Dell Technologies Inc., a leading computer company, is experiencing promising growth in its data center business despite a decline in PC sales. According to the company’s investor statement, while Dell expects the PC market to recover and generate a long-term revenue increase of about 2.5%, its division that sells equipment for data centers, including servers and data storage, is projected to grow by about 7% over the next few years. This growth forecast is nearly double the initial estimate given in 2021.
The increased interest in artificial intelligence (AI) is a significant factor contributing to the growth of Dell’s data center business. AI requires powerful machines, and as a result, there is a strong demand for servers equipped with graphics processors and high-capacity storage. Dell stated in August that it has over $2 billion in backlogged orders for a server specifically designed for use in AI applications.
Despite this positive outlook, Dell, like many others in the industry, is facing the challenge of a shortage of high-power chips. Chief Operating Officer Jeff Clarke acknowledged that demand is ahead of supply. This constraint is impacting Dell’s ability to meet customer demands fully.
The decline in PC growth has shifted investors’ attention to Dell’s server business, with a particular interest in its potential to benefit from the growing field of AI. While Dell remains committed to selling computers, it recognizes that the market’s growth potential is limited. However, a new cycle of PC purchases may occur as older machines bought during the early stages of the pandemic become outdated, and Microsoft promotes users to upgrade to its latest Windows operating system.
In light of the positive outlook for the company, Dell announced an increase in its long-term profit growth forecast and plans to repurchase more stock. Adjusted earnings per share are now expected to increase by at least 8% per year, and over 80% of cash flow will be allocated to share repurchases or dividends.
While Dell’s shares experienced a slight decline of 1.5% following the announcement, they have seen a significant increase of 65% this year due to the enthusiasm surrounding the company’s data center business. Michael Dell, the founder and CEO of Dell Technologies, expressed the company’s satisfaction with being publicly traded and affirmed their intention to maintain that status.
In conclusion, Dell’s data center business is showing promising growth amid the decline in PC sales. The increased demand for powerful machines driven by the rise of AI is fueling this growth. However, the shortage of high-power chips presents a challenge for Dell and the industry as a whole. Despite this, Dell remains committed to both its data center and PC businesses and anticipates a new cycle of PC purchases. The company has increased its profit growth forecast and aims to repurchase more stock, demonstrating its positive outlook for the future.
