A person looks at a Dell laptop for sale in a store in Manhattan, New York City, U.S., November 24, 2021. REUTERS/Andrew Kelly
(Reuters) -Dell forecast fourth-quarter revenue and profit above Wall Street estimates on Tuesday, as increasing investments in data centers to support artificial intelligence boost demand for its servers, sending its shares up 4% in extended trading.
The company also announced the permanent appointment of David Kennedy as its finance chief. Dell, which raised its annual revenue and profit expectations, offers AI-optimized severs equipped with Nvidia's powerful chips.
Its strong forecasts comes amid investor concerns about margin pressure due to competition in the AI server market from rivals such as Super Micro Computer and costly production.
Dell now expects $25 billion in fiscal 2026 revenue from AI server shipments, up from its prior view of $20 billion.
The company's AI server backlog rose to $18.4 billion by the end of third quarter, fueled by $12.3 billion in new orders. It shipped servers worth $5.6 billion in the quarter.
Having secured deals with the U.S. Department of Energy and Abu Dhabi's AI firm G42, the company also counts Elon Musk's AI startup xAI and CoreWeave among its customers.
Big Tech's push to build out AI infrastructure has triggered price increases for dynamic random access memory and NAND - two commonly used types of memory chips - amid high competition in the server market.
"We're in a very unique time. It's unprecedented. We have not seen costs move at the rate we've seen," Chief Operating Officer Jeff Clarke said on the post-earnings call.
Clarke said the pricing impact could make its way into the customer base, but Dell will "do everything we can to mitigate that."
In a market where customer demand is higher than the available supply, companies such as Dell gain the ability to increase their prices.
Dell may leverage this potential pricing situation, Melissa Otto, head of S&P Global Visible Alpha research said.
The company expects fourth-quarter revenue between $31 billion and $32 billion, above expectations of $27.59 billion, according to LSEG-compiled data. Adjusted profit forecast of $3.50 per share was also above estimates of $3.21.
Dell raised its annual revenue forecast to between $111.2 billion and $112.2 billion from its earlier expectations of $105 billion to $109 billion. It also raised adjusted earnings per share to $9.92.
Third-quarter revenue of $27.01 billion slightly missed estimates of $27.13 billion. Adjusted profit of $2.59 per share beat estimates of $2.47.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Arun Koyyur)
