Jeff Clarke: Well, Toni, that’s a few questions. Let me work my way through those. So what happened? You recall in Q2, we talked about the improved demand in June and July for PCs. And that certainly helped us close the quarter, and we benefited from that. And when we were together in August, we had seen that continue in August. In fact, through the month of August, the first month of the quarter, our PC business is up year-over-year. And then things changed. The business started to slow. It slowed in September, it slowed more in October. We saw more cautiousness from our customers. We saw them being more selective, particularly large commercial customers, enterprise customers and particularly in North America. We saw the public sector slowdown, while at the same time, we actually saw stabilization in SP.
But the big change was the number of large deals slowed over the course of the quarter as our customers again became more cautious and selective. And as the market slowed, which you’ve probably seen in some of the output numbers from the OEMs, we saw increased pricing pressure. So the pricing pressure changed in PCs from August to October. Those large deals became more competitive. I think you also saw inventory that was shipped in the June and July period. Now it was caught up, and you saw promotional pricing throughout the quarter. And it was more aggressive as we exited the quarter and we ended the quarter. So that did change the PCs. We did not see or call the slowdown in our guidance. The guidance that Yvonne and I gave a quarter ago was what we saw through August, and we were optimistic that we were seeing a recovery.
It’s clearly pushed, things have slowed. While at the same time, we now have 2 consecutive quarters of quarter-over-quarter growth of our traditional or data center servers, and we have the tailwind of AI continuing to grow. As I mentioned earlier, the pipeline of AI tripled in the quarter. Demand doubled — nearly doubled quarter-over-quarter. So those are the tailwinds of the change that we see in the business. The biggest change was PC because storage performed as expected. Backlog, the number I’m going to give you is the Q3 exit backlog was $1.6 billion. Orders nearly doubled, pipeline tripled. Our job is to convert debt. We’re working with our field, our customers to convert debt pipeline that grew significantly. The interest in our AI products continues to be strong.
On-premise deployment at AI interest continues to be strong. The fact that we now have been working with Meta and Llama 2, bringing that on-prem, Hugging Face in an open source environment to bring those models and tools on-prem, I think continue to reiterate AI is going to follow the data. The data is on-prem, and we believe the pipeline and opportunity continues to build for us.
Rob Williams: All right. Thanks for the answer there, and thanks for the question, Toni. I’d like to think that our tone would be transparent and honest, and that’s what I hope you hear from us is that we call it like we see it, and we give you the best view that we can give you at that point in time. So appreciate the question, Toni.
Operator: We’ll take our next question from Erik Woodring with Morgan Stanley.
Erik Woodring : Awesome. Jeff, I just want to kind of dig into some of your comments about spending on AI, optimized infrastructure and the impact that might have on traditional hardware spending. Because obviously, there’s a lot of money, as you’re very clearly showing us, being thrown at AI-related infrastructure. So can you just maybe give us a bit more detail on what gives you confidence that this spending won’t cannibalize traditional either general compute spend or overall hardware spending as we look out over the next 12-plus months? What are the signposts that you’re looking at that gives you that confidence?
Jeff Clarke: Of course, Erik. Let me try. So we believe what we’ve seen for 2 consecutive quarters in our traditional server business is growth that’s grown sequentially from 1 to 2, now 2 to 3. What we saw for the first time this year was the pipeline actually grow in-quarter for traditional servers. That’s a very encouraging sign. We saw the adoption of our brand-new 16G server double quarter-over-quarter. We saw the activity with our sales force and our accounts increased. We saw the opportunities in large deals increased towards the end of the quarter. Our conversion improved over the course of the quarter. And I think those signals tell us that this 8-quarter digestion of what was built or bought, I should say, through the course of COVID has now worked its way through the system that data centers need be updated, upgraded additional capacity.
Those workloads continue — need to be said, more data is being created. While at the same time, there’s a whole new category of computing, accelerated computing, AI-optimized computing fed by all of the market momentum around generative AI that says that there’s a big opportunity in both that we think early signs — I’m not going to — I won’t use that word that you probably want me to use this recovery, but we have early positive signs that there’s a changing in the demand profile of traditional servers. And we’re seeing a lot of excitement across our broad portfolio of AI-optimized servers that have us feeling pretty good as Yvonne just mentioned about next year.
Rob Williams: Does that get out of your question, Erik? I just want to make sure that’s…
Erik Woodring : Yes, absolutely. Very clear.
Rob Williams: Thanks. Appreciate it, Erik. Next question.
Operator: We’ll take our next question from Ben Reitzes with Melius Research.
