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Dell expects $15 billion in AI server annual revenue

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Forecasts annual revenue in line with estimates

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Shares dip about 2%

(Rewrites throughout)

By Jaspreet Singh

Feb 27 (Reuters) - Dell on Thursday forecast a

decline in its adjusted gross margin rate for fiscal year 2026,

hit by higher costs to build artificial intelligence servers in

a fiercely competitive market, while its PC business also lagged

amid soft demand.

The Round Rock, Texas-based company's shares fell about 2%

in extended trading, even as it announced a $10 billion increase

in its share buyback plan.

Dell's AI servers, which are equipped with Nvidia's ( NVDA )

powerful chips, are designed to handle intense computational

demands of training large language models like those that power

chatbots such as ChatGPT.

That has boosted demand for Dell and its rivals including

Super Micro Computer ( SMCI ). Dell forecast $15 billion in

annual revenue from AI server shipments, 53% higher than the

$9.8 billion revenue in the year ended January 31.

But costly production of these AI-driven servers are

weighing on margins. Dell expects its annual adjusted gross

margin rate to decline about 100 basis points.

The company said its AI server backlog jumped to roughly $9

billion as of February 27, as it also signed a deal with Elon

Musk's xAI startup.

Dell forecast annual adjusted profit of $9.30 per share,

above analysts' estimate of $9.23, according to data compiled by

LSEG. The $103 billion midpoint of the company's annual revenue

forecast came in line with estimates.

TARIFFS COULD TRIGGER PRICE INCREASE

A sweeping U.S. trade tariff on Chinese products also looms,

with companies facing the risk of potential price increases on

tech products, automotive manufacturing, and services.

Dell said it was reviewing the tariff executive orders to

assess the impact on its operations and customers, adding that

the announcements have not yet impacted the company's pricing.

"Whatever tariff we cannot mitigate, we view that as an

input cost. As our input costs go up, it may require us to

adjust prices," Chief Operating Officer Jeff Clarke said.

Research firm International Data Corporation on Thursday

lowered its traditional PC forecast for 2025 and beyond, driven

by U.S. tariffs on China and weakening market sentiment.

Revenue for the fourth quarter ended January 31 stood at

$23.93 billion, missing estimates of $24.56 billion. It reported

adjusted per-share earnings of $2.68, beating estimates of

$2.53.

Dell's revenue from its infrastructure solutions group -

which includes its storage, software and server offerings - rose

22% to $11.35 billion. Revenue from its client solutions group,

which houses PCs, rose 1% to $11.88 billion.

(Reporting by Jaspreet Singh in Bengaluru; Editing by Shounak

Dasgupta and Varun H K)