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SEC filingDell's Q3 FY26 revenue grew 11% YoY driven by AI-optimized server demand, though margin rate compressed 130 bps on mix shift.
In the third quarter of Fiscal 2026 (ended October 31, 2025), Dell Technologies reported total net revenue of $27.0 billion, an 11% increase year-over-year. The growth was driven by a 16% rise in product revenue to $21.3 billion, partially offset by a 5% decline in services revenue to $5.8 billion. GAAP gross margin increased 4% to $5.6 billion, but gross margin rate contracted 130 basis points to 20.7%, primarily due to a shift in revenue mix toward lower-margin AI-optimized server offerings. Operating income surged 23% to $2.1 billion, with operating margin expanding 70 basis points to 7.8%, benefiting from a 5% reduction in operating expenses. Net income rose 32% to $1.5 billion, and diluted EPS increased 39% to $2.28. On a non-GAAP basis, operating income grew 11% to $2.5 billion, and non-GAAP EPS rose 17% to $2.59.
Infrastructure Solutions Group (ISG): ISG net revenue increased 24% to $14.1 billion, driven by 37% growth in servers and networking ($10.1 billion), largely from AI-optimized server demand. Storage revenue declined 1% to $4.0 billion, as lower hyper-converged infrastructure demand offset core storage growth. ISG operating income rose 16% to $1.7 billion, but operating margin decreased 90 basis points to 12.4% due to gross margin rate compression from the AI server mix.
Client Solutions Group (CSG): CSG net revenue grew 3% to $12.5 billion, with commercial revenue up 5% to $10.6 billion (driven by the PC refresh cycle and richer configurations) and consumer revenue down 7% to $1.9 billion. CSG operating income was flat at $0.7 billion, and operating margin declined 20 basis points to 6.0%.
Corporate and Other: Revenue declined due to the termination of the VMware resale agreement and the divestiture of Secureworks, which contributed a $0.2 billion gain on sale.
Management expects continued ISG and CSG net revenue growth in Q4 and full-year FY26, most notably within ISG, driven by sustained AI-optimized server demand. Margin growth is anticipated, but margin rate pressure will persist from the mix shift toward AI servers and a competitive pricing environment. The company expects modest CSG growth from the ongoing PC refresh cycle and a continued reduction in Corporate and other revenue. Dell remains focused on disciplined cost management, including workforce reductions, and expects to scale operating expenses while investing in R&D and strategic initiatives. The company also anticipates increased inflation for component costs in the remainder of FY26 and more notable dynamics in FY27.
Dell’s operating cash flow (CFO) of $6.5B significantly exceeded net income of $3.7B, yielding a CFO/net income ratio of 1.76, indicating strong cash generation. The primary driver was favorable working capital movements, particularly a $2.9B increase in accounts payable and a $1.6B improvement in other assets/liabilities, partially offset by growth in receivables and inventories. Depreciation and amortization ($2.3B) and stock-based compensation ($0.5B) also contributed.
Capex of $1.9B was essentially flat year-over-year, representing 2.4% of revenue and 29% of CFO. This moderate intensity suggests disciplined investment in growth.
While not explicitly stated, computed free cash flow (CFO – capex) was $4.6B. Total capital returns – share repurchases ($4.5B) and dividends ($1.1B) – amounted to $5.6B, exceeding free cash flow by $1.0B, funded by debt issuance and cash reserves. The company issued $13.8B in new debt while repaying $7.4B, resulting in net borrowing of $6.4B.
A $533M inflow from divestitures boosted investing cash flow. No major one-time tax payments were evident; deferred taxes were minimal.