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SEC filingDell's Q1 FY26 revenue grew 5% YoY to $23.4B, driven by ISG AI server demand, with operating income up 21%.
Dell Technologies reported a solid first quarter of Fiscal 2026, with total net revenue of $23.4 billion, up 5% year-over-year. The growth was driven by a 12% increase in Infrastructure Solutions Group (ISG) revenue, fueled by strong demand for AI-optimized servers and storage, and a 5% increase in Client Solutions Group (CSG) revenue, supported by the ongoing commercial PC refresh cycle. Product revenue rose 9% to $17.6 billion, while services revenue declined 6% to $5.8 billion, primarily due to the wind-down of VMware resale.
Gross margin increased 2% to $4.9 billion, but gross margin rate contracted 70 basis points to 21.1%, pressured by a competitive CSG pricing environment and a shift in geographic and product mix within ISG. Operating income grew 21% to $1.2 billion, with operating margin expanding 70 basis points to 5.0%, as strong revenue growth and disciplined cost management more than offset the gross margin headwinds. Net income decreased 3% to $965 million, impacted by higher income tax expense, partially offset by a $0.2 billion gain on the sale of Secureworks and improved operating income. GAAP diluted EPS was flat at $1.37, while non-GAAP diluted EPS rose 17% to $1.55.
ISG delivered standout performance, with revenue of $10.3 billion (+12% YoY) and operating income surging 36% to $998 million. Segment margin improved 170 basis points to 9.7%, driven by strong revenue growth and cost controls, despite a decline in gross margin rate from mix shifts. Servers and networking revenue grew 16% to $6.3 billion, with both traditional and AI-optimized servers contributing. Storage revenue increased 6% to $4.0 billion, led by core storage offerings. Backlog for AI-optimized servers increased significantly quarter-over-quarter.
CSG revenue rose 5% to $12.5 billion, with commercial revenue up 9% on higher units sold, while consumer revenue fell 19% due to lower demand. CSG operating income declined 16% to $653 million, and segment margin contracted 130 basis points to 5.2%, primarily due to a competitive pricing environment that compressed gross margins.
Management expects net revenue growth for the full fiscal year, primarily driven by ISG, with CSG benefiting from the PC refresh cycle. They anticipate margin growth for the year, but caution that margin rates will face pressure from the continuing mix shift toward AI-optimized servers and a competitive environment. Operating expenses are expected to continue declining as the company executes cost-reduction measures, including headcount reductions. Input costs are expected to decline modestly, driven by component deflation. The company remains focused on disciplined capital allocation, including share repurchases and dividends, while maintaining an investment-grade credit rating.