(Bloomberg) -- Dell Technologies Inc. shares rose after the company reported better-than-expected revenue due to an increase in the sales of servers built for handling artificial intelligence workloads.
Orders of AI-optimized servers were $3.2 billion in the fiscal second quarter, up from $2.6 billion in the previous period, Dell said Thursday in a statement. The sales backlog for the equipment was $3.8 billion, with the pipeline of deals “several multiples” of that, Chief Operating Officer Jeff Clarke said in the statement.
Revenue jumped 9% to $25 billion in the period ended Aug. 2. Analysts, on average, estimated $24.5 billion, according to data compiled by Bloomberg. Sales in the unit containing servers was $11.6 billion, compared with the average projection of $10.9 billion.
The shares rose as much as 4.2% after trading opened in New York on Friday. The stock had jumped 45% this year through Thursday’s close.
The Texas-based hardware technology company has enjoyed a renaissance of investor interest over the past year due to its high-powered AI servers. Still, there is increasing concern about the profitability of the equipment sold by Dell and peers like Super Micro Computer Inc., and Hewlett Packard Enterprise Co. because it needs expensive computer chips made by companies like Nvidia Corp.
Most AI server business is with smaller cloud service providers, but enterprises and governments are an emerging opportunity, Clarke said on a conference call with analysts after the results. In the fiscal third quarter, Dell expects sales of about $24.5 billion, in line with analyst estimates.
Profit in the reported quarter, excluding some items, was $1.89 a share, while analysts expected $1.71. Operating margin for Dell’s business unit containing servers and other infrastructure was 11%, a step up from 8% in the prior quarter and ahead of the average analyst estimate of 10.7%. That improved figure “should lessen AI-server margin concerns,” wrote Woo Jin Ho, an analyst at Bloomberg Intelligence.
Still, margins were negatively impacted by a higher mix of AI servers and a more-competitive pricing environment, Chief Financial Officer Yvonne McGill said on the call.
For its better-known business of selling personal computers, Dell reported $12.4 billion in revenue, down 4% from the same period a year earlier and slightly missing estimates. Sales of business PCs was little changed while revenue from consumer-oriented PCs declined 22% from a year earlier. The results contrasted with rival HP Inc., which on Wednesday reported its enterprise PC sales gained 8% in the quarter.
The PC market has seen a historic decline over the last two years after many consumers, businesses and schools purchased laptops in the early months of the pandemic. A long-awaited rebound began to materialize this year. In the second quarter, industrywide shipments picked up 3% — the second increase since the end of 2021 — research firm IDC said in July.
Still, recovery in the PC market for Dell “is a little further out” than previously thought, Clarke said during the call.
In June, Dell cut jobs primarily in sales without disclosing how many workers would be affected. The company took a $328 million charge for severance expenses in the quarter.
“A big part of this optimization effort is leveraging AI to reimagine our business processes and drive higher productivity,” McGill said of the workforce reduction.
Separately, Dell is exploring the possible sale of SecureWorks Corp., a cybersecurity company, Reuters reported earlier. Dell, which owns a majority of SecureWorks stock, unsuccessfully explored the sale of the company in 2019. SecureWorks has a market value of about $772 million.
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