(Reuters) -Shares of Dell Technologies dropped nearly 6% in premarket trading on Friday, as a dour quarterly profit forecast and weaker-than-expected second-quarter margin rate overshadowed upbeat full-year estimates.
Rising demand for servers capable of handling computational needs of AI workloads is benefiting companies such as Dell, Hewlett Packard Enterprise and Super Micro Computer, but the high cost of producing them and tough competition have pressured margins.
The company prioritized fulfilling AI server orders over maintaining margins, as supply chain disruptions and expedited shipping costs added to the profit squeeze from competitive pricing strategies aimed at landing large customer contracts, J.P. Morgan analysts wrote in a note.
Adjusted gross margin rate for the second quarter fell to 18.7% from a year earlier and missed estimates of 19.6%.
The company forecast third-quarter adjusted profit of $2.45 per share, falling short of analysts’ estimates of $2.55 according to data compiled by LSEG.
Dell expects third-quarter revenue to be in the range of $26.5 billion to $27.5 billion, compared with estimates of $26.05 billion.
Separately, Dell raised its annual revenue forecast to between $105 billion and $109 billion from its earlier expectations of $101 billion to $105 billion, buoyed by demand for its AI-optimized servers
It also raised its adjusted earnings per share guidance to $9.55 from its prior projection of $9.40.
Shares were last down 5.8% at $126.3, having rallied more than 16% so far this year as of last close.
Dell’s shares trade at 13.2 times profit expectations, higher than HPE’s 10.8, but far lower than 22.3 for the S&P 500 index. Rival Super Micro trades at around 16.3 forward earnings.
(Reporting by Shashwat Chauhan and Akash Sriram in Bengaluru; Editing by Krishna Chandra Eluri)
About the Author
