Yvonne McGill : So let me start with the impact of margin rates. We did see a little bit of dilution, if you will, from the impact of the shipment, as we called out, but really not a material impact right now. We saw nice performance really across the server — holistic server portfolio. And so that increase that Jeff already talked about in the traditional servers was helpful in that mix. So it does have an impact, but we’ve talked about it being margin dollar accretive, but margin rate dilutive. And so we saw a little bit of that, but not to a significant extent in our third quarter. But expect as that grows, we will see more of an impact. Again, margin dollar accretive. And so — and as we have more services attached, as we expand that into the enterprise space, we’ll see more and more margin accretion coming from those AI offerings.
Jeff Clarke: No, I think that’s a great point, Yvonne. The team did a great job improving margins of our AI-optimized servers quarter-over-quarter, selling the value, the design, the performance attributes, it’s thermal attributes, its connectivity attributes and then attaching storage and services around it allowed us to see improved margins quarter-over-quarter. And Mike, to your question, is there a relationship between storage and networking with AI? Absolutely. These are typically cluster — small clusters, large clusters, high bandwidth needed. We see it ultimately deployed out where the data is being created, much of the data that will be created in the future is outside of the data center. Much of that data is unstructured.
Much of that opportunity is really a nice — a really nice tie to what we do with our own structured and object assets. And then networking is the high-speed interconnect fabric. They matter, they matter more, whether it’s Infiniband or Ultra Ethernet, those are all exciting new technologies for us.
Operator: We will take our next question from Simon Leopold with Raymond James.
Simon Leopold : Great. I wanted to see if you could unpack what you see going on trend-wise in storage, particularly given that — I know you said it came in as expected, but the revenue was a bit light versus Street expectations and it looks like it’s still down year-over-year in the next quarter. And where my question is going is to think about the longer-term trend, because I’m wondering, is AI pulling money away from storage? And do you see essentially margins trending better or worse given shifts in input costs and the better margins that some of your peers have called out recently? Just wondering how you’re seeing that trend as well.
Jeff Clarke: Sure. Maybe a couple of data points, and Yvonne can chime in as well. From us, when you think about margins, since that was the last comment, we saw our storage margins improve quarter-over-quarter and year-over-year. That’s exciting. We continue to sell the value of our products and the broad portfolio we have. We do see customers cautious. A large concentration of the storage businesses in very large customers, and they’re absolutely being cautious and selective. And that clearly impacts our high-end product portfolio. But what was exciting during the quarter is we saw our data protection and our unstructured categories actually growing on orders basis year-over-year. So when I think about the opportunities around protecting valuable data, when I think about the opportunities of what data is going to be created, again, unstructured largely outside of the data center at the edge, I think it’s a great opportunity for us to continue to protect these valuable workloads and the opportunity for us to be where the data is created out at the edge with our vast array of unstructured assets.
So I don’t think AI pulls away storage dollars. I think what we see is the effect of 8 quarters of server decline has impacted storage. Customers are cautious historically as the server business rebounds and recovers, we think our experience tells us that storage lags it by about a couple of quarters. That’s what we’re expecting. We see nothing that suggests that’s different. And in the meantime, the opportunity around unstructured is immense, and we’ll continue to focus on that.
Yvonne McGill : And I’d add, Jeff, on that, the margin accretion that you referred to on storage is real, and it’s great because it’s going to be recognized over time in the P&L, right, with the high services and software attached. So we don’t see all that benefit today, but we’ll see it going forward.
Rob Williams: Next question.
Operator: We’ll take our next question from Sidney Ho with Deutsche Bank.
Sidney Ho : Great. I have a question on AI as well. It’s great to see very good momentum in that business. Are there any concerns that some of these orders could be like just double booking, just because supply is tight everywhere that could ease over the course of next year? I assume you have great visibility into the backlog, the $1.6 billion you talk about in terms of timing. But how about the multibillion dollar pipeline? How comfortable are you with that? And also, what I would ask about is that can you clarify what products and maybe services are included in that order number? Is that just AI-optimized service like the XE9680? Or do you include like CTU only service in there? Any professional services or even APEX as a service in there?
Jeff Clarke: The last one first. When we talk about our AI backlog and demand, it’s not high-performance computing. It’s not CPU-based. It’s simply the portfolio that is optimized for artificial intelligence to 9680, the 9640, the 8640, the 760 and the 750. That’s it. So it’s clear it is that portfolio that we built to be optimized for AI. The double booking. It’s a very unusual way that the marketplace is working with the role that NVIDIA plays and helping the — obviously, the supplier or the car they’re out helping generate demand. I think there’s reasonable fidelity in the demand signal that we see today. Is it possible there’s double booking? I can’t sit here and tell you that there’s not. I don’t — from my seat, I don’t see it.
