AI servers drive Dell’s growth but keen margins reduce overall profits

Dell has posted its latest set of financial results, and it’s something of a mixed bag for the hardware giant.

The results for the first quarter of the 2025 fiscal year – the three months that ended on 3 May – show a 6% rise in revenue compared to the same quarter last year. However, operating income (basically, profit) fell 14% to $920 million over the same period: the company cited a fall in its margins as a key contributor to the drop.

This follows a challenging Fiscal 2024 for Dell as its revenues took a hit.

But as we reported three months ago, Dell expected AI to power its growth – and there already strong signs of this happening.

The company said it had seen “demand strength in traditional and AI servers”. And Dell’s servers and networking unit certainly represented a high point for the company, with a 42% rise year on year in revenue, taking the unit to a record $5.5 billion over the quarter. 

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AI servers drives Dell’s growth

Dell’s AI server orders have continued to grow for the last four quarters in a row. During the first quarter of this year, they were worth $2.6 billion, up from $1.7 billion in the previous quarter (the last three months of fiscal 2024). The company’s backlog for AI servers now sits at around $3.8 billion.

While artificial intelligence servers remain a small part of Dell’s server revenue overall, the company is hoping to capitalise on the rise in AI hardware sales by selling associated services too.

“There’s four types of services that we’re building out through our own and through our partner network,” Dell’s COO Jeff Clarke told an earnings call. “It’s helping our customers with their AI strategy, how they implement AI; it’s all around the data and getting the data prepared to be consumed and ingested; adopting or putting the AI infrastructure in place and getting AI adopted inside an enterprise; and then last, how do we help them scale it?”

Servers on the rise, storage and PCs stay flat

Revenue from Dell’s infrastructure solutions group, which covers servers and networking as well as storage, rose 22% year on year.

Storage delivered $3.7 billion of revenue for Dell in the first quarter of fiscal 2025, a figure virtually unchanged from the corresponding quarter last year. The company says it expects its storage business to pick up towards the back end of the year, as it sells more of its own IP, rather than third parties’.   

Dells client solutions group, which includes its PC business, delivered rather muted results – its revenue of almost $12 billion was flat compared to the same quarter a year ago. Clarke attributed the lack of growth to a “more competitive pricing environment”.

The client solutions group revenue was dragged down by its consumer business, where revenue fell 15% year on year to $1.8 billion.

The decline was partially offset by a small rise in its commercial revenue, which rose 3% to take the unit to $10.2 billion.

Clarke told investors that he believes the PC market will improve continue in the short term after two years of stagnation, with growth driven by spending among large businesses.

“We expect commercial PCs to continue to improve as the year progresses,” he said.

“We remain optimistic about the coming PC refresh cycle, driven by multiple factors. The PC install base continues to age, Windows 10 will reach end of life later next year and the industry is making significant advancements in AI-enabled architectures and applications.”