On February 27, Dell projected a decrease in its adjusted gross margin rate for the fiscal year 2026 due to elevated costs associated with constructing artificial intelligence servers in a highly competitive market. Simultaneously, their PC business faced challenges due to subdued demand.
Following the announcement of a $10 billion increase in its share buyback program, Dell's shares dropped by approximately 2% after hours trading. The Round Rock, Texas-based company's AI servers, featuring Nvidia chips and tailored for demanding tasks like training language models for chatbots such as ChatGPT, have seen increased demand, culminating in a forecasted $15 billion in AI server revenue for the upcoming year.
Despite the revenue surge, the expensive production of AI-driven servers is impacting margins, leading Dell to anticipate a 100 basis points decline in its annual adjusted gross margin rate. The company disclosed a backlog of approximately $9 billion for AI servers as of February 27.
Dell expects an annual adjusted profit of $9.30 per share, surpassing analysts' projected $9.23, with an annual revenue forecast midpoint of $103 billion in alignment with estimations.
Additionally, a broad range of products could face price hikes due to tariff provisions, potentially impacting Dell's operations and customers. Chief Operating Officer Jeff Clarke highlighted the possibility of adjusting prices in response to escalating input costs resulting from tariffs.
Meanwhile, International Data Corporation revised its forecast for 2025 and beyond downward due to U.S. tariffs on Chinese goods and softening market sentiment. Dell reported fourth-quarter revenue of $23.93 billion, falling short of the estimated $24.56 billion, while its adjusted earnings per share of $2.68 exceeded expectations of $2.53.
Noteworthy revenue growth was observed in Dell's infrastructure solutions group, including storage, software, and servers, seeing a 22% increase to $11.35 billion. Revenue from the client solutions group, encompassing PCs, rose by 1% to $11.88 billion.