Dell experienced a significant surge, with its stock climbing over 20% on Friday. This upward momentum followed the company’s announcement of better-than-expected fiscal fourth-quarter earnings and robust future guidance. The current market landscape, characterized by a pronounced shortage of memory chips, is creating upward pressure on prices across the sector.
The company reported adjusted earnings per share of $3.89, surpassing the $3.53 anticipated by analysts polled by LSEG. Revenue for the quarter reached $33.38 billion, exceeding the forecasted $31.73 billion. Looking ahead, Dell projected fiscal year 2027 revenue to fall within the $138 billion to $142 billion range, significantly outperforming the $124.7 billion estimate from FactSet.
A key driver of this optimistic outlook is Dell’s anticipated performance in the artificial intelligence server market. The company expects revenue from AI servers to hit $50 billion by 2027, more than doubling from the previous year. This projection underscores the intense demand for AI infrastructure, a trend that is reshaping the technology landscape.
The global shortage of high-bandwidth memory (HBM), crucial for advanced AI chips developed by industry leaders such as Nvidia, AMD, and Google, is diverting supply away from manufacturers of more conventional computing devices like laptops and smartphones. Dell’s Chief Operating Officer, Jeff Clarke, acknowledged this challenge during the company’s earnings call, stating that Dell is actively collaborating with memory partners to ensure flexibility and agility in supply chain management.
To navigate the escalating costs of components, Dell implemented price increases for its PCs in the past year. Chief Financial Officer David Kennedy indicated that these price adjustments were strategically designed to offset the rising input expenses. He noted that customers are currently re-evaluating their needs and priorities in a market where component demand is outstripping supply, leading to higher costs and extended lead times.
However, some analysts have voiced concerns that these price hikes could potentially dampen future demand. Wamsi Mohan, an analyst at Bank of America, expressed uncertainty about the demand elasticity in response to Dell’s “swift and significant price actions,” despite reiterating a buy rating on the stock and raising the price objective from $135 to $155.
This pricing pressure is also evident in the performance of Dell’s competitors. Earlier in the week, HP Inc. shares touched a 52-week low after reporting earnings that highlighted the impact of increased memory prices. HP’s CFO, Karen Parkhill, stated that memory costs have seen a sequential increase of approximately 100% and are expected to continue rising. Furthermore, memory components now constitute about 35% of the bill of materials for HP’s PCs, a substantial doubling from the previous year. This situation emphasizes the systemic challenges facing the personal computing sector due to the current supply chain dynamics, particularly concerning critical memory components.
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