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Dell (DELL) is trading roughly flat after reporting Q1 (Apr) results last night. Dell reported its first EPS miss in 12 quarters while revenue grew 5.1% yr/yr to $23.38 bln, a bit better than expected. What really makes up for the EPS miss is huge EPS and revenue upside for Q2 (Jul). With that as context, it was a letdown that Dell only reaffirmed full year revs at $101-105 bln. We would have liked to have seen a guidance increase given the Q2 upside.

• Growth continues to be driven by its Infrastructure Solutions Group (ISG) segment, where revenue rose 12% yr/yr to $10.32 bln with 9.7% segment operating margin vs 8.0% last year. Server and networking revenue jumped 16% yr/yr to a record $6.32 bln. Dell enjoyed exceptionally strong demand for AI-optimized servers. It booked $12.1 bln in orders in Q1, surpassing the entirety of shipments in all of FY25. It shipped $1.8 bln of AI servers in Q1, leaving a backlog of $14.4 bln.
• AI momentum continues to remain strong. However, Dell expects variability in timing, choices around technology, and the nonlinear nature of demand to persist. In traditional servers, revenue increased double digits, however, demand moderated compared to Q4 (Jan). Additionally, Dell saw a lower mix of North America and traditional server, which is a higher-margin geography. In storage, revenue increased 6% yr/yr to $4.0 bln.
• Turning to Client Solutions Group (CSG), segment revenue grew 5% yr/yr to $12.51 bln with 5.2% op margin vs 6.5% last year. Commercial revenue grew 9% to $11.05 bln, while consumer revenue was down 19% to $1.46 bln. Dell saw a strong performance across small and medium business and large enterprise. In consumer, Dell said the demand environment remains soft and profitability remains challenged.
• In terms of the Q2 guidance, in ISG, Dell expects to ship roughly $7 bln of AI servers as it fulfills some large deals. Dell is expecting sub-seasonal performance in traditional server and storage as customers evaluate their IT spend for the year given the dynamic macro environment. In CSG, Dell expects the PC refresh cycle to continue as the install base upgrades to new devices, resulting in improved profitability sequentially.
• In terms of the full year and its decision to reaffirm revenue guidance, Dell is optimistic on its portfolio and ability to execute. However, it wants to be thoughtful on how customers think through their IT spend relative to the macro environment. Dell expects ISG to grow high-teens, driven by over $15 bln in AI server shipments and continued growth in traditional server and storage. And it expects CSG to grow low- to mid-single digits.

Overall, this was a mixed quarter. On the positive side, the Q2 guidance was quite robust as Dell expects to deliver on some large deals. However, the Q1 miss and some of the language on the call was a bit tepid. In particular, demand has softened for its traditional servers and there was some weakness in North America, a high margin geography. Also, just reaffirming full year revenue guidance after the big upside Q2 was a letdown. There were a lot of crosscurrents in its Q1 report.