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TBR 2Q11 Dell Inc. Report

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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company …

Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.

TBR believes Dell is positioning for long-term revenue and margin growth by leveraging an aggressive cadence of strategic, technology-focused acquisitions coupled with its partner ecosystem to further its solutions offerings, shedding its reputation as a PC and x86 server vendor to position itself as a “trusted adviser” to customers.

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  • 1. Technology Business ResearchAccelerating Customer Success Through Business Research TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
  • 2. COMPUTER BUSINESS QUARTERLYSMDell Inc.Second Calendar Quarter 2011Second Fiscal Quarter 2012 Ended July 31, 2011 TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)  5.19Publish Date: September 7, 2011Author: Greg Richardson (greg.richardson@tbri.com), ComputingPractice Analyst; Krista Macomber, Computing Practice ResearchAnalyst TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .Content Editor: John Spooner, Computing Practice Director
  • 3. Contents TBR Company Analysis Company Data Models 3 TBR Position 24 Income Statement 4 Executive Summary 25 Balance Sheet 6 Strategic Overview 26 Segment Revenue Model 8 Corporate SWOT Analysis 27 Revenue Unit & ASP Model 9 Scenario Discussion 28 Geographic Model 12 Financial Model Strategy 29 Operating Expense Model 15 Go-to-Market & Product Strategies 30 Future Outlook Graph 18 Alliance & Acquisition Strategy 31 Acquisition Table 20 Geographic Analysis 33 Retail Partners 21 Resource Management Strategy 34 Alliances Tables 23 Organization Breakdown 37 Product Portfolio Table 40 About TBR3 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 4. TBR Position TBRDell will sustain profit expansion while accelerating revenue growthby leveraging acquisitions to deliver solutionsTBR Assessment Corporate Strategic ObjectivesTBR believes Dell is positioning for long-term Leverage acquisitions to become a provider of enterprise-revenue and margin growth by leveraging an focused solutions, spearheaded by servicesaggressive cadence of strategic, technology-focused acquisitions coupled with its partner Dell has inorganically positioned itself to address large-scaleecosystem to further its solutions offerings, buildouts of integrated hardware, software and services, goingshedding its reputation as a PC and x86 server up against companies with similar strategies, such as IBM andvendor to position itself as a “trusted adviser” to HP, as evidenced by purchases including Compellent, Boomi,customers. SecureWorks and, most recently, Force10 Networks. Increase profitability as a result of solutions sales and supply DELL 2Q11 PERFORMANCE VS. EXPECTATIONS chain efficiency(In $ Millions) Consensus Guidance Range Actual Dell’s gross profit expanded 36.3% year-to-year in 2Q11,Revenue $ 16,040 $15,500 - $16,480 $ 15,658 despite revenue increasing only 0.8% over the same period.Operating Income N/A N/A $ 1,146 TBR believes Dell is improving profitability by leveragingNon-GAAP EPS $ 0.44 $0.35 - $0.51 $ 0.48 integrated solutions to drive high-margin attached revenue, DELL 3Q11 GUIDANCE AND EXPECTATIONS while reducing costs within its business segments by targeting(In $ Millions) TBR Estimate Consensus Guidance Range supply chain efficiency.Revenue $ 15,702 $ 16,190 $15,530 - $16,670Operating Income $ 1,329 N/A N/A Leverage an enterprise solutions strategy to drive horizontalNon-GAAP EPS N/A $ 0.45 $0.34 - $0.56 growth and expand scale Dell is leveraging its high-volume server business to penetrate the enterprise while leaning on partners to develop a portfolio of adjacent technologies, such as security, storage, appliances and cloud.4 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 5. Executive Summary TBRDell will fuel its enterprise solutions strategy by augmenting its x86server portfolio with storage and networking acquisitionsTBR assessment of Dell’s two-year strategic outlookKey takeaways Strategic outlookFinancial: Sustain margin expansion while accelerating • TBR believes Dell will capitalize on HP customerrevenue growth by shifting the product mix away from uncertainty to drive commercial PC unit shipmenthigh-volume hardware and toward enterprise solutions. growth.Go to market: Realign tactics to capitalize on growth • Dell will derive another gateway to enterpriseindustries, such as healthcare, and product areas, such datacenters by altering its mobile strategy, expanding itsas mobile computing. mobile device management capabilities while targetingResource: Boost cost structure efficiency in existing crossover business and consumer tablet devicebusinesses, namely PCs, while investing in R&D, sales functionality to differentiate in the space.and marketing, and new facilities to capitalize on growth • Dell will fuel its solutions approach by leveragingopportunities. acquisitions to augment its core portfolio with cloud and vertical-industry capabilities, targeting storage and DELLS NET REVENUE, GROWTH AND PROJECTIONS networking technologies through 2H11.TBR • Dell will capitalize on virtualized, cloud and mobile IT Net Revenue Growth Year-to-year $100 25.0% $80 16.2% 7.0% 20.0% infrastructure buildouts by expanding its network of 4.0% In $ Billions $60 21.7% 15.0% datacenter, R&D and proof-of-concept facilities globally. $40 19.4% 2.0% 10.0% • Dell will ramp investment into sales and marketing and $20 5.3% 1.0% 0.8% 5.0% R&D to drive sales, boost its enterprise business and $0 0.0% meet increased demand while streamlining its core 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 CY10 CY11 CY12 businesses, such as consumer PCs, for margin growth. Est. Est. Est. Revenue Revenue Growth Year-to-YearNOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively.SOURCE: DELL AND TBR 5 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 6. Executive Summary TBR Dell will continue to outperform its peers in terms of TBR scored metrics as growth investments come to fruition Company Average in Standard Company Average in Standard TBR ScoreFINANCIAL METRICS TBR Score Figure Class Deviation/2 GO-TO-MARKET METRICS Figure Class Deviation/2Revenue (in $ Thousands) 5.40 $ 15,658,000 $ 13,611,774 $ 5,087,163 Annual revenue per salesperson* 4.43 $ 3,529,200 $ 6,012,826 $ 4,370,752Gross Margin 3.33 22.5% 37.0% 8.7% Cost per revenue dollar 5.05 $ 0.08 $ 0.08 $ 0.03SG&A (% of revenue) 5.86 13.9% 17.9% 4.6% Cost per margin dollar 2.87 $ 0.37 $ 0.23 $ 0.06Sales & Marketing (% of revenue) 5.69 11.1% 14.1% 4.3% Channel expense as a % of S&M expense 6.71 5.4% 20.4% 8.8%General & Admin (% of revenue) 6.12 2.7% 3.8% 1.0% Marketing expense as a % of S&M expense 5.76 19.5% 26.1% 8.6%R&D (% of revenue) 6.85 1.3% 6.9% 3.1% Annual sales expense 5.09 $ 262,686 $ 272,514 $ 110,656 per sales employee*Total operating expenses (% of revenue) 6.66 15.2% 26.3% 6.7% Annual marketing expenseOperating Margin 4.84 7.3% 8.2% 5.4% 4.86 $ 294,953 $ 284,247 $ 74,126 per marketing employee*Net Margin 4.96 5.7% 5.9% 5.2% TOTAL AVERAGE TBR SCORE 4.84Revenue Growth YTY 3.96 0.8% 12.1% 10.8% *in $ thousandsGross Profit YTY change 8.72 36.3% -5.8% 11.3% CALENDAR QUARTER RESULTS TBR SCORING SUMMARY:SG&A YTY change 3.21 29.5% 9.8% 11.0% 2Q10 3Q10 4Q10 1Q11 2Q11Sales & Marketing YTY change 2.89 34.3% 10.3% 11.4% 5.09 4.88 4.75 4.89 5.08 Financial Model Strategy:General & Admin YTY change 4.33 13.2% 3.0% 15.1% Go-to-Market & Services Strategies: 5.10 5.20 5.02 4.96 4.84R&D YTY change 3.55 26.5% 13.1% 9.2% Resource Management Strategy: 5.73 5.63 5.83 5.79 5.75Total operating expenses YTY change 2.94 29.2% 11.3% 8.7% TOTAL AVERAGE TBR SCORE: 5.25 5.15 5.09 5.13 5.19Operating income YTY change 5.01 53.8% 43.5% 718.5%Net Income YTY change 4.74 63.3% 570.7% 1974.5%TOTAL AVERAGE TBR SCORE 5.08 TBR Score Company Average in Standard Investment in sales and marketing and R&D initiatives forRESOURCE MANAGEMENT METRICS Figure Class Deviation/2Days sales outstanding 3.47 58.3 46.1 8.0 growth drove up Dell’s operating expenses in 2Q11,Turns on inventory 7.29 36.1 18.5 7.7 weighing down its TBR scored financial metrics. TBR believesDays inventory outstanding 7.18 10.1 35.9 11.8 continued outperformance of peers in scored resourceFixed asset turnover 6.08 30.3 16.7 12.7Days cash outstanding 5.05 87.0 89.2 41.1 management metrics, led by supply chain efficiency, coupledTotal asset turnover 6.72 1.5 1.1 0.2 with an improving product mix resulting from sales ofDebt/asset ratio 4.60 0.6 0.6 0.1 enterprise solutions, will drive an improved overall TBR scoreCurrent ratio 4.82 1.5 1.5 0.3Return on assets 5.33 9.1% 7.9% 3.5% for Dell in 3Q11.Return on equity 5.91 45.8% 25.4% 22.3%Headcount growth YTY 4.80 7.6% 6.1% 7.3% KeyAnnual revenue per employee* 4.78 $ 609,083 $ 684,894 $ 341,235 Represents an area where Dell is currently challenged vs. peersAnnual G&A expense* 5.67 $ 202,410 $ 282,280 $ 119,244Annual R&D expense per developer* 6.72 $ 154,921 $ 329,156 $ 101,229 Represents an area where Dell is outperforming its peersTOTAL AVERAGE TBR SCORE 5.75 Represents an area where Dell is neither significantly outperforming nor underperforming its peers 6 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 7. Strategy Overview TBRDell will grow revenue and margins through 2H11 by restructuring, sellingbundled solutions, and revamping its approach to the tablet space Function Key Strategies TBR Assessment  Dell is sustaining growth in its expansive midmarket Grow margins while positioning customer base while increasing traction in growth for long-term revenue verticals by leveraging its enterprise solutions Overall expansion by increasing sales of strategy. bundled, enterprise-level  Dell is leveraging acquisitions, partners and R&D servers, storage and services spend to enhance its solutions capabilities.  Dell accelerated its margin growth in 2Q11, as the company drove sales of higher-value, higher-margin Increase revenue and products and services and continued restructuring to profitability by augmenting increase the efficiency of its manufacturing Financial restructuring initiatives with a processes. product mix shifting toward  Despite significant acquisition spend as well as high-margin solutions investments in sales and marketing and R&D, Dell’s revenue grew only 0.8% year-to-year in 2Q11. Position as a provider of  Dell is driving cross-segment revenue growth by comprehensive, customer- selling cloud-related products and solutions to high- centric enterprise solutions end commercial and midsized enterprise customers. Go to Market Increase presence in emerging  Dell is spurring adoption of its hardware and service markets globally by leaning on offerings in emerging markets by leveraging its retail retailers and VARs presence and VAR channel. Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected7 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 8. Strategy Overview TBRDell is expanding its portfolio to capitalize on growth opportunities whilerealigning operations to boost efficiencyFunction Key Strategies TBR Assessment  Dell is expanding its cloud footprint globally by Leverage alliances as well as investing in R&D and by constructing new datacentersAlliances, R&D and acquisition spend to as well as by building new Solutions Centers to deliverAcquisitions & expand service, computing proof-of-concept testing of its cloud, virtualization andResource appliance and cloud offerings other interconnected technologies abroad.Management and capitalize on demand,  Dell is leveraging alliances and acquisitions to enhance particularly in growing its core capabilities and increase presence in private geographies clouds. Cut costs and offset declining  Dell’s total cost of goods sold fell 590 basis points year- unit shipments by re- to-year to 77.5% in 2Q11 as a result of stabilizing architecting PC designs and hardware component costs, a more efficient manufacturing operations component supply chain and a product mix shiftingOperations & toward solutions.Global Delivery Improve labor costs while  Dell is supporting corporate profit expansion byModel increasing unit sales in China’s outsourcing PC manufacturing and by redesigning its fast-growing economy by PCs to remove unnecessary costs. leveraging expanded  Dell is investing $100 billion in China through 2021 to manufacturing operations in the sustain growth in the country while reducing labor cost country via increased manufacturing capabilities.Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected8 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 9. Corporate SWOT Analysis TBRDell will invest in acquisitions, R&D and growing geographies to expandinternationally and bolster its solutions capabilitiesCorporate SWOT AnalysisStrengths Opportunities• Dell’s diverse product and services lineup and large PC • Target China’s fast-growing market by investing $100 billion to and server installed base create opportunities to upsell expand presence and capabilities. professional services. • Fuel profit expansion by leveraging acquisitions to shift the• Leverage traction in servers, coupled with improving product mix from PCs to enterprise solutions. service and software portfolios, to meet growing • Capitalize on HP PC customer uncertainty. demand for datacenter infrastructure buildouts and • Increase storage revenue while positioning for segment profit boost corporate top-line growth. expansion by investing in R&D and acquisitions.• Scale enables significant investment in acquisitions to foster growth.• Double-digit Dell-owned storage revenue growth in 2Q11 provides momentum for Dell to build on.Weaknesses Threats• Dell’s lack of profitability in consumer PCs takes a toll • Despite sinking shipments, desktop PCs represent more than on its PC gross margin. 20% of Dell’s quarterly revenue• Dell’s presence in the retail space is weak compared to • HP and IBM also are also seeking inorganic revenue and margin high-end brands with competitive pricing. growth by leveraging acquisitions to develop solutions,• Customers perceive Dell as a compute-only brand. resulting in market consolidation.• Historically, Dell has relied on EMC for a significant • Rival IBM will challenge Dell’s solutions strategy in future portion of the storage revenue base. quarters as the company begins to expand into larger-scale datacenters. • Multiplatform rivals, namely EMC and IBM, are increasing competition in the storage market.9 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 10. Scenario Discussion TBRDell will continue to acquire to round out its portfolio and shift theproduct mix toward solutionsScenario Discussion: Dell’s acquisition investments resulting in increased profitabilityScenario SWOT Assessment • Dell is steadily increasing its profitability by leveragingStrength: Scale enables significant investment acquisitions to shift from a vendor of high-volume computein acquisitions to foster growth. products to a provider of enterprise-focused solutions,Weakness: Reputation as high-volume PC and spearheaded by services.x86 server manufacturer. • TBR expects Dell to round out its solutions portfolio by targetingOpportunity: Fuel profit expansion by cloud and vertical-market capabilities through an aggressiveleveraging acquisitions to shift the product mix acquisition cadence. Dell will use these technology-focused buysfrom PCs to enterprise solutions. to complement its core portfolio with storage and networkingThreat: Market consolidation as HP and IBM capabilities – evidenced by the recent purchases of Force10also seek inorganic revenue and margin growth Networks and Compellent.by leveraging acquisitions to develop solutions. • Dell’s aggressive pursuit of inorganic growth is supporting profit growth. Dell’s corporatewide gross profit increased 36.3% year- Boomi to-year in 2Q11, despite revenue increasing by only 0.8% over the same time frame. SecureWorks Force10 • Multiplatform rivals, namely IBM and HP, are also ramping up efforts to leverage acquisitions to deliver enterprise solutions. Compellent We believe Dell will continue working proactively to take aim at its core customer base while other competitors, namely IBM, KACE tackle the high end of the market. Dell Acquisitions10 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 11. Scenario Discussion TBR Dell will capitalize on HP’s shifting portfolio commitments, leveraging its PC customer base to drive higher-value cross-selling opportunities Scenario Discussion: Dell will open doors to higher-value enterprise solutions sales by capitalizing on HP’s rethinking of its consumer hardware business. Scenario SWOT Assessment • TBR believes Dell will leverage its large PC customer base as a Strength: Traction in the PC space opens doors to lead library, working its way through that customer base to migration to enterprise solutions. drive more enterprise deals. As HP creates confusion in the PC Weakness: Customer perception as a compute- arena, we anticipate Dell will firm up its PC base, which will lay only brand. the foundation for cross-selling opportunities in future Opportunity: Capitalize on HP PC customer quarters. uncertainty. • Dell is moving into the corporate IT space at a time when HP is Threat: Rival IBM will present challenges in future stepping away from PCs – a core Dell area that is integral to quarters as Dell begins to expand into larger-scale the client side of IT datacenters. TBR believes the datacenters. reformulation of HP’s consumer hardware business will shake Bundled enterprise-level solutions will continue to confidence across HP’s PC customer base, opening doors for grow as a percentage of Dell’s revenue Dell to secure its existing PC customer base while winning DELLS SERVER, STORAGE AND SERVICES BUSINESSES AS share from HP. Dell will leverage its position in PCs to spurTBR A PERCENTAGE OF TOTAL REVENUE customer adoption of higher-value, higher-margin solutions. 15% 13% • Although reorganization at HP is creating new opportunitiesPercent Apps Revenue 10% for Dell, IBMs traction and expansive services business will 8% 5% emerge as major hurdles for the successful deployment and 3% execution of Dells solutions strategy in higher-end 0% datacenters. 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Servers External Storage ServicesSOURCE: TBR AND DELL 11 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 12. Scenario Discussion TBR Dell will grow its storage business following the termination of its partnership with EMC by leveraging R&D and acquisition spend Scenario Discussion: Dell is sacrificing short-term storage revenue for long-term profit growth Scenario SWOT Assessment • TBR believes Dell will leverage its heightened control over the Strength: Double-digit Dell-owned storage storage technology development roadmap to foster integration revenue growth in 2Q11 provides momentum between its storage and compute portfolios, leading to cross- for Dell to build on. selling opportunities. Weakness: Historical reliance on EMC for a • We expect Dell to generate near-term storage revenue significant portion of the storage revenue base. momentum by remaining true to its roots, supporting midmarket Opportunity: Increase storage revenue while deployments in industries such as the public sector, in which it setting a course to segment profit expansion by has strong traction, while providing for growth by establishing investing in R&D and acquisitions. proof points of its capabilities to penetrate new verticals, such as Threat: Increasing competition in the market financial services and telecommunications. from multiplatform rivals, namely EMC and • Dell will overcome headwinds created by the dissolution of its IBM. relationship with EMC, which led to an overall storage revenue decline of 19.6% year-to-year in 2Q11, by pursuing long-term TBR DELL STORAGE REVENUE AND GROWTH profitability through an expanded portfolio of owned storage 15% $600,000 solutions, which generated a reported 15% revenue increase. Revenue (in $ Millions) 10% 5% $575,000YTY Growth 0% -5% $550,000 • TBR anticipates Dell will face headwinds in the storage market as $525,000 -10% -15% $500,000 EMC expands its hardware and software offerings to maintain its -20% -25% $475,000 existing high-end customer base while expanding into the 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. midmarket via the cloud and as IBM expands its analytics Storage Revenue Storage YTY Growth capabilities to increase share via solutions sales. SOURCE: TBR AND DELL 12 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 13. Financial Model Strategy TBRDell is driving cross-segment revenue expansion by leveragingacquisitions, R&D and sales and marketing spendRevenue Performance and Strategies 2Q11 Revenue: $15.7 billion, 0.8% YTYTBR DELL REVENUE AND PROFITABILITY Dell’s revenue increased 0.8% year-to-year to $16.5 25% $15.7 billion in 2Q11, driven by its Enterprise Solutions $16.0 20% and Services group. In $ Billions • Dell’s server business led its segments in growth. Margins $15.5 15% $15.0 10% Revenue was up 8.7% year-to-year, an increase of 90 $14.5 5% basis points, to 13.1% of total revenue, driven by SMB $14.0 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. 0% infrastructure buildouts. Total Revenue Gross Margin Operating Margin • Services revenue grew 6.3% year-to-year, climbing 70SOURCE: TBR AND DELL basis points to 13.0% of revenue as a result of Dell’s focus on providing more robust, higher-value offerings. DELL SEGMENT CONTRIBUTIONS TBR $624 $543 $574 $481 $502 $597 Revenue and Growth Outlook 100% $1,915 $1,924 $1,943 $1,984 $2,036 Percent of Total Revenue $2,150 80% $1,890 $1,844 $2,090 $1,973 $2,054 $2,104 TBR estimates Dell’s corporate revenue will increase by $2,535 $2,579 $2,651 $2,567 $2,569 60% $2,661 2.0% annually to $15.7 billion in 3Q11. 40% 20% $8,570 $8,504 $8,434 $8,012 $8,497 $8,190 • We believe Dell will accelerate revenue growth 0% through 2H11 and into 2012, as investments in 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. acquisitions, sales and marketing, and R&D for Storage Services Server SW & Peripherals PC SOURCE: TBR AND DELL growth come to fruition, fueling Dell’s shift from a high-volume PC and server manufacturer to an enterprise services and solutions provider.13 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 14. Financial Model Strategy TBRDell will increase supply chain and manufacturing efficiencieswhile improving the product mix Cost & Margin Performance and Strategies 2Q11 Total OPEX: $2.4 billion • COGS fell 590 basis points to 77.5% ofTBR DELLS GROSS AND OPERATING PROFIT AND PROJECTIONS revenue, or $12.1 billion, as component costs Cost of leveled and Dell drove sales of integrated Gross and Operating Margin 30% 25% 22.9% 22.5% 23.5% 19.5% 21.0% 20% 16.6% 18.5% 19.5% 18.0% Services, service, server and network offerings and 15% 7.3% 8.1% 7.3% 8.5% 6.8% 6.4% Gross strengthened its component supply chain. 10% 6.7% 5.6% 4.8% 5% Profit • Declining COGS contributed to a 640-basis- 0% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. CY10 CY11 Est. CY12 Est. point year-to-year increase to Dell’s gross Gross Margin Operating Margin margin, which reached 22.5% in 2Q10.NOTE: Annual gross and operating profit and projections are for calendar 2010 , 2011, and 2012,respectively.SOURCE: TBR AND DELL SG&A expense increased 40 basis points annually to 13.9% of revenue in 2Q11, as Dell SG&A invested to expand its sales force targeted atTBR DELL PERCENT EXPENSE BY FUNCTION enterprise customers. 12% Percent Apps Revenue 10% • Dell’s operating margin of 7.3% declined from 8% 6% 8.1% in 1Q11 but was up from 4.8% in the 4% year-ago quarter, driven by an improved 2% Operating product mix and more efficient supply chain. 0% Margin 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 • TBR estimates Dell’s operating margin will Est. and SOURCE: TBR AND DELL S&M G&A R&D continue to grow year-to-year and Outlook sequentially, reaching 8.5% in 3Q11 as the company increases sales of higher-margin, higher-value services and solutions.14 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 15. Financial Model Strategy TBRDell will eliminate lower-value offerings to boost margins in its PC andsoftware businesses while investing in R&D to capitalize on new demand Segment Performance and Strategies • Dell’s notebook PC revenue increased 1.3% year-to- year, excluding workstations. Units shipped were TBR DELL PERCENT REVENUE BY SEGMENT up 4.0%, but ASP dipped by $20 to $792. 60% PCs • Dell’s desktop revenue was down 3.3% year-to- Percent Total Revenue 50% 40% 30% year, excluding workstations, as a 5.2% decline to 20% unit shipments offset a $13 uptick to ASP. 10% 0% 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 • Dell posted a 19.6% year-to-year decline to storage PC Server Storage SW & Peripherals Services Est. revenue due to the loss of EMC products. SOURCE: TBR AND DELL Servers & • TBR believes Dell will continue to lean on its x86 Storage server and Compellent businesses, while investing to expand its portfolio of Dell-owned storage, for revenue expansion.TBR DELL SEGMENT GROWTH 60% • Services revenue grew 6.3% year-to-year, driven by Percent Total Revenue 40% demand for SecureWorks offerings. 20% 0% Services • TBR believes Dell will fuel services growth by -20% establishing a consultative service delivery -40% framework to capitalize on demand for cloud. 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. PC Server Storage SW & Peripherals Services Software & Peripherals grew 1.3% year-to-year, aSOURCE: TBR AND DELL slight uptick of 10 basis points to 16.4% of revenue, Software & as Dell eliminated low-value proprietary and third- Peripherals party products from its portfolio, such as consumer electronics offerings.15 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 16. Go to Market & Product Strategies TBRDell will target margin protection in the tablet space by focusing onbusiness functionalityGTM Discussion: Dell will drive long-term revenue and margin expansion in its tablet business by leveragingthe burgeoning market in China as a test bedKey Takeaways • Dell will capitalize on market uncertainty around business• Dell will increase tablet unit shipments as well application treatment on a tablet device, awaiting either as profitability by delivering crossover personal Windows 8 or an Android-based productivity application that and business functionality. suits customer requirements to introduce the BlackBerry of the tablet space.• Dell’s growing brand presence and sales and marketing capabilities in China will lay the • TBR’s tablet study research indicates China is an early adopter foundation for adoption. of client device (such as tablets) use patterns as compared to the U.S. and Germany. Dell will leverage the market in China to• Burgeoning demand and early adopter use establish proof points of its technologies and begin to win patterns make China an ideal test bed for tablet share from rivals, namely Apple. tablets. • TBR believes business acceptance will provide Dell with tablet margin protection. Business device subsidies will become a Dell Streak 10 Pro purchasing consideration for consumers seeking to utilize their device for both personal and business computing applications. • Dell will differentiate in the space while positioning for high- margin attach revenue by leveraging its brand reputation and reliability as well as its mobile device management offerings. o Dell will spur adoption by leveraging its growing presence in Western China, resulting from its ongoing investment in sales, marketing and customer service. SOURCE: ITECHWORLDINFO.COM16 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 17. Go to Market & Product Strategies TBRDell will deliver end-to-end solutions to SMB and Enterprise customers,while improving the Consumer product mixTrends to monitor:• TBR believes Dell’s enterprise solutions strategy will drive Large DELL GLOBAL BUSINESS SEGMENT TBR Enterprise revenue up 9.8% year-to-year in 3Q11, to lead Dell’s REVENUE $16,000 customer segments in growth. Revenue (In $ Millions) $4,549 $4,584• We anticipate demand for IT infrastructure buildouts in growth markets, $12,000 such as India and China, will drive SMB growth into 2H11 – up 2.3% $4,580 $4,457 $8,000 annually in 3Q11, according to TBR estimates.• We estimate Dell will grow Public Sector revenue 3.6% year-to-year in $3,535 $3,709 $4,000 3Q11, despite macroeconomic concerns among federal customers in $2,870 $2,908 $0 Europe and the U.S., by leveraging demand for servers, storage and 2Q10 2Q11 services. Calendar Quarter Large Enterprise Public SMB Consumer• Dell will work to combat declining consumer revenue, which TBR SOURCE: TBR AND DELL estimates will fall 19.9% annually in 3Q11, by actively realigning its portfolio, driving sales of higher-value products while shifting lower- margin products to its retail business. Large Enterprise Public SMB Consumer SMB revenue Consumer revenue Public Sector revenue Dell’s Large Enterprise increased 4.9% year- was up 1.3% year-to- dipped 2.7% year-to- Key revenue grew 0.8% to-year, driven by year, with strength in year but grew 18.3% Changes annually, driven by server and networking EMEA and APAC from 1Q11, with client & Drivers demand for servers refresh cycles as well overcoming declines in revenue up a reported and services. as demand for the Americas, 34% sequentially. virtualization. primarily in the U.S.17 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 18. Go to Market & Product Strategies TBRDell leverages a growing portfolio of need-based solutions and globalVAR partners to support core revenue and international expansionSales Approach Direct Sales Approach Indirect Sales Approach • Deliver a range of business and • Sell consumer and business consumer PCs and services systems on a worldwide basis directly to customers. by leveraging retail and VAR • Provide a consultative sales partners. approach to customers, • Utilize two to three top retailers including the best elements of in each geography; focus on Dell’s product portfolio, notebook PCs. regardless of geography. • Support VAR partners with • Target top enterprise geography-specific products customers’ integrated product (such as Vostro A), specialized bundles while providing pricing, marketing resources, enhanced products and training/certification and Dell services to SMBs and support services. consumers. • Offer VARs deal registration.18 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 19. Alliance & Acquisition Strategy TBRDell will leverage alliances and acquisitions to round out its vertical-centric solutions portfolio with networking and storage capabilitiesAlliance, acquisition and development synergies Dell will leverage alliances and acquisitions to augment its core capabilities, targeting networking and storage capabilities in 2H11, and develop industry-specific datacenter solutions. In 2Q11, Dell positioned itself to capitalize on demand for Acquisitions Internal Development cloud and Big Data management and analytics in growth • Quicken Dell’s foray Invest in new markets verticals such as healthcare by leveraging partner and into cloud to drive innovation – acquired technologies. computing. with a focus on cloud • In August, Dell closed its acquisition of Force10 • Diversify and expand computing. Dell’s product Networks, provider of Open Cloud Networking high- portfolio. performance datacenter solutions, to augment its expansive x86 server portfolio and further its solutions capabilities. Dell has extended its global Alliances services reach and capabilities with Force10’s direct Augment core capabilities sales force and base of channel and SI partners. to deliver bundled solutions • In August, Dell partnered with software vendor for revenue and profit growth. Cloudera to enable simplified deployment, management and scaling of Hadoop Big Data solutions, targeting industries including financial services and telecommunications.Alliances and acquisitions position Dell as a leadingprovider of cloud computing storage solutions for large-scale analytics and innovative technology.19 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 20. Alliance & Acquisition Strategy TBRDell diversifies its revenue by leaning on acquired technologies to shedits status as strictly a PC vendor and break into growth markets Dell’s Acquisition Roadmap 2H09 1H10 2H10 1H11 2H11 Professional Dynamic Enterprise Emerging Markets Networking Layer Services Datacenter Solutions Perot Solutions • Extranet • Boomi • SecureWorks Force10 Networks • Kace Networks • Ocarina • Compellent Networks • Scalent20 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 21. Geographic Overview TBRDell will capitalize on demand in growing geographies to overcome weakPublic Sector and consumer spend in 2H11TBR Conclusions and Outlook• TBR believes constricted Public Sector budgets will mute revenue TBR DELL REVENUE CONTRIBUTIONS BY REGION expansion in Western Europe and in the U.S. in 3Q11. To drive growth $15,700 Revenue (in $Millions) in 2H11, we expect Dell to aggressively pursue global expansion, with $15,600 $15,500 a focus on sustaining momentum in BRIC countries. $15,400 $287 $387 $15,300 $15,667• We believe success in China and India will drive APAC revenue growth $15,200 $15,534 $33 of 11.1% year-to-year, while demand for infrastructure buildouts in $15,100 $15,000 Eastern European countries will drive EMEA revenue up 6.5%. 2Q10 Americas EMEA APAC 2Q11 SOURCE: TBR AND DELL• We project soft consumer and Public Sector demand will drive a 2.1% year-to-year decline in Americas revenue in 3Q11. U.S./Americas EMEA APAC and Japan Emerging Markets Growth markets Americas revenue EMEA revenue was up revenue increased a declined for the 1.0% year-to-year, APJ revenue increased reported 14% year-to- second consecutive Key which TBR attributes to 14.2% annually, driven year, to 28% of Dell’s quarter, down 3.0% Strategies strength in growing by demand for revenue, led by India year-to-year due to countries in Eastern enterprise solutions. and China, where weak consumer Europe. revenues increased 20% demand. and 21%, respectively.21 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 22. Resource Management Strategy TBRDell will drive adoption of cloud-based solutions globally by investingin R&D, datacenter and testing facilitiesResource Management Strategy Dell Capital InvestmentsDell will capitalize on new opportunities for revenue and • Dell will capitalize on demand for cloud computing inprofit growth by investing in research and development emerging geographies by investing in R&D andto bolster its service, computing appliance and cloud datacenter facilities.offerings. o In June, Dell opened its first Cloud Research and DELL PROFITABILITY METRICS Development Center in Dublin, following its plans TBR 50.00% announced in April to spend $1.0 billion on cloud 40.00% computing R&D, including opening 22 new 30.00% datacenters over the next two years. 20.00% • Dell will drive adoption of cloud, virtualization and 10.00% other interconnected technologies globally by 0.00% delivering demonstrations and proof-of-concept testing 2Q10 3Q10 4Q10 1Q11 2Q11 at 12 new Solutions Centers slated to be built in 2011. Return on Assets Return on Equity SOURCE: TBR AND DELL o Dell has opened centers in Virginia and Texas in the U.S., as well as Limerick, Ireland, Shanghai, China Dell Efficiency Metrics and Singapore. 2Q10 2Q11 Revenue per Employee $ 634,376 $ 609,083 S&M Employee Expense (per head) $ 264,263 $ 294,953 R&D Employee Expense (per head) $ 154,401 $ 154,921 G&A Employee Expense (per head) $ 185,258 $ 202,410 Revenue per Salesperson $ 3,609,774 $ 3,529,20022 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 23. Resource Management Strategy TBRDell is aligning its headcount to reduce costs and capitalize ongrowth opportunitiesHeadcount Strategies DELL REVENUE AND HEADCOUNT Headcount drivers and changes TBR $500,000 110,000 • Sales and Marketing: Dell increased its sales and marketing headcount by 975 FTEs annually, as the company built its Revenue per Employee $400,000 100,000 Headcount $300,000 90,000 sales force to drive sales of its enterprise solutions. $200,000 80,000 • General and Administrative: Dell’s G&A headcount increased slightly, by 64 FTEs year-to-year in 2Q11, as the company $100,000 70,000 2Q10 3Q10 4Q10 1Q11 2Q11 worked to streamline its operations. Revenue per Employee Employee HeadcountSOURCE: TBR AND DELL • Research and Development: Dell added 500 FTEs to its R&D headcount to support the development of service and TBR DELL HEADCOUNT solutions offerings for growth. 120,000 4,800 100,000 4,300 8,300 Keep on the radar 8,236 80,000 21,800 Total Headcount 17,029 • Expanded cloud and datacenter footprint: With plans to open 60,000 21,400 20,425 new cloud R&D, Solutions Center and datacenter facilities 40,000 worldwide, TBR believes Dell will increase headcount across 46,010 47,000 20,000 the board in future quarters. 0 • Low-Cost Regions: As Dell works to control its operating 2Q10 2Q11 Calendar Quarter expenses throughout 2H11, TBR expects the company will Research & Development General & Administrative Manufacturing Sales & Marketing increase headcount in low-cost regions . Services & Support SOURCE: TBR AND DELL23 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 24. Resource Management Strategy TBRDell Inc. Organizational Chart Michael S. Dell Chairman of the Board Chief Executive Officer Stephen F. Schuckenbrock Paul D. Bell President President Dell Services Public and Large Enterprise Stephen J. Felice Jeffrey W. Clarke President, Vice Chairman Consumer and Operations & Technology Small and Medium Business Brian T. Gladden Senior Vice President Chief Financial Officer Brad R. Anderson Lawrence P. Tu Karen H. Quintos Ronald Rose David L. Johnson Steve H. Price Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice PresidentEnterprise Product Group General Counsel Chief Marketing Officer Dell.com Corporate Strategy Human Resources24 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 25. Income Statement TBR DELL INC. Consolidated Statement of Income In thousands except earnings per share data TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. FISCAL QUARTER F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Net Sales $ 15,534,000 $ 15,394,000 $ 15,692,000 $ 15,017,000 $ 15,658,000 $ 15,702,000 Cost of Sales 12,948,000 12,391,000 12,401,000 11,585,000 12,133,000 12,012,000 Gross Profit 2,586,000 3,003,000 3,291,000 3,432,000 3,525,000 3,690,000 SG&A 1,679,000 1,816,000 1,977,000 2,025,000 2,174,000 2,151,000 R&D 162,000 163,000 169,000 195,000 205,000 210,000 Operating Income 745,000 1,024,000 1,145,000 1,212,000 1,146,000 1,329,000 Financing and Other (49,000) 52,000 (18,000) (42,000) (55,000) (16,000) Pre-Tax Income 696,000 1,076,000 1,127,000 1,170,000 1,091,000 1,313,000 Income Taxes 151,000 254,000 200,000 225,000 201,000 202,000 Net Income $ 545,000 $ 822,000 $ 927,000 $ 945,000 $ 890,000 $ 1,111,000 Earnings Per Share $ 0.28 $ 0.42 $ 0.48 $ 0.49 $ 0.48 $ - AS A PERCENTAGE OF REVENUE Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 83.4% 80.5% 79.0% 77.1% 77.5% 76.5% Gross Margin 16.6% 19.5% 21.0% 22.9% 22.5% 23.5% SG&A 10.8% 11.8% 12.6% 13.5% 13.9% 13.7% R&D 1.0% 1.1% 1.1% 1.3% 1.3% 1.3% Operating Expenses 11.9% 12.9% 13.7% 14.8% 15.2% 15.0% Operating Margin 4.8% 6.7% 7.3% 8.1% 7.3% 8.5% Net Margin 3.5% 5.3% 5.9% 6.3% 5.7% 7.1% YEAR-TO-YEAR CHANGE Net Sales 21.7% 19.4% 5.3% 1.0% 0.8% 2.0% Cost of Sales 24.8% 16.2% -0.2% -6.3% -6.3% -3.1% Gross Profit 8.2% 34.5% 33.3% 36.4% 36.3% 22.9% SG&A 6.9% 21.0% 11.1% 10.7% 29.5% 18.4% R&D 8.7% 5.2% -5.6% 16.8% 26.5% 28.8% Operating Expenses 7.0% 19.5% 9.5% 11.2% 29.2% 19.3% Operating Income 11.0% 77.5% 124.5% 133.5% 53.8% 29.8% F/O 16.7% -182.5% -56.1% -38.2% 12.2% -130.8% Ebitda 10.7% 109.3% 140.3% 159.4% 56.8% 22.0% Income Taxes -3.8% 43.5% 48.1% 104.5% 33.1% -20.5% Net Income 15.5% 143.9% 177.5% 177.1% 63.3% 35.2% SOURCE: DELL INC.25 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 26. Balance Sheet TBR DELL INC. Consolidated Balance Sheets (In Thous a nds ) TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 FISCAL QUARTER F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 ASSETS Current Assets Cash and Cash equivalents $ 11,694,000 $ 12,889,000 $ 13,913,000 $ 14,061,000 $ 14,623,000 Short-term Investments 744,000 492,000 452,000 418,000 509,000 Accounts Receivable 6,565,000 6,407,000 6,493,000 6,196,000 6,752,000 Financing Receivables 3,272,000 3,588,000 3,643,000 3,205,000 3,385,000 Inventory 1,372,000 1,294,000 1,301,000 1,276,000 1,346,000 Other (Deferred Income Taxes, etc.) 3,562,000 3,118,000 3,219,000 3,217,000 3,043,000 Total Current Assets 27,209,000 27,788,000 29,021,000 28,373,000 29,658,000 Property, Plant, & Equipment 1,980,000 1,948,000 1,953,000 1,987,000 2,064,000 Equity Securities and Other Invest. 633,000 662,000 704,000 762,000 1,048,000 Long-term Financing Receivables 622,000 709,000 799,000 1,123,000 1,252,000 Other Non-current Assets 294,000 235,000 262,000 196,000 285,000 Total Assets $ 36,640,000 $ 37,154,000 $ 38,599,000 $ 39,788,000 $ 41,604,000 LIABILITIES AND EQUITY Current Liabilities Short-term Borrowings 1,627,000 826,000 851,000 816,000 1,316,000 Accounts Payable 12,465,000 11,278,000 11,293,000 10,442,000 11,628,000 Accrued Liabilities 3,812,000 3,898,000 4,181,000 3,590,000 3,823,000 Total Current Liabilities 20,913,000 19,095,000 19,483,000 18,130,000 20,194,000 Long-Term Debt 3,623,000 5,168,000 5,146,000 6,794,000 6,424,000 Other Non-current Liabilities 5,943,000 6,078,000 6,204,000 6,494,000 6,650,000 Total Liabilities 30,479,000 30,341,000 30,833,000 31,418,000 33,268,000 Total Stockholders Equity 6,161,000 6,813,000 7,766,000 8,370,000 8,336,000 Total Liabilities & Equity $ 36,640,000 $ 37,154,000 $ 38,599,000 $ 39,788,000 $ 41,604,000 SOURCE: DELL INC.26 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 27. Appendix – Financial Models TBR DELL REVENUE MODEL TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. REVENUE (IN $ THOUSANDS) F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Est. Total $ 15,534,000 $ 15,394,000 $ 15,692,000 $ 15,017,000 $ 15,658,000 $ 15,702,000 System $ 11,084,000 $ 10,891,000 $ 11,098,000 $ 10,466,000 $ 11,053,000 $ 10,891,000 Peripheral Products $ 2,535,000 $ 2,579,000 $ 2,651,000 $ 2,567,000 $ 2,569,000 $ 2,661,000 Enhanced Services $ 1,915,000 $ 1,924,000 $ 1,943,000 $ 1,984,000 $ 2,036,000 $ 2,150,000 Gross Profit $ 2,586,000 $ 3,003,000 $ 3,291,000 $ 3,432,000 $ 3,525,000 $ 3,690,000 Gross Margin 16.6% 19.5% 21.0% 22.9% 22.5% 23.5% REVENUE MODEL Desktops $ 3,460,000 $ 3,226,000 $ 3,174,000 $ 2,896,000 $ 3,346,000 $ 2,983,000 Portables $ 4,540,000 $ 4,693,000 $ 4,690,000 $ 4,556,000 $ 4,601,000 $ 4,632,000 Workstations $ 570,000 $ 585,000 $ 570,000 $ 560,000 $ 550,000 $ 575,000 DT Workstation $ 410,000 $ 420,000 $ 410,000 $ 400,000 $ 390,000 $ 410,000 NB Workstations $ 160,000 $ 165,000 $ 160,000 $ 160,000 $ 160,000 $ 165,000 Servers $ 1,890,000 $ 1,844,000 $ 2,090,000 $ 1,973,000 $ 2,054,000 $ 2,104,000 External Storage $ 624,000 $ 543,000 $ 574,000 $ 481,000 $ 502,000 $ 597,000 Peripheral Products $ 2,535,000 $ 2,579,000 $ 2,651,000 $ 2,567,000 $ 2,569,000 $ 2,661,000 Enhanced Services $ 1,915,000 $ 1,924,000 $ 1,943,000 $ 1,984,000 $ 2,036,000 $ 2,150,000 Total $ 15,534,000 $ 15,394,000 $ 15,692,000 $ 15,017,000 $ 15,658,000 $ 15,702,000 PERCENTAGE OF TOTAL REVENUE Desktops 22.3% 21.0% 20.2% 19.3% 21.4% 19.0% Workstations 3.7% 3.8% 3.6% 3.7% 3.5% 3.7% Portables 29.2% 30.5% 29.9% 30.3% 29.4% 29.5% Servers 12.2% 12.0% 13.3% 13.1% 13.1% 13.4% External Storage 4.0% 3.5% 3.7% 3.2% 3.2% 3.8% Peripheral Products 16.3% 16.8% 16.9% 17.1% 16.4% 16.9% Services 12.3% 12.5% 12.4% 13.2% 13.0% 13.7% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% YEAR-TO-YEAR REVENUE GROWTH Desktops 17.1% 21.5% 3.7% -9.1% -3.3% -13.8% Workstations 15.2% 18.2% 6.5% 0.9% -3.5% 0.9% Portables 20.7% 15.6% 4.2% 3.4% 1.3% 2.0% Servers 34.7% 19.8% 15.9% 10.5% 8.7% 11.3% External Storage 13.2% 6.9% -4.2% -13.2% -19.6% -4.3% Peripheral Products 6.4% 7.7% 7.0% 2.8% 1.3% 5.0% Services 57.2% 54.7% 1.1% 4.9% 6.3% 12.3% Total 21.7% 19.4% 5.3% 1.0% 0.8% 1.1% SOURCE: TBR ESTIMATES AND DELL FINANCIALS27 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 28. Appendix – Financial Models TBR DELL PC & SERVER REVENUE, UNIT, AND ASP MODEL TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. REVENUE (IN $ THOUSANDS) F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Est. REVENUE MODEL 54.8% 57.1% 57.5% 58.9% 56.0% 58.6% Total Desktop $ 3,870,000 $ 3,646,000 $ 3,584,000 $ 3,296,000 $ 3,736,000 $ 3,393,000 Total Portable $ 4,700,000 $ 4,858,000 $ 4,850,000 $ 4,716,000 $ 4,761,000 $ 4,797,000 Desktops $ 3,460,000 $ 3,226,000 $ 3,174,000 $ 2,896,000 $ 3,346,000 $ 2,983,000 Portables $ 4,540,000 $ 4,693,000 $ 4,690,000 $ 4,556,000 $ 4,601,000 $ 4,632,000 Workstations $ 570,000 $ 585,000 $ 570,000 $ 560,000 $ 550,000 $ 575,000 DT Workstations $ 410,000 $ 420,000 $ 410,000 $ 400,000 $ 390,000 $ 410,000 NB Workstations $ 160,000 $ 165,000 $ 160,000 $ 160,000 $ 160,000 $ 165,000 Servers $ 1,894,050 $ 2,077,650 $ 2,090,000 $ 1,973,000 $ 2,054,000 $ 2,104,000 Total $ 10,464,050 $ 10,581,650 $ 10,524,000 $ 9,985,000 $ 10,551,000 $ 10,294,000 UNIT SHIPMENTS (IN THOUSANDS) Total Desktop 5,271 4,651 4,913 4,530 4,997 4,511 Total Portable 5,822 6,024 6,096 5,903 6,051 6,257 Desktops 5,045 4,419 4,688 4,310 4,782 4,301 Portables 5,731 5,931 6,006 5,818 5,961 6,169 Workstations 317 324 315 305 305 298 DT Workstations 226 231 225 220 215 210 NB Workstations 91 93 90 85 90 88 Servers 511 459 498 485 525 491 Total 11,604 10,768 11,507 10,918 11,573 10,856 UNIT SHIPMENT GROWTH YEAR-TO-YEAR Total Desktop 12.0% 13.0% 5.1% -4.2% -5.2% -3.0% Total Portable 20.6% 10.4% 2.0% 3.2% 3.9% 3.9% Desktops 11.8% 12.7% 5.0% -4.5% -5.2% -2.7% Portables 20.3% 10.0% 1.7% 3.0% 4.0% 4.0% Workstations 21.0% 23.8% 13.3% 6.6% -3.8% -8.1% DT Workstations 15.9% 18.7% 7.1% 1.4% -4.9% -9.3% NB Workstations 35.8% 38.7% 32.4% 23.2% -1.1% -5.3% Servers 15.0% 4.0% 6.0% -0.4% 2.7% 7.0% Total 16.3% 7.5% 3.5% -0.1% -0.3% 0.8% PC HARDWARE AVERAGE SALES PRICE Total Desktop $ 734 $ 784 $ 729 $ 728 $ 748 $ 752 Total Notebook $ 807 $ 806 $ 796 $ 799 $ 787 $ 767 Desktops $ 686 $ 730 $ 677 $ 672 $ 700 $ 694 Portables $ 792 $ 791 $ 781 $ 783 $ 772 $ 751 Workstations $ 1,798 $ 1,804 $ 1,810 $ 1,836 $ 1,803 $ 1,930 DT Workstations $ 1,814 $ 1,815 $ 1,822 $ 1,818 $ 1,814 $ 1,952 NB Workstations $ 1,758 $ 1,775 $ 1,778 $ 1,882 $ 1,778 $ 1,875 Servers $ 3,706 $ 4,529 $ 4,200 $ 4,068 $ 3,912 $ 4,287 Dell AUP (w Peripherals/Services) $ 1,339 $ 1,430 $ 1,364 $ 1,375 $ 1,353 $ 1,446 Dell Hardware AUP $ 902 $ 983 $ 915 $ 915 $ 912 $ 948 SOURCE: TBR ESTIMATES AND DELL FINANCIALS28 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 29. Appendix – Financial Models TBR DELL REVENUE BREAKDOWN BY GEOGRAPHY TBR CALENDAR 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. IN $ MILLIONS F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Total Revenue $ 15,534 $ 15,394 $ 15,692 $ 15,017 $ 15,658 $ 15,702 REVENUE BY REGION Americas $ 9,575 $ 9,464 $ 9,227 $ 8,804 $ 9,288 $ 9,264 EMEA $ 3,300 $ 3,245 $ 3,483 $ 3,288 $ 3,333 $ 3,454 APJ $ 2,658 $ 2,686 $ 2,982 $ 2,926 $ 3,037 $ 2,983 AS A PERCENTAGE OF REVENUE Americas 61.6% 61.5% 58.8% 58.6% 59.3% 59.0% EMEA 21.2% 21.1% 22.2% 21.9% 21.3% 22.0% APJ 17.1% 17.4% 19.0% 19.5% 19.4% 19.0% YEAR-TO-YEAR CHANGE Americas 17.0% 18.0% 3.0% -3.0% -3.0% -2.1% EMEA 24.0% 15.0% 3.0% 1.0% 1.0% 6.5% APJ 38.6% 30.7% 16.5% 15.1% 14.2% 11.1% SEQUENTIAL CHANGE Americas 5.5% -1.2% -2.5% -4.6% 5.5% -0.3% EMEA 1.4% -1.7% 7.3% -5.6% 1.4% 3.6% APJ 4.5% 1.0% 11.0% -1.9% 3.8% -1.8% SOURCE: TBR ESTIMATES AND DELL CORP.29 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 30. Appendix – Financial Models TBR DELL INC. OPERATING EXPENSE MODEL (IN $ THOUSANDS) TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Total Revenue $ 15,534,000 $ 15,394,000 $ 15,692,000 $ 15,017,000 $ 15,658,000 $ 15,702,000 SG&A Expense $ 1,679,000 $ 1,816,000 $ 1,977,000 $ 2,025,000 $ 2,174,000 $ 2,151,000 Sales & Marketing Expense $ 1,299,000 $ 1,416,000 $ 1,547,000 $ 1,605,000 $ 1,744,000 $ 1,731,000 General and Administrative Expense $ 380,000 $ 400,000 $ 430,000 $ 420,000 $ 430,000 $ 420,000 R&D Expense $ 162,000 $ 163,000 $ 169,000 $ 195,000 $ 205,000 $ 210,000 Total Operating Expense $ 1,841,000 $ 1,979,000 $ 2,146,000 $ 2,220,000 $ 2,379,000 $ 2,361,000 SALES AND MARKETING EXPENSE BREAKOUT (IN $ THOUSANDS) Sales Expense $ 889,000 $ 996,000 $ 1,117,000 $ 1,175,000 $ 1,309,000 $ 1,282,000 Partner and Channel Spending $ 85,000 $ 90,000 $ 95,000 $ 95,000 $ 95,000 $ 97,000 Marketing Spending $ 325,000 $ 330,000 $ 335,000 $ 335,000 $ 340,000 $ 352,000 Total Sales and Marketing Expense $ 1,299,000 $ 1,416,000 $ 1,547,000 $ 1,605,000 $ 1,744,000 $ 1,731,000 SPENDING AS A PERCENTAGE OF REVENUE Total Operating Expense 11.9% 12.9% 13.7% 14.8% 15.2% 15.0% Total SG&A Expense 10.8% 11.8% 12.6% 13.5% 13.9% 13.7% Sales and Marketing Expense 8.4% 9.2% 9.9% 10.7% 11.1% 11.0% Sales Expense 5.7% 6.5% 7.1% 7.8% 8.4% 8.2% Partner and Channel Spending 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% Marketing Spending 2.1% 2.1% 2.1% 2.2% 2.2% 2.2% General and Administrative 2.4% 2.6% 2.7% 2.8% 2.7% 2.7% CORPORATEWIDE HEADCOUNT Sales 16,525 17,500 17,500 17,500 17,500 17,500 Direct Field Sales 4,025 4,500 4,500 4,500 4,500 4,500 Tele-Sales & Sales Support 12,500 13,000 13,000 13,000 13,000 13,000 Marketing 3,900 3,900 3,900 3,900 3,900 3,900 General and Administrative 8,236 8,300 8,300 8,300 8,300 8,300 Research and Development 4,300 4,500 4,800 4,800 4,800 4,800 Services 46,010 45,000 47,000 47,000 47,000 47,000 Technical Support 20,360 20,260 22,260 22,260 22,260 22,260 Deployment/Testing 4,740 4,740 4,740 4,740 4,740 4,740 Professional Services 20,910 20,000 20,000 20,000 20,000 20,000 Manufacturing/Assembly and Other 17,029 18,800 18,800 21,800 21,800 21,800 Total Employees 96,000 98,000 100,300 103,300 103,300 103,300 SOURCE: TBR ESTIMATES AND DELL FINANCIALS30 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 31. Appendix – Future Outlook Graph TBR TBR 2Q11 CBQ VENDOR POSITION AND PROJECTION: DELL INC. 10.00 9.00 Trailing 12-Month Average Growth for 8.00 RISC/Multi-platform Vendors = 12.1% 2Q11 CBQ Corporate Score 7.00 6.00 5.00 3Q11 Est 4.00 3.00 1Q11 2.00 1.00 0.00 0% 5% 10% 15% Quarterly Revenue Growth Year-to-year SOURCE: TBR AND DELL31 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 32. Appendix – Dell Acquisitions TBRDell AcquisitionsCompany Scope of Acquisition Deal Size In August, Dell closed its acquisition of Force10 Networks, provider of OpenForce10 Networks Cloud Networking high-performance datacenter solutions, to augment its expansive x86 server portfolio and further its solutions capabilities. Dell has UndisclosedAugust 2011 additionally extended its global services reach and capabilities with Force10’s direct sales force and base of channel and SI partners.SecureWorks Dell acquired information security services provider SecureWorks to bolster its portfolio of IT as a Service offerings and drive sales of bundled solutions UndisclosedFebruary 2011 globally.Compellent The acquisition of Compellent will expand Dell’s enterprise storageTechnologies portfolio, better positioning the company to deliver need-based, integrated $820 million solutions; additionally, the nature of Compellent’s portfolio will better alignDecember 2010 Dell for growth in the cloud.Boomi The November 2010 acquisition of Boomi will play an integral part in forming Dell’s cloud offering into a holistic solutions management business, UndisclosedNovember 2010 moving the company beyond hardware. The acquisition of Ocarina Networks will enhance Dell’s solutions portfolioOcarina Networks through the addition of deduplication and compression optimization technology for storage systems. The acquisition will allow Dell to focus on UndisclosedJuly 2010 providing solution efficiency while minimizing operational and data management costs for its customers.32 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 33. Appendix – Dell Acquisitions TBR Dell Acquisitions Company Scope of Acquisition Deal Size Dell has signed a definitive agreement to acquire Scalent, an advanced Scalent software and dynamic infrastructure provider, to integrate into its Advanced Undisclosed July 2010 Infrastructure Management (AIM) solution. The company will leverage Scalent’s easily accessible data integration software to implement on Dell’s storage and network platforms. • The acquisition of appliance solutions provider KACE Networks will expand Dell’s footprint in the public and SMB sectors by strengthening its Undisclosed; Kace Networks TBR estimates System Management portfolio. February 2010 a deal below • The acquisition of KACE and its KBOX appliance solutions will allow Dell to $200 million enhance its bundled services offering. • Dell purchased the assets of Israel-based storage company Exanet in Exanet February. The acquisition will allow Dell to open its first R&D center in $12 million February 2010 Israel and strengthen its presence in the storage market and its product portfolio by utilizing Exanet’s storage technology. • Dell moved to acquire Perot Systems in September 2009 to jump-start its professional services revenue growth. Perot Systems • Perot Systems will become a subsidiary and will be known as “Perot $3.9 billion September 2009 Systems, a Dell company.” • Following the deal, Dell’s combined services revenue will reach nearly $8 billion annually, up from $5 billion.33 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 34. Appendix – Dell Retail Partners TBRDell North America Retail PartnersRetailer RelationshipBest Buy Best Buy began offering Dell consumer PCs, including Dell XPS models, in its 900 stores in the United States in January 2008.Costco U.S.-based big box store Costco began offering Dell PCs in its stores in 1Q08.Walmart Walmart offers Dell PCs in more than 4,000 of its Walmart and Sam’s Club locations in the United States, Argentina, Brazil and Mexico. Staples, which began offering Dell PCs and printers in 1,400 stores in November 2007, is Dell’s exclusiveStaples U.S. retail partner for printers; Staples also offers free recycling of Dell PCs, monitors, printers and peripherals at its store locations.Dell EMEA Retail PartnersCarrefour Group Carrefour began stocking Dell PCs in its stores in France, Belgium and Spain in January 2008.Tesco Dell partnered with Tesco, Britain’s largest retailer, in December 2007 to offer Dell PCs and displays in Tesco stores in the United Kingdom, Ireland, Poland, Czech Republic and Slovakia.DSG International DSGI, best known for its Dixons brand, sells Dell consumer PCs in approximately 1,300 stores in Europe.Dell APAC Retail PartnersBic Camera Bic Camera and its Sofmap subsidiary offer Dell XPS and Inspiron desktops and notebooks to consumers in Japan. Bic Camera operates 22 stores, while its Sofmap subsidiary has 14.Courts LTD Courts, Singapore’s largest seller of electronics, began selling Dell consumer PCs in the fall of 2007.Croma Croma, which operates 21 electronics megastores in India’s largest cities, began offering Dell’s consumer PCs in April 2008.Gome Gome, China’s largest electronics retailer, offers Dell Inspiron and XPS products in about 900 of its stores, including its 50 flagship stores in China’s Tier 1 cities.Officeworks Officeworks offers a broad selection of Dell hardware, ranging from XPS notebooks to printers, ink and displays, throughout its 104 stores across Australia.Suning Suning, a top Chinese electronics retailer, began offering Dell PCs in 300 stores across China in 1Q08.34 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 35. Appendix – Key Alliances TBRKey Dell PartnersCompany Partnership Impact on DellAdvanced PC and server AMD provides Dell an alterative to Intel processors for both consumer andMicro processors, business-oriented PCs, while AMD’s ATI division provides Dell graphics for itsDevices PC graphics desktops and notebooks. • Intel provides processors and chipsets for Dell desktops, notebooks and servers. PC and serverIntel • Dell offers Intel’s processors across all of its business and consumer PC lines as processors well as servers, Precision workstations and Alienware gaming systems. Server-based • Citrix provides Dell with server-based computing environments, consulting operating services and technical support.Citrix systems software, • Citrix is Dell’s primary partner for thin-client deployments. Citrix also provides consulting software to Dell for remote access. • Dell began factory-installing the Ubuntu Linux OS, a free OS sponsored by Canonical, on its consumer PCs in May 2007. Linux operatingCanonical • Ubuntu is an important part of Dell’s emerging market strategy, as many of the system software low-cost PCs it offers in markets such as China come with Linux as the default OS. • Ubuntu Enterprise Cloud runs on Dell servers. The two companies formed a global OEM alliance through which Cyber-Ark’sCyber-Ark OEM partner Privileged Identity Management Suite is bundled with Dell’s PowerEdge R410 andSoftware R610 rack servers.35 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 36. Appendix – Key Alliances TBRKey Dell PartnersCompany Partnership Impact on Dell • Dell and EMC have a close alliance spanning hardware and software. • EMC provides a suite of software tools to manage Dell-EMC CX storage Storage hardware products.EMC and software • Dell also offers EMC’s Legato, VMware and Documentum software. • Compellent Storage solutions have become a part of Dell’s product portfolio. • The PC maker pre-installs Google’s software on its systems and also sells Software and Google’s search appliances, including the Google Mini.Google search technology • Dell also serves as the manufacturer of the Google Search Appliance (GSA) 6.0 for enterprise customers. • Dell partners with McAfee for its antivirus technology.McAfee Antivirus software • The companies’ partnership also spans anti-spyware and home firewall software. • Microsoft provides Dell with a range of software – from Office to Microsoft SQL Software and Server to Exchange, Visio, Project and SharePoint.Microsoft services • Microsoft also provides Dell with PC, server and NAS storage operating systems. PC and NVIDIA provides Dell with a broad range of graphics processors for Dell desktops,NVIDIA workstation notebooks and workstations. graphics hardware36 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 37. Appendix – Key Alliances TBRKey Dell PartnersCompany Partnership Impact on Dell • Dell and Oracle perform joint product development and collaborate on on-site Database, support for customers, including software migration and tuning, under aOracle development and partnership designed to promote Oracle’s 9i, 10g and RAC database solutions. support • Dell also pre-installs Oracle 10g on Dell PowerEdge servers. • Dell and Red Hat have been partners in a development and service and support Linux operating alliance aimed at businesses since 2000.Red Hat system software • Dell pre-installs Red Hat Linux on its workstations and PowerEdge servers. • Dell and SAP jointly market SAP software for Dell PowerEdge servers.SAP ERP software • Dell also collaborates with SAP to offer service and support for joint customers. • Dell and Symantec have a broad partnership under which Dell offers Symantec’s Norton antivirus and anti-spam software, backup and recovery, diskSymantec Antivirus software management and Veritas tape backup software with its hardware. • Dell also has partnered with Symantec’s Altiris to co-develop the Dell Unified Manageability Architecture, a management console for Dell PCs and servers.37 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 38. Appendix – Dell Product Lineup TBRDell’s Product Portfolio: Consumer PCs Dell XPS, Alienware and Adamo desktops and notebooks Full size Starting price range for notebooks: $999 to $1,999 Starting price range for desktops: $549 to $3,499 Dell Studio desktop and notebooks: Model Line Starting price range for notebooks: Thin-light $620 to $950 Starting price range for desktops: $500 to $950 Inspiron desktops and notebooks Starting price range for notebooks: $449 to $549 Starting price range for desktops: Entry-level $279 to $799 Inspiron Mini netbook Starting price range: $279 to $429 Price and Functionality38 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 39. Appendix – Dell Product Lineup TBRDell’s Product Portfolio: Business PCs Performance Latitude XFR notebook Fully rugged notebook Starting price range: $3,704 to $4,832 Precision desktops and notebook workstations Starting price range for desktops: Model Lineup $829 to $2,004 Starting price range for notebooks: Mainstream $1,738 to $3,076 Value/ OptiPlex desktops Latitude E Family notebooks Starting price range for desktops: $542 to $1,019 Starting price range for notebooks: $819 to $2,364 Vostro desktops and notebooks Starting price range for desktops: OptiPlex 160: $200 to $699 Starting price: Entry Starting price range for notebooks: $650 $329 to $738 Price and Functionality39 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • 40. Appendix – Dell Product Lineup TBRDell’s Product Portfolio: Enterprise Servers Blade PowerEdge M Series: Two-way blade servers Starting price range: $2,100 to $5,300 PowerEdge R Series: Rack-mount Model Line Family of 1-way, 2-way and 4-way rack- mount servers Starting price range: $1,800 to $26,300 PowerEdge 1950, 2900, 2950: Family of 2-way rack-mount servers Starting price range: $1,800 to $2,000 PowerEdge T Series Tower Family of tower servers Starting price range: $900 to $7,400 Price and Functionality40 Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
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