EL7 Research · Equities — Technology
2026-09-02
Dell earnings rose 255% and its free cash flow fell 47% — in the same quarter
On 23 August, we posed a testable question about Dell's margin. The company answered on 1 September — and the decline did stop. But the pressure did not disappear; it shifted to another line item.
Revenue
46.971
Billion dollars · +58%
Gross margin (GAAP)
20.9%
From 18.3% a year earlier
Free cash flow
−47%
To 986 million dollars
Contracted business
95
Billion dollars · management definition
Executive summary
On 23 August 2026, we published a deferred question in “The Pass-through Corridor”, which we placed on the watchlist in testable form: would Dell's gross margin (Gross Margin) stop declining at 17.8%? On 1 September, the company answered the question itself.
The answer: it stopped, and reversed.
- Gross Margin reached 20.9% under generally accepted accounting principles (GAAP), versus 18.3% a year earlier — an increase of 2.6 percentage points. It had bottomed at 17.8% in the immediately preceding quarter, not this quarter.
- Operating Margin jumped to 11.5% from 6.0%. In the ISG infrastructure segment alone, it rose to 15.0% from 8.8%.
- Revenue was 46.971 billion dollars, up 58%, while net income was 4.133 billion dollars, rising 255%.
But the pressure did not disappear. It shifted.
- Free Cash Flow — cash actually left after running the company and spending on its assets — fell 47% to 986 million dollars, in the same quarter in which net income rose 255%.
- The record cash figure announced by the company is an adjusted figure of 8.149 billion dollars, of which 87.9% is accounting add-backs, not realised cash.
- The largest portion of those add-backs — 6.667 billion dollars versus 592 million dollars a year earlier — is cash Dell provided to its customers so they could buy from it.
- The company distributed 4.2 billion dollars to shareholders in a quarter that generated 986 million dollars in free cash flow.
And what we do not know deserves a full section, not a footnote: Backlog of 95 billion dollars is a metric defined by management, and Dell has never disclosed the share that is non-cancellable. No one asked on the call.
What our data show: At an unchanged closing price of 457.39 dollars, the forward earnings multiple moved from 24.79 times on prior consensus estimates to 17.94 times on the company's new guidance — a −27.6% re-rating without the share moving by a single dollar.
