Jeff Clarke: Well, maybe a couple of data points and I’m sure Yvonne will add to this. But I think we mentioned in our talking point the traditional server business grew year-over-year in demand in Q4. It was the third consecutive quarter of sequential growth. We look into the pipeline of the coming year and it continues to improve. This is the longest digestion period that I can recollect in this industry. Everything is setting up for an investment in traditional servers to run traditional server workloads, which are very different than these accelerated AI workloads. So our line of sight into what our customers need gives us confidence that we believe that traditional servers are recovering. The question will be rate and what rate will they recover, but we’re optimistic.
A long digestion period, those workloads still very important running mission-critical workloads in many of our largest customers all the way down to small and medium businesses. The performance that we exit or the momentum that we exit in the year with I think gives us the ability to look going forward. Our own internal modeling says that our traditional server market is a modest growth on a year-over-year basis. Yvonne, anything?
Yvonne McGill: No, I think you had it and it’s really just the moving forward into the next year and the continuation of that, of the trend we’ve been seeing after the three quarters in a row.
Aaron Rakers: Excellent. Thank you.
Jeff Clarke: Thanks, Aaron.
Operator: We will take our next question from Toni Sacconaghi with Bernstein.
Toni Sacconaghi: Yes, thank you. I just wanted to explore the margin question a little bit. I think you talked about growth margins being down sequentially and the first sighted reason was higher AI mix. AI was less than 5%, AI services was less than 5% of your revenues this quarter, probably will be next quarter. So for 5% of your revenues to have an impact on growth margins that you’re calling out would suggest that AI server margins are really low. So can you A, explicitly address that math of where AI server margins are relative to company average growth margins? And can you talk about how you think about PC margins in fiscal Q1 and for fiscal 2025? Thank you.
Yvonne McGill: Thanks, Toni. We obviously now we closed out FY 2024 with really strong profitability and moving into Q1, there’s a number of factors that we’re looking at. We’ve got CSG and ISG combined and expect them to grow about 5% year-over-year at the midpoint. We have total revenue at the midpoint expected to grow and deliver at $21.5 billion or up 3%. ISG is expected to grow in the teens driven by traditional and AI services. CSG is expected to be down in the low single digits, so minus three about year-over-year. And then we get to gross margin rate, which I think is the key to your question. So we expect that to be down quarter-on-quarter, about 200 basis points. Now, what is supporting that expectation? We are seasonally lower in storage mix.
We see that every Q4 to Q1, so that’s one of the drivers. We will have higher AI optimized server mix in Q1. Jeff already talked about that in question. And then holistically, we have another few influences on the margin. We’ve got an inflationary component cost environment. We’re moving from deflationary last year to inflationary in the year that we are in right now. And then I’d say there’s more competitive pressure. We’re seeing more and more of that. And so that’s what we expect to be impacting the gross margin. And I’d say operating margin rates will be down quarter-over-quarter due to all the items I just mentioned. But for the year, we’re expecting improved performance as the quarters progress. So I think we’re starting this way with what we’re seeing now, but again, we expect this to continue to progress as the year does.
Jeff Clarke: All right, thanks, Toni.
Operator: We’ll now take our next question from Ananda Baruah with Loop Capital.
Ananda Baruah: Yes, good afternoon, guys. Thanks for taking the question and congrats on the good results and solid execution. I guess I’ll use my question just on Gen AI and customer base and was just interested, Jeff, in getting the company’s view on the opportunity over time to maybe participate with the hyperscalers. And one of the reasons that I’m thinking to ask this is that what we’re hearing is we get maybe into calendar 2025, B100 of volume, the hyperscalers’ real desire to sort of get fully integrated racks delivered, fully integrated racks, something that the OEMs like yourself would do well, would maybe be in your warehouse. So just wanted to get your thoughts on that and that’s it for me. Thanks a lot.
Jeff Clarke: Sure, I’ll see if I can address the question. I mean, the first thing you probably noticed in our web deck is we increased our view of the opportunity in the marketplace to $152 billion, 20% CAGR going forward to 2027. And quite frankly, that’s probably a lagging indicator. It’s still catching up. We think demand continues to be ahead of that. Primarily driven is the overall desire, demand for the computational components to do AI exceeds the supply picture. And quite frankly, it’s refreshing to see. We have a high growth category here. That growth is happening certainly in the public cloud, but increasingly more so in enterprises, which is what certainly given our reach in the vast capabilities that we have in business to help customers adopt AI into their business flows, I think it’s a big opportunity for us.
It’s where the data is. 83% of all data is on-prem. We think AI moves to the data. More data will be created outside of the data center going forward than inside the data center today. That’s going to happen at the edge of the network. A smart factory, an oil derrick or platform, a deep up mine, all variations of this. We believe AI will ultimately get deployed next to where the data is created driven by latency. And we think about this, the opportunity is to get the training and fine tuning, which is well underway now. But I mentioned earlier this notion about AI in production, inferencing, running the actual tool in production to get the outcomes that businesses want. We believe that’s the untapped large opportunity, get my words in the right order, going forward for us.
