlook for traditional server and storage remains unchanged from last quarter, supported by continued data center modernization and consolidation and above market growth in Dell IP storage in CSG. With the ongoing PC ReFEST cycle, we are improving our execution to drive revenue growth and gain market share. Given that Backdrop, we expect Q4 revenue between 31 and 32 billion dollars, up 32% at the midpoint of 31.5 billion dollars. ISG and CSG combined are expected to grow 34% at the midpoint, with ISG growing mid-60s and CSG up low to mid single digits. Operating expenses will be flat sequentially. We expect operating income to be up roughly 21% with continued sequential improvement in ISG operating income rate. We anticipate a diluted share count of roughly 672 million shares and an 18% non GAAP tax rate. Our diluted non GAAP EPS is expected to be $3.5 plus or minus $0.1, up 31% at the midpoint. Our Q4 guidance implies a strong FY26 with revenue of $111.7 billion, up 17% and non GAAP EPS of $9.92, up 22% at the midpoint, both well above our long term framework and briefly on FY27 it's still very early in our planning process. We wanted to give you some context on how we are thinking about next year. We have strong conviction in our AI business supportive of what we see in our backlog, the pipeline and ongoing customer discussions. We've proven we can execute and deliver for our customers in this space. For the rest of the business, the long term framework we outlined at our securities Analyst meeting remains a solid starting point. As you think about next year, we are highly confident in our ability to drive EPS growth supported by multiple levers including leveraging our go to market engine, improving gross profit, scaling, operating expenses and ongoing share repurchases. In closing, we delivered a record Q3 with revenue of $27 billion, an EPS of $2.59, both quarterly highs driven by strong execution across ISG, CSG and disciplined cost management. ISG continues to see sustained double digit growth and accelerating AI Demand evidenced by $30 billion in AI server orders over the past three quarters. We are focused on capitalizing on the ongoing PC refresh and expect continued growth from csg. We remain focused on driving shareholder value through strong cash generation and capital returns. Thank you all for your time. Now I'll turn it back to Paul to begin our Q and A. Thanks David. Let's get to Q and A. In order to ensure we get to.

As many of you as possible, please keep it concise. Ask one concise question. Operator, let's go to the first question.

Thank you. We'll take our first question from Samik Chatterjee with JP Morgan.

Hi, thanks for taking my question Jeff and David. I mean maybe since this is sort of the topic of investor conversation mostly at this point. If you can flesh out your thoughts on the kind of reaction you expect from customers in relation to the pricing discussions by the product categories? Where do you think it's more easier to take some of those pricing actions versus not relative to your overall portfolio? And David, if I heard you correct, you're saying to use your investor day targets for about mid-teens EPS growth as still a starting point for next year despite those dynamic headwinds, on the memory side. Can I just clarify that as well? Thank you.

Let me wade my way through that. I suspect it will be the first question this afternoon or the only question I should say. Look, we're in a very unique time. It's unprecedented. We have not seen costs move at the rate that we've seen. And by the way, it's not unique to dram. It's nand. It is hard drives leading edge nodes across the semiconductor network. There is a, if you will, a category. I'd categorize it as demand is way ahead of supply. And as we wait our way through that, we're going to lean on the things that we've always done. We have a lot of experience at this. This isn't our first DRAM cycle.. There have been seven I think in the last 40 years. Michael Dell and I have been here navigating the organization in various ways through that time. Our senior leadership team and supply chain has been through everyone this decade. First rule of our supply chain is to get the parts. Supply matters, mix matters. And as we get to supply and mix, our job is to minimize the impact of that to our customers. But clearly we're in a situation that is not typical. We've learned a great deal since COVID since previous cycle of this last super cycle of this magnitude was 2016 through 2017. And we're gonna do everything we can to minimize the impact. But the fact is the cost basis is going up across all products. No one more unique than others. Everything uses a cpu, has dram, has storage in it. So with that said, we're gonna do things we've always done. We're gonna work on configurations, we're going to work on availability adjust mix. Our direct model allows us to move demand where supply is. Our direct model allows us to act to the market signals. It gives us quicker than anybody else, allows us to price accordingly reprice when needed. And we will make our way through that across consumer PCs, commercial PCs, into server storage and through our AI servers. No product category is not going to be impacted in terms of the aggregate cost basis moving again. Our number one rules get parts secure, supply secure. The mix we need to meet the customer demand, the world needs more computational intensity, needs more compute. If you're in the world of AI, token growth is going. We see a consolidation in servers. Consolidation and servers is driving denser servers with more dram, more storage. And we're in the middle of a PC refresh that's not complete. So I don't see how we will not. What's the best way to describe it? I don't see how this will certainly not make its way into the customer base. We'll do everything we can to mitigate that. As we mentioned earlier, our cost outlook for Q4 is largely unchanged. And David just gave you what our guidance is that we believe that you'll see sequential profitability improvement in our company across the broad portfolio while managing an increase in our cost basis. That's what we're going to do. That's what we know how to do. And we have all of the tools in our company to be able to do that effectively and fast.

And David. Yep. Please. Thank you. Yeah. Hey Samik. Yeah, like we said, it's very, very early in our planning process obviously. But the framework from our security analyst meeting is, is a good reference point to start with, you know. So I think EPS included in that is the zip code we'll be in. We'll be looking obviously to leverage our go to market engine which is differentiated all the things Jeff has just outlined there in relation to our supply chain. We'll continue to drive significant scale in our OpEx and then obviously stay committed to our capital return. KPI's right. Whether it's share repurchase or stay committed to our dividend, So look, we feel we many tools in that toolbox to allow us to stay agile and deliver on our EPS numbers, But like I said, it's still very, very early in the planning process here. Thank you. Thank you both. Thanks, Annik.

And we'll take our next question from Mark Newman with Bernstein.

Hi, thanks for taking my question. Congrats on a great quarter. Particularly impressive on the AI server orders. I wondered on AI servers if you could talk about some of the recent comments that have been coming from Nvidia around the potential vertical integration that they're doing. Getting a little bit more involved. In. The supply chain and how that may impact on how or how Dell is navigating around that. And also on AI servers, any color on the mix of AI servers, any change on the mix, for example, enterprise as a portion of AI server orders would be useful.

Thanks very much, Mark. Let me make my way through that first of all, as we look forward to the new technologies that are in front of us, we remain excited. We think there's ample opportunity for us to continue to differentiate. These large scale deployments are very complex. Our value add is at the RAC level, is at the solution level L11 and beyond that differentiation we believe remains for the next several cycles easily. In fact our ability to engage with customers early which we can on the next generation technology to work through their needs to bring these very complex offers to the marketplace fast and at scale with a significantly better uptime and outcome. We believe us differentiation. We focus on optimizing performance per watt, performance per dollar. At the data center level we focus on our services, our value add and deployment, our financing side, the ecosystem that we bring to our customer base. None of that changes in the next generation of technology. And to be honest, I think the opportunity for us gets greater in the future as we head towards 500 kilowatts of rack of power density. Moving to a megawatt and beyond. The engineering skill required to do that at RAC scale is significant. We've invested in that ahead of the curve and we believe that gives us the opportunity to differentiate remain the leader in time to market drive broad installation and deployment capabilities ahead of our competition at a higher level uptime of 99% or better. And that's why we win. And I don't see that changing when I look at the mix. Two forms of the mix that I'll address is we saw a change in the quarter towards GB300. So in our backlog of $18.4 billion there's been a significant shift towards GB300 as expected. And then lastly we continue to see great build on our five quarter pipeline around Sovereigns and around Enterprise and remain very encouraged about the opportun opportunities in both.

Thanks Mark. Thank you very much.

Of course. And the next question will come from Ben Reitzes with Melius Research. Hey, great, good execution with the commodity environment guys. And I'll try to be concise for Paul. The question is around your AI server margins you mentioned it was up sequentially. I was wondering if you guys could talk about you know, order of of. Magnitude there and is that going to.

Continue into the 4Q and are you starting to see more product attached, more high margin attach to that end. Thanks. I'll take a run at it Ben. And then David can certainly add to this clearly we made reference in Q2 that we had some one time cost elements that hit us. If you recall we talked about expedites and supply chain reconfigur. Those went away in Q3 as expected. We also talked about shipping a lot of the early aggressive Gen 200 deals in the quarter. Those went through the system and we continue to now see the ability to add differentiation as I just mentioned in the previous question that we see in the GB 200 and 300 designs and our margins move to say right in that range that we've talked about mid single digits. We see that continuing as part of our long term value creation framework that we laid out eight weeks ago. It's what we'll continue to talk about here and we believe that we can operate going forward in that range. In fact, we're very confident of that. And then we also had a mix change or if you will, a change in customer mix to the good. When you look at the broad portfolio and diverse customer set that we have within the AI portfolio, shipping to a broader set of customers across a greater range of solutions helps margin. Hope that answered your question about AI margins.

Yeah, thanks a lot, Jeff. Appreciate it. Of course.

Thanks Dan.

And our next question will come from Eric Woodring with Morgan Stanley. Hey guys, thank you for touching my question tonight. I wanted to touch on PC, Jeff, You sound very bullish on the PC opportunity into next year. Some of the channel partners in earnings we're talking about maybe the seventh inning of a PC refresh and I'd love to just get your comments because you sound more bullish. So where do you think we are on the PC refresh? And is that still Windows end of life, Life upgrades that still need to get. Done or are there new factors that you think could elongate the PC cycle well into 2026. Thank you. Sure.

Eric, a couple things. One, we have not completed the Windows 11 transition. In fact, if you were to look at it relative to the previous OS end of service, we are 1012 points behind at that point with Windows 11 than we were the previous generation. So we still have ample opportunity to convert. If memory serves me right, the installed base is roughly $1.5 billion or dollars 1.5 billion units. We have about 500 million of them capable of running Windows 11 that haven't been upgraded. And we have another 500 million that are four years old that can't run Windows 11. Those are all rich opportunities to upgrade towards Windows 11 and modern technology. Equally important, AI PCs, small language models, more capable applications, improvements in operating systems and their capabilities, and the embedded AI there. The use of an MPU, the capability of the NPU and future PCs gives me the view that the PC market will continue to flourish going forward. Now, let's define flourish. We have the PC market in our outlook roughly flat year over year. That's after a year that we grew mid to high single digits. I think it's flat as we look into next year's planning horizon and we're building plans accordingly that would take share against that outlook.

Thanks, Eric. Awesome. Thank you, Jeff.

Of course. And the next question will come from Wamsi Mohan with Bank of America. Yes, thank you so much.

I was wondering if you could just. Maybe give some color around this AI business. You noted very strong conviction going into fiscal 27. Obviously you just raised your guide here from 20 to 25 billion. Can you just put that in context of some of the financing issues at. NEO clouds and how much of sort. Of your conviction and growth is predicated. On some of these NEO clouds being able to procure financing versus maybe other customers that you might have visibility into. And Jeff, if you could just clarify, you mentioned the cost base moving up. Across the product portfolio and I was. Wondering if you could maybe just share at the highest level how much of that conceptually could you recover from pricing versus how much of OPEX reductions are. Possible to offset some of these pressures?

Thank you so much. Maybe I'll start once and Jeff can add some color. Look, I think if you start answer first you look at our Q4 guidance, $9.4 billion, that represents $25 billion obviously for a full FY25. So you look at that appetite for AI demand and it's across the NEO clouds, sovereign opportunities and obviously within the enterprise. Shipments of 5.6 billion in Q3 orders at 12.3 billion. That's year to date at $30 billion, backlog at 80.4 billion. And as Jeff referenced in his opening remarks, the next five quarter pipeline is multiples of that. So every conversation we're in, which is also being very aware of all the opportunities that are out there, is about demand. It's about opportunity and eagerness to work and see the opportunities in front of us. So we actually see huge scale to come every opportunity. Reality is we're not going to win them all. But we love our momentum that's there and we think we're well positioned to meet the expected needs of the customer base.

Yeah, I would add to that maybe some color. $25 billion this year, 150% increase over last year. The guidance that David called out. We will ship nearly as much in Q4 as we did all of last. I think that gives A reflection on the need for compute. The need for and what we see is token generation increasing at an incredible rate and the corresponding compute that has to be behind that to generate those tokens. It's reflected in that five quarter pipeline that David said that is up across all three customer types, NEO clouds, sovereigns as well as enterprises and we're seeing progress in all three. So I think that's very important for us to make sure that we communicate that the momentum as we head into Q4 continues. You saw that in the orders in Q3, the backlog building and significant shipments in Q4. I flip to the other question about the cost basis and our ability to recover. That's an interesting question. We said over the years in normal times when our input costs go up, we can recover roughly 2/3 of that cost in a 90 day period. I would tell you this is not normal times, this is extraordinary times. And we put extraordinary actions in place weeks ago as we saw this to be able to mitigate the impact upon our company, our customers and our shareholders. And again it goes back to our business model. Direct signals we understand the demand, our long term partnerships and agreements with our partners that make DRAM and make nand the agreements we have in place around capacity, those relationships are meaningful and impactful as we navigate these types of situations that again that are unprecedented and then our model gives us tremendous flexibility whether that is to reprice, whether how we set out quotes, whether that's to reconfigure, redirect to different products, the ability to determine how long price will be in effect, the ability to understand where we're going to drive demand to and change our demand generation vehicles to drive that. It's important that our engine and the way we run I think is very different than others in our ability to respond. Those of you that took note, you saw that in Covid in a very similar situation. The experience that we had there where there was material shortages and increased cost, our ability to navigate that think was unmatched in the marketplace. Our supply chain is very good at this and we're going to lean on them. Those lessons learned from the COVID time and most recently what happened with tariffs I think show that we can operate with the right sense of urgency. We're managing this real time, actively managing it. I was on three pricing calls today alone and we're driving to get a better outcome. So our belief is we will do better than our normal 2/3 in a 90 day period. Given the actions that we've put in place and our understanding of demand and our understanding of supply.

Thanks Lonzi. Thank you.

And our next question will come from Amit Dhariani with Evercore. Yep, thanks a lot for taking my question.

I guess maybe you could just spend. A little bit of time on ISG. Margins improve rather well by about 350 basis points sequentially. Can you just touch on like what drove the strength in ISG margin in Q3 versus Q2? And then your guide I think reflects. The largest AI server revenue number you. Guys are going to put up in Q4 at 9.4 billion plus. How should we think about that impacting your P and L? And do you think gross margins should. Remain in the Q2 levels or is. There further movement from there as you think about the P and L impact from the AI numbers in Q4? Thank you. Yeah, thanks Amit. Yeah, I look really pleased with the team's execution in Q3 around ISG OP Inc. At 12.4% like you said, up 350 basis points quarter on quarter. So a lot to like here. I guess. A couple of things to call out. First on the storage side, look Q3 was no different than what we've seen year to date where we've seen demand growth at a premium to market for our Dell IP storage portfolio. You know, probably a strong call out. There will be Powerstore also six consecutive quarters with double digit growth. So obviously that Dell IP portfolio gives us better operating margins as you'd expect. So there's a natural mix effect that creates a tailwind there. Secondly, in storage our pricing discipline was something I was very pleased with also. And then thirdly, look at the focus of the teams looking to find improvements at a by product level within the portfolio also. So again like I said, a lot to like on the storage side also within that on the AI margins like Jeff said earlier, Q3 on track to what we've consistently committed to mid single digit upping here in relation to that. And we obviously didn't have those Q2 1 timers that were there and we'll keep that consistency as we go into Q4. And then your reference, I think your question was Q3 into Q4. Then from a guidance perspective we expect to continue to make progress. Our Q4 profit guidance is anchored again throughout the through the storage P and L with the Dell IP storage growth we expect to make it four for four in terms of quality growth in that portfolio. That should allow us to grow at or likely slightly ahead of normal sequentials which will allow us to see an uptick in our op inc rate sequentially also into Q4. Yeah, mom.

And I just again to emphasize that AI shipments, 5.6 to 9.4 quarter over quarter. Our strategy of focusing on Dell IP storage, the mix is up, the rate is up and increased velocity of our traditional server business is the recipe for the performance that we expect to have in Q4 while increasing AI shipments, significantly as we mentioned.

Thanks Amit.

And the next question will come from Aaron Rakers with Wells Fargo. Yeah, thanks for taking the question. I want to shift gears a little and talk about the traditional server business. Jeff, I think in your prepared comments you mentioned double digit demand growth. I think if my math is correct, Don'T think revenue grew necessarily at that cliff some. I'm curious if you could talk a little bit about what you're seeing as far as the aged install base where we're at the upgrade cycle for traditional servers. And do you think double digit growth. Is a good baseline that we could. Think about going into fiscal 27 as that demand follows through to revenue? Thank you.

A couple of comments. Yes, so the double digit was demand. The P and L certainly didn't track that, but we obviously would have built backlog as a result. We talked about North America recovered and improved quarter over quarter and that the international market demands were double digits and that's two in a row now off last quarter's double digit performance. We continue to see modernization in the data center, consolidation in the data center, which is reflected in the fact that our transaction revenue units (TRUs) continue to go up, our content continues to go up, the number of cores, how much dram, how much NAT per server is corresponding with that. And we still see a pretty significant opportunity with roughly 70% of our install base is still the older generation servers that we have shipped many years ago. So the ability to continue to upgrade them, modernize them, is the opportunity that we have in front of us. And then we see that cycle continuing into next year. This has been a longer consumption cycle. We're encouraged by what we see that's reflected in the Q4 guidance that we just talked about. And that momentum as we Update you on 27 will give you the best look we have. But right now that momentum of consolidating, modernizing, refreshing old servers to new one continues. And we're working on making sure our pipeline grows and we can convert it into orders as quickly as we can.

Thank you. Of course. Thanks Aaron.

And we'll take our next question from Michael Ng with Goldman Sachs. Hey, good afternoon. Thank you for the question. I just wanted to follow up on the commodity. Cost recovery point which was encouraging to hear. When you talk about the actions that you've taken to help mitigate the impacts, I guess do you expect to see a benefit from below market costs, strategically purchased commodities and if so, how long can that be a benefit for? And I think you may have alluded. To opportunities to. Maybe like reprice longer. Term commercial contracts in response to rising commodity costs. Just wanted to see if that was the case or are there any kind of longer term contracts that might inhibit.

Your ability to price at all? Thank you very much. Well, I mean maybe working backwards towards the first parts of your questions. Clearly we have to do what's right by customers and where we have contracts, we have contracts and we will honor those contracts and work through the situation. I think what maybe I didn't convey correctly or to the right balance that's needed is we tend to talk about the commodity cost here. There's a commodity scarcity too. In other words, there's not going to be enough parts. So there's a combination of the demand that's in the marketplace, one's ability to procure the part. Which is why job one of our supply chain is to get the material never run out of parts and then price it to the commensurate value of having that material. That's what we're going to work our way through. We're I think very skilled at this. The last two cycles have certainly honed our skills and we'll use all of the tools available from configurations. It's not uncommon in the PC industry to see configurations come down. That's happened before, likely to happen again. That tends to happen in the lower price bands. You tend to see mix where what comes out of the factory isn't necessarily what was forecasted. We think we have a unique ability to adjust our demand faster than anybody. We think the ability to navigate how you price with a very large transactional business selling to small and medium businesses, selling to the day to day needs of many corporations, we can adjust that to what's available. Those are all skills and techniques that being a direct manufacturer and a direct seller we believe gives us an advantage and will help our partners and customers through that as well. And all of these tools that I've mentioned in one of the previous answers are in effect now. Our special pricers know the cost for all of next year. Our best guess for next year, what's available. Our sales force, our product business leaders all know and we're acting working as one team to collectively work this real time, as I mentioned before, to get the best outcome for the company, our shareholders and customers, that's what we'll work through. So our ability to recover I think is better than the normal times and I think that's probably amplified or improved by the fact that there'll be a scarcity of parts.

Thanks Mike.

And our next question comes from Asiya merchant with Citigroup. Great, thank you for taking my question. Just looking ahead into storage, seems like that business is doing perhaps a little bit better than what was previously expected. As you look into the server demand that is driving up the revenues for the core server and as you look into next year, just given all the obviously the backdrop of commodity headwinds here, how are you thinking about storage from here on? And if we can get that inflection towards more Dell IP storage, which is obviously positive for your margins quicker relative to some of the unwinding of the HCI storage, if that can happen faster than what was previously communicated at the analyst day. Thank you.

Yeah, I think again just to clarify, I guess in Q4 what we're looking at in terms of guidance continuing to show that Dell IP storage growth and seeing that sequentially, hopefully above or expected to be above normal sequential growth, that will allow us, along with the pricing discipline to keep that margin improvement coming along for P and L on the server. Comment again, strong demand in Q3, particularly in month three. So to Jeff's point earlier, building a bit of that backlog. So I think you can expect high single digit growth in that business for Q4, which would end us on a high point as we exit the quarter. That said, look, as we head into FY27 still very early, obviously it's a lot happening in the market and changing. I would still reference you back to the long term framework that we've got. I think it's a good reference starting point. We'll work from there and then obviously be agile as we assess and see how it evolves. But yeah, for now I think it's still a little early for FY27 but.

Strategy wise we made the pivot to Dell IP. Not looking back, it is serving us well. The mix continues to increase across our storage revenue dollars. The margins within the portfolio continue to improve. We talked in our comments about the all flash portion of the portfolio growing double digits for the second quarter. So think of Powermax, PowerScale, Powerstore, Objectscale and Power Flex all growing. We've talked about Powerstore and seven quarters of growth, six of those double digits the buyer base is growing. The net new customers buying Dell storage with powerstore is up. The strategy that we've flipped to which really drives this notion of three core areas were the Dell private cloud, which is really open disaggregated and automated storage. It's our three tier storage with our Dell automation platform, our AI and unstructured storage assets. So think of those as the construct of the AI data platform and cyber resilience, which is really data domain and power protect. Those are all Dell IP assets. That's what we're driving. That's what the salesforce is incented to do. And we're seeing nice results from it.

Thanks Asia.

Thank you. And our next question will come from Simon Leopold with Raymond James. Thanks for taking the question. I want to see if you could. Maybe unpack the elements that contribute to. The roughly $5 billion of incremental AI revenue for the full year? I guess what I'm trying to get. At is how much is this about your ability to get key components, new orders, or existing orders occurring earlier? Just help us unpack what factors led to the raised forecast for AI. Thank you.

Well, at the highest level, $12.3 billion of new orders and a growing backlog and then a supply that I think is unmatched, that finds materials and gets materials lined up with customer availability. This is equal parts customer readiness. Buildings, power, direct liquid cooling. So we've used the word lumpy before, which we purposely didn't use here, but it's really driven by a customer's readiness and our ability to deliver matched up with the supply chain's ability to get the material and matched up with our salesforce out winning new opportunities across the Neo cloud customer base, the sovereign customer base and enterprise customer base. So it's that combination and why you see 1/4 $5 billion, 1/4 $9 billion in shipments. It really is equal parts customer readiness, customer delivery acceptance that drives that. And the stars align in Q4 with the amount of orders with the GB200 and GB300 business that we have booked that we'll be able to deliver at that rate in Q4.

Thanks, Simon.

And the next question comes from David Vogt with ubs. Great, thanks guys. Maybe just one for David. So you know you talked about margins and commodity pressures quite extensively, but can we look at your purchase commitments as a barometer for how you're thinking about margins going into next year? I know a big chunk of that is probably tied to the AI server business, but is there anything in sort of those purchase commitment numbers that we could look at as sort of evidence of how you're thinking about where DRAM and NAND prices could be. And I think last quarter you exited to Q north of 5 billion, but most of that is for this fiscal year. So if you can give us any update on kind of how to think. About purchase commitments going into fiscal 27 and as an indicator, that would be great. Thanks.

Yeah, sure. Look, we've no discernible change in the pattern of our purchase commitments or in relation to positioning on things like inventory, et cetera. So if you think of AI, and this is a good kind of litmus test for us within the finance side as well as we observe it, you take that $12.3 billion that Jeff just referenced, but if you look sequentially, we actually took down our inventory values about $300 million. If you look at the year in year, the year on year inventory is roughly flat, give or take. Yet our year to date demand is up over $19 billion in that period too. So obviously we have our normal supply chain procurement processes kicked in as part of it. So no real discernible change from last quarter or anything to read in as we look into FY27 just yet. Thanks a lot, David. Operator will take one more question and.

Then we'll get handed over to Jeff for a close. We'll take our final question from Tim Long with Barclays.

Thank you for squeezing me in two parter if I could on gross margins. First part, talking about the mix in. AI servers as you start to convert more of the NEO cloud and sovereign. And enterprise to revenues, would you expect a change to that mid single digit operating margin? Could that move higher or how meaningful would that be? And the second part on the PC. Side, I think there was a comment at the analyst day about really doing well in the high end commercial but trying to recapture share in other parts. Of the PC market. Is that something that we could expect. Might impact operating margin on the PC business? Thank you.

Yes, maybe. Let's start with the AI side. Look, we're going to stay consistent on our mid single digit delivery in terms of operating profit. We'll stay within that range while we'd like to in every deal, the reality is we won't. Right. And a lot of those can be competitive, particularly the larger ones. So look, we'll remain judicious as we manage the profitability and the ongoing activities there. Some will flow slightly lower, other deals will be slightly higher. But we'll stay very consistent as an objective within that mid-single-digit momentum as we Kind of go forward and that's if you like the bedrock of which we'll build it on. The other element for me which is part of it is making sure every deal is accretive from a dollar perspective too. So again, cash flow is something that's the forefront of all our operations. We think that's a good thing. In fact, we think it's a great thing. We want to make sure we keep it front and center as we look.

At the activities And Tim, your second question on PCs. When we were last together, you're exactly right. I talked about the PC business being a scale business and our share had slipped in the non premium segments and we leaned in this past quarter. We leaned in with our Dell Pro Essential and education boxes in commercial and we were more aggressive into holiday in the consumer business. And the results are encouraging. International growth accelerated sequentially up double digits in demand year over year. That's exactly where Dell Pro Essential is targeted. And while it is a very competitive marketplace, we made a slight reference to, but I'm going to call it out. Specifically we returned to demand growth in consumer for the first time in three years. We return to growth in the consumer business for the first time in three years. We're going to continue to work on our cost position, tuning the products so they're the right products at the right cost for the right price. Spanish we went into the market with what we had. We'll continue to refine that. Lots of changes in the roadmaps going forward and you have our commitment that we can grow while balancing the profitability within the operating ranges that we've given.

Thanks Tim. And to you Jeff, to close us out.

Thanks Tim. Sure. Thank you all for joining us today. A few points as we wrap up. First, we achieved record Q3 results across both Revenue and EPS, underscoring disciplined execution and the strength of our business model. Second, our AI momentum remain exceptional, We saw record orders in Q3 and have booked $30 billion through the first 3 quarters of this year. Our pipeline and customer base continues to expand and we remain well positioned to capitalize on accelerating demand for AI solutions. And lastly, we saw improved profitability and strong channel cash generation enabling above trend capital return to shareholders. We are set up well to close the year strong and to drive long term value. Thanks for joining us today and happy Thanksgiving everybody. Thank you. This concludes today's conference call. We appreciate your participation. You may disconnect at this time.