Dell banking on an AI server sales boost

Dell is hoping that demand for its AI-optimised servers will deliver a continued boost to its hardware sales in the coming years.

Dell’s latest financial results show strong demand for AI-specific hardware, with the company banking $500 million from sales of AI-optimised servers in the last quarter alone. A third of all the company’s server sales were for AI-optimised products.

“AI continues to dominate the technology in business conversation,” said Jeff Clarke, Vice Chairman and Chief Operating Officer at Dell on the company’s earnings call. “Customers across the globe are turning their operations upside down to see how they can use generative AI to advance their businesses in meaningful ways. These AI initiatives are being driven at the CEO and board levels.”

Sales of those AI-optimised servers look likely to grow rapidly in the coming quarters, with the company admitting it’s struggling to keep up with demand. “Our AI-optimised server backlog nearly doubled versus the end of Q2 with a multibillion-dollar sales pipeline, including increasing interest across all regions,” said Clarke.

However, he did sound a note of caution. “AI hype is everywhere, and we need to be measured in our expectations,” he said. “We are still in the early innings with AI as customers continue to work through their AI strategies. Experience over multiple technology cycles tells us that progress won’t always be linear, but we are excited about the opportunity in front of us.”

Related reading: What is AIOps?

COVID cycle boost

Dell says there’s another reason why it’s expecting an uptick in server sales over the coming months: the replacement cycle created by the COVID pandemic.

The company claims it’s seen big demand for its 16G servers, with a number of “large deals” secured towards the end of the quarter. “I think those signals tell us that this eight-quarter digestion of what was built or bought… through the course of Covid has now worked its way through the system,” said Clarke, adding that data centres need to be upgraded with additional capacity.

The rebound in server sales could also be good news for another part of Dell’s business: storage. Although the company reported declining storage revenues, Clarke said he expected these to climb in subsequent quarters. “What we see is the effect of eight quarters of server decline has impacted storage,” said Clarke.

“As the server business rebounds and recovers, we think our experience tells us that storage lags it by about a couple of quarters.”