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Article by DailyStocks_admin    (12-15-08 07:59 AM)

The Daily Magic Formula Stock for 12/15/2008 is Dell Inc. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General

Dell listens to customers and delivers innovative technology and services they trust and value. As a leading technology company, we offer a broad range of product categories, including desktop PCs, servers and networking products, storage, mobility products, software and peripherals, and services. According to IDC, we are the number one supplier of personal computer systems in the United States, and the number two supplier worldwide.

Our company is a Delaware corporation and was founded in 1984 by Michael Dell on a simple concept: by selling computer systems directly to customers, we can best understand their needs and efficiently provide the most effective computing solutions to meet those needs. Our corporate headquarters are located in Round Rock, Texas, and we conduct operations worldwide through subsidiaries. When we refer to our company and its business in this report, we are referring to the business and activities of our consolidated subsidiaries. We operate principally in one industry, and we manage our business in three geographic regions: the Americas; Europe, Middle East and Africa (“EMEA”); and Asia Pacific-Japan (“APJ”). See “Part I — Item 1 — Business — Geographic Areas of Operations.”

We are committed to managing and operating our business in a responsible and sustainable manner around the globe. This includes our commitment to environmental responsibility in all areas of our business. In June 2007, we announced an ambitious long-term goal to be the “greenest technology company on the planet” and have a number of efforts that take the environment into account at every stage of the product lifecycle. See “Part I — Item 1— Business — Sustainability.” This also includes our focus on maintaining a strong control environment, high ethical standards, and financial reporting integrity. See “Part II — Item 9A — Controls and Procedures.”

Business Strategy

Our core business strategy is built around our direct customer model, relevant technologies and solutions, and highly efficient manufacturing and logistics; and we are expanding that core strategy by adding new distribution channels to reach even more commercial customers and individual consumers around the world. Using this strategy, we strive to provide the best possible customer experience by offering superior value; high-quality, relevant technology; customized systems and services; superior service and support; and differentiated products and services that are easy to buy and use. Historically, our growth has been driven organically from our core businesses. Recently, we have begun to pursue a targeted acquisition strategy designed to augment select areas of our business with more products, services, and technology that our customers value. For example, with our recent acquisition of EqualLogic, Inc., a leading provider of high-performance storage area network solutions, and the subsequent expansion of Dell’s PartnerDirect channel, we are ready to deliver customers an easier and more affordable solution for storing and processing data.

Our core values include the following:


• We simplify information technology for customers. Making quality personal computers, servers, storage, and services affordable is Dell’s legacy. We are focused on making information technology affordable for millions of customers around the world. As a result of our direct relationships with customers, or “customer intimacy”, we are best positioned to simplify how customers implement and maintain information technology and deliver hardware, services, and software solutions tailored for their businesses and homes.

• We offer customers choice. Customers can purchase systems and services from Dell via telephone, at a growing number of retail stores, and through our website, www.dell.com, where they may review, configure, and price systems within our entire product line; order systems online; and track orders from manufacturing through shipping. Customers may offer suggestions for current and future Dell products and services through an interactive portion of our website called Dell IdeaStorm. Commercial customers also can interact with dedicated account teams. We plan to continue to expand our recently launched indirect initiative by adding new distribution channels to reach additional consumers and small businesses through retail partners and value-added resellers globally.

• Customers can purchase custom-built products and custom-tailored services. Historically our flexible, build-to-order manufacturing process enabled us to turn over inventory quickly, thereby reducing inventory levels, and rapidly bring the latest technology to our customers. The global IT industry and our competition have evolved, and we are continuing to expand our utilization of original design manufacturers, manufacturing outsourcing relationships, and new distribution strategies to better meet customer needs and reduce product cycle times. Our goal is to introduce the latest relevant technology more quickly and to rapidly pass on component cost savings to a broader set of our customers worldwide.

• We are committed to being environmentally responsible in all areas of our business. We have built environmental consideration into every stage of the Dell product life cycle — from developing and designing energy-efficient products, to reducing the footprint of our manufacturing and operations, to customer use and product recovery.

Product Development

We focus on developing standards-based technologies that incorporate highly desirable features and capabilities at competitive prices. We employ a collaborative approach to product design and development, where our engineers, with direct customer input, design innovative solutions and work with a global network of technology companies to architect new system designs, influence the direction of future development, and integrate new technologies into our products. Through this collaborative, customer-focused approach, we strive to deliver new and relevant products and services to the market quickly and efficiently. Our research, development, and engineering expenses were $693 million for Fiscal 2008, $498 million for Fiscal 2007, and $458 million for Fiscal 2006, including in-process research and development of $83 million related to acquisitions in Fiscal 2008.

Products and Services

We design, develop, manufacture, market, sell, and support a wide range of products that in many cases are customized to individual customer requirements. Our product categories include desktop PCs, servers and networking products, storage, mobility products, and software and peripherals. In addition, we offer a wide range of services. See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Revenue by Product and Service Categories” and Note 11 of Notes to Consolidated Financial Statements included in “Part II — Item 8 — Financial Statements and Supplementary Data.”


• Desktop PCs — The XPS tm and Alienware lines are targeted at customers seeking the best experiences and designs available, from multimedia capability to the highest gaming performance. The OptiPlex tm line is designed to help business, government, and institutional customers manage their total cost of ownership by offering a portfolio of secure, manageable, and stable lifecycle products. The Inspiron tm line of desktop computers is designed for mainstream PC users requiring the latest features for their productivity and entertainment needs. In July 2007, we introduced the Vostro tm line, which is designed to provide technology and services to suit the specific needs of small businesses.

Dell Precision tm desktop workstations are intended for professional users who demand exceptional performance from hardware platforms optimized and certified to run sophisticated applications, such as those needed for three-dimensional computer-aided design, digital content creation, geographic information systems, computer animation, software development, computer-aided engineering, game development, and financial analysis.

• Servers and Networking — Our standards-based PowerEdge tm line of servers is designed to offer customers affordable performance, reliability, and scalability. Options include high performance rack, blade, and tower servers for enterprise customers and aggressively priced tower servers for small organizations, networks, and remote offices. We also offer customized Dell server solutions for very large data center customers.

Our PowerConnect tm switches connect computers and servers in small-to-medium-sized networks. PowerConnect tm products offer customers enterprise-class features and reliability at a low cost.


• Storage — We offer a comprehensive portfolio of advanced storage solutions, including storage area networks, network-attached storage, direct-attached storage, disk and tape backup systems, and removable disk backup. With our advanced storage solutions for mainstream buyers, we offer customers functionality and value while reducing complexity in the enterprise. Our storage systems are easy to deploy, manage, and maintain. The flexibility and scalability offered by Dell PowerVault tm , Dell EqualLogic, and Dell EMC storage systems helps organizations optimize storage for diverse environments with varied requirements.

• Mobility — The XPS tm and Alienware lines of laptop computers are targeted at customers seeking the best experiences and designs available from sleek, elegant, thin, and light laptops to the highest performance gaming systems. In Fiscal 2008, we introduced the XPS M1330, an innovative mobile platform featuring a 13.3-inch high definition display and ultra-portable form factor that received awards for its unique design. The Inspiron tm line of laptop computers is designed for users seeking the latest technology and high performance in a stylish and affordable package. The Latitude tm line is designed to help business, government, and institutional customers manage their total cost of ownership through managed product lifecycles and the latest offerings in performance, security, and communications. The Vostro tm line, introduced in July 2007, is designed to customize technology, services, and expertise to suit the specific needs of small businesses. The Precision tm line of mobile workstations is intended for professional users who demand exceptional performance to run sophisticated applications.

• Software and Peripherals — We offer Dell-branded printers and displays and a multitude of competitively priced third-party peripheral products, including software titles, printers, televisions, laptop accessories, networking and wireless products, digital cameras, power adapters, scanners, and other products.


– Software. We sell a wide range of third-party software products, including operating systems, business and office applications, anti-virus and related security software, entertainment software, and products in various other categories. We finalized the acquisition of ASAP Software Express Inc., a leading software solutions and licensing services provider, in the fourth quarter of Fiscal 2008. As a result of this acquisition, we now offer products from over 2,000 software publishers.

– Printers. We offer a wide array of Dell-branded printers, ranging from ink-jet all-in-one printers for consumers to large multifunction devices for corporate workgroups. All of our printers feature the Dell Ink and Toner Management System tm , which simplifies the purchasing process for supplies by displaying ink or toner levels on the status window during every print job and proactively prompting users to order replacement cartridges directly from Dell.

– Displays. We offer a broad line of branded and non-branded display products, including flat panel monitors and projectors. In Fiscal 2008, we extended our consumer monitor line-up and introduced new innovations such as “True Life” and integrated camera and microphone into some of our monitors. We added the 1201MP projector to our existing projector portfolio. Across our monitors and projector product lines, we continue to win awards for quality, performance, and value.


• Services — Our global services business offers a broad range of configurable IT services that help commercial customers and channel partners plan, implement and manage IT operations and consumers install, protect, and maintain their PCs and accessories. Our service solutions help customers simplify IT, maximizing the performance, reliability, and cost-effectiveness of IT operations. During Fiscal 2008, we acquired a number of service technologies and capabilities through strategic acquisitions of certain companies. These are being used to build-out our service capabilities.


– Infrastructure Consulting Services. Our consulting services help customers evaluate, design, and implement standards-based IT infrastructures. These customer-oriented consulting services are designed to be focused and efficient, providing customers access to our experience and guidance on how to best architect and operate IT operations.


– Deployment Services. Our deployment services simplify and accelerate the deployment of new systems, PCs, and TV’s in customers’ environments. Our processes and deployment technologies enable customers to get systems up and running quickly and reliably, with minimal end-user disruption.

– Asset Recovery and Recycling Services. We offer a variety of flexible services for the secure and environmentally safe recovery and disposal of owned and leased IT equipment. Various options, including resale, recycling, donation, redeployment, employee purchase, and lease return, help customers retain value while facilitating regulatory compliance and minimizing storage costs.

– Training Services. We help customers develop the skills and knowledge of key technologies and systems needed to increase their productivity. Courses include hardware and software training as well as PC skills and professional development classes available through instructor-led, virtual, or self-directed online courses.

– Support Services. Our suite of scalable support services is designed for IT professionals and end-users whose needs range from basic phone support to rapid response and resolution of complex problems. We offer flexible levels of support that span from desktop and laptop PCs to complex servers and storage systems, helping customers maximize uptime and stay productive. Our support services include warranty services and proactive maintenance offerings to help prevent problems as well as rapid response and resolution of problems. These services are supported by our network of Global Command Centers in the U.S., Ireland, China, Japan, and Malaysia, providing rapid, around-the-clock support for critical commercial systems.

– Managed Services. We offer a full suite of managed service solutions for companies who desire outsourcing of some or all of their IT management. From planning to deployment to ongoing technical support, our managed services are modular in nature so that customers can customize a plan based on their current and future needs. We can manage a portion of their IT tasks or provide an end-to-end solution.

Financial Services

We offer or arrange various customer financial services for our business and consumer customers in the U.S. through Dell Financial Services L.P. (“DFS”), a wholly-owned subsidiary of Dell as of January 2008. DFS was formerly a joint venture between Dell and CIT Group Inc. (“CIT”), and has been included in our consolidated financial statements since the third quarter of Fiscal 2004. On December 31, 2007, we purchased CIT’s remaining 30% interest in DFS, making it a wholly-owned subsidiary. Financing through DFS is one of many sources of funding that our customers may select. For additional information about our financing arrangements, see “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements” and Note 6 of Notes to Consolidated Financial Statements included in “Part II — Item 8 — Financial Statements and Supplementary Data.”

Sales and Marketing

We sell our products and services directly to customers through dedicated sales representatives, telephone-based sales, online at www.dell.com, and through a variety of indirect sales channels. Our customers include large corporate, government, healthcare, and education accounts, as well as small-to-medium businesses and individual consumers. Within each of our geographic regions, we have divided our sales and marketing resources among these various customer groups. No single customer accounted for more than 10% of our consolidated net revenue during any of the last three fiscal years.

Our sales and marketing efforts are organized around the needs, trends, and characteristics of our customers. Our direct business model provides direct and continuous feedback from customers, thereby allowing us to develop and refine our products and marketing programs for specific customer groups. Customers may offer suggestions for current and future Dell products, services, and operations on an interactive portion of our website called Dell IdeaStorm. This constant flow of communication allows us to rapidly gauge customer satisfaction and target new or existing products.

For large business and institutional customers, we maintain a field sales force throughout the world. Dedicated account teams, which include field-based system engineers and consultants, form long-term relationships to provide our largest customers with a single source of assistance and develop specific tailored solutions for these customers. For large, multinational customers, we offer several programs designed to provide single points of contact and accountability with global account specialists, special global pricing, and consistent service and support programs across all global regions. We also maintain specific sales and marketing programs targeted at federal, state, and local governmental agencies, as well as at specific healthcare and educational customers.

We market our products and services to small-to-medium businesses and consumers primarily by advertising on television and the Internet, advertising in a variety of print media, and mailing a broad range of direct marketing publications, such as promotional pieces, catalogs, and customer newsletters.

Our business strategy also includes indirect sales channels. Outside the U.S., we sell products indirectly through selected partners to benefit from the partner’s existing customer relationships and valuable knowledge of traditional customs and logistics in the country, to mitigate credit and country risk, and because sales in some countries may be too small to warrant a direct sales business unit. In the U.S., we sell products indirectly through third-party solution providers, system integrators, and third-party resellers. In Fiscal 2008, we announced PartnerDirect, a global program that brings our existing partner initiatives under one umbrella in the U.S. PartnerDirect includes partner training and certification, deal registration, dedicated sales and customer care, and a dedicated web portal. We intend to expand the program globally. Continuing our strategy and efforts of better meeting customers’ needs and demands, we began offering select products in retail stores in several countries in the Americas, EMEA, and APJ during Fiscal 2008. These actions represent the first steps in our retail strategy, which will allow us to extend our business model to reach customers that we have not been able to reach directly.

Competition

We face intense price and product feature competition from branded and generic competitors when selling our services. In addition to several large branded companies, there are other smaller branded and generic competitors. Historically, we competed primarily based on the customer value that a direct relationship can bring — technology, performance, customer service, quality, and reliability. Our general practice is to rapidly pass on cost declines to our customers to enhance customer value.

As a result of the intensely competitive environment, we lost 1.9 points of share during calendar 2007. We lost share, both in the U.S. and internationally, as our growth did not meet overall personal computer systems growth. This was mainly due to intense competitive pressure in our U.S. Consumer business, particularly in lower priced desktops and notebooks, as well as a slight decline in our worldwide desktop shipments (compared to 5% worldwide industry growth in desktops). At the end of calendar 2007, we remained the number one supplier of personal computer systems in the U.S. and the number two supplier worldwide.

We expect that the competitive pricing environment will continue to be challenging. However, we believe that the strength of our evolving business strategy and indirect distribution channels, as well as our strong liquidity position, makes us well positioned to continue profitable growth over the long term in any business climate. For consumers, we recognize the increasing importance of product “ID”, which is the appearance, ease of use, and ability to interact with peripheral products like cameras and MP3 players, and we are focusing more resources to improve in this area.

In our financial services business we compete with the captive financing businesses of some of our competitors as well as with banks and financial institutions. While DFS is one of the many potential sources for arranging funding that may be available to our customers, we believe that our ability to offer or arrange financing for products, services, and solutions makes us competitive with banks and financial institutions.

Manufacturing and Materials

We manufacture many of the products we sell and have manufacturing locations worldwide to service our global customer base. See “Part I — Item 2 — Properties” for information about our manufacturing locations. We believe that our manufacturing processes and supply-chain management techniques provide us a competitive advantage.

Our manufacturing process consists of assembly, software installation, functional testing, and quality control. Testing and quality control processes are also applied to components, parts, sub-assemblies, and systems obtained from third-party suppliers. Quality control is maintained through the testing of components, subassemblies, and systems at various stages in the manufacturing process. Quality control also includes a burn-in period for completed units after assembly, on-going production reliability audits, failure tracking for early identification of production and component problems, and information from customers obtained through services and support programs. We are certified, worldwide, by the International Standards Organization to the requirements of ISO 9001: 2000. This certification includes our design, manufacture, and service of computer products in all of our locations.

We have relationships with third-party original equipment manufacturers that build some of our products to our specifications. In addition, we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships in order to generate cost efficiencies, deliver products faster, and better serve our customers in certain segments and geographical areas.

We purchase materials, supplies, product components, and products from a large number of vendors. In some cases, multiple sources of supply are not available and we have to rely on single-source vendors. In other cases, we may establish a working relationship with a single source or a limited number of sources if we believe it is advantageous due to performance, quality, support, delivery, capacity, or price considerations. This relationship and dependency has not caused material disruptions in the past, and we believe that any disruptions that may occur because of our dependency on single- or limited-source vendors would not disproportionately disadvantage us relative to our competitors. See “Part I — Item 1A — Risk Factors” for information about the risks associated with single- or limited-sourced suppliers.

Patents, Trademarks, and Licenses

As of February 1, 2008, we held a worldwide portfolio of 1,954 patents and had an additional 2,196 patent applications pending. We also hold licenses to use numerous third party patents. To replace expiring patents, we obtain new patents through our ongoing research and development activities. The inventions claimed in our patents and patent applications cover aspects of our current and possible future computer system products, manufacturing processes, and related technologies. Our product, business method, and manufacturing process patents may establish barriers to entry in many product lines. While we use our patented inventions and also license them to others, we are not substantially dependent on any single patent or group of related patents. We have entered into a variety of intellectual property licensing and cross-licensing agreements. We have also entered into various software licensing agreements with other companies. We anticipate that our worldwide patent portfolio will be of value in negotiating intellectual property rights with others in the industry.

We have obtained U.S. federal trademark registration for the DELL word mark and the Dell logo mark. We own registrations for 66 of our other marks in the U.S. At February 1, 2008, we had pending applications for registration of 47 other trademarks. We believe that establishment of the DELL word mark and logo mark in the U.S. is material to our operations. We have also applied for or obtained registration of the DELL mark and several other marks in approximately 184 other countries.

We have entered into a variety of intellectual property licensing and cross-licensing agreements. We have also entered into various software licensing agreements with a variety of other companies.

From time to time, other companies and individuals assert exclusive patent, copyright, trademark, or other intellectual property rights to technologies or marks that are important to the technology industry or our business. We evaluate each claim relating to our products and, if appropriate, seek a license to use the protected technology. The licensing agreements generally do not require the licensor to assist us in duplicating its patented technology, nor do these agreements protect us from trade secret, copyright, or other violations by us or our suppliers in developing or selling these products.

Employees

At the end of Fiscal 2008, we had approximately 88,200 total employees (consisting of 82,700 regular employees and 5,500 temporary employees), compared to approximately 91,500 total employees (consisting of 83,100 regular employees, 7,200 temporary employees, and 1,200 DFS employees) at the end of Fiscal 2007. In December 2007, we purchased CIT Group Inc.’s 30% interest in DFS. As such, the total of regular employees at February 1, 2008, includes DFS employees. Approximately 29,300 of the regular employees at the end of Fiscal 2008 were located in the U.S., and approximately 53,400 were located in other countries.

In the first quarter of Fiscal 2008, we initiated a comprehensive review of costs across all processes and organizations, from product development and procurement through service and support delivery, with the goal to simplify structure, eliminate redundancies, and better align operating expenses with the current business environment and strategic growth opportunities. As part of this overall effort, we expect to further reduce headcount, exclusive of additions due to acquisitions.

Government Regulation and Environment

Our business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radio frequency emission regulatory activities of the U.S. Federal Communications Commission; the anti-trust regulatory activities of the U.S. Federal Trade Commission, the Department of Justice, and the European Union; the consumer protection laws of the Federal Trade Commission; the export regulatory activities of the U.S. Department of Commerce and the U.S. Department of Treasury; the import regulatory activities of U.S. Customs and Border Protection; the product safety regulatory activities of the U.S. Consumer Product Safety Commission; and environmental regulation by a variety of regulatory authorities in each of the areas in which we conduct business. We are also subject to regulation in other countries where we conduct business. We were not assessed any environmental fines, nor did we have any material environmental remediation or other environmental costs during Fiscal 2008.

Sustainability

Our focus on business efficiencies and customer satisfaction drives our environmental stewardship program in all areas of our business — reducing product energy consumption, reducing or eliminating materials for disposal, prolonging product life spans, and providing effective and convenient equipment recovery solutions. We are committed to becoming the “greenest technology company on the planet”, a long-term initiative we announced in June 2007. This multi-faceted campaign focuses on driving internal business innovations and efficiencies, enhancing customer satisfaction, and partnering with suppliers and people of all ages who care about the environment.

In Fiscal 2008, we announced our commitment to becoming carbon neutral in calendar year 2008. In partnership with The Conservation Fund and Carbonfund.org, we launched the “Plant a Tree for Me” program, which enables customers to offset the electricity required to power their computers. We also extended our commitment to design the most energy efficient products in our industry. Several of our workstations, desktops and laptops met Energy Star 4.0 ahead of a deadline set by the EPA. We are a founding partner of Green Grid, a global consortium dedicated to developing and promoting energy efficiency for data centers and information services.

We are committed to making recycling free and easy, and remain focused on raising consumer awareness about the importance of recycling and increasing the volume of products we recover from consumers. During Fiscal 2007, we voluntarily initiated a no-charge recycling program for our U.S. customers. This recycling offer is designed for consumers and includes responsible recycling of used Dell-branded computers and peripheral equipment at no-charge; this service does not require a replacement purchase. We also help commercial customers responsibly and securely manage the retirement of used information technology through our product recovery services. Since November 2003, we have offered a no-charge recycling program for Dell-branded products in Europe and also currently offer no-charge consumer recycling in Canada. Since 2004, we have offered U.S. consumers no-charge recycling of any brand of used computer or printer with the purchase of a new Dell computer or printer.

Backlog

We believe that backlog is not a meaningful indicator of net revenue that can be expected for any period. There can be no assurance that the backlog at any point in time will translate into net revenue in any subsequent period, as unfilled orders can generally be canceled at any time by the customer. Our business model generally gives us flexibility to manage backlog at any point in time by expediting shipping or prioritizing customer orders toward products that have shorter lead times, thereby reducing backlog and increasing current period revenue. Even though backlog at the end of Fiscal 2008 was considerably higher than at the end of Fiscal 2007 and 2006, it was not material.

CEO BACKGROUND

Donald J. Carty Mr. Carty joined us as Vice Chairman and Chief Financial Officer in January 2007. In that role, he is responsible for all finance functions, including controller, corporate planning, tax, treasury operations, investor relations, corporate development, risk management, and internal audit. He will resign as Vice Chairman and Chief Financial Officer effective June 13, 2008. Mr. Carty has served as a member of our Board of Directors since 1992 and continues to serve in that capacity. Mr. Carty was the Chairman and Chief Executive Officer of AMR Corporation and American Airlines from 1998 until his retirement in 2003. He served in a variety of executive positions with AMR Airline Group and American Airlines from 1978 to 1985 and from 1987 to 1999. Mr. Carty was President and Chief Executive Officer of CP Air in Canada from 1985 to 1987. After his retirement from AMR and American in 2003, Mr. Carty was engaged in numerous business and private investment activities with a variety of companies. Mr. Age: 61 Carty is a graduate of Queen’s University in Kingston, Ontario and of the Harvard Graduate School of Business Administration. He is also a director of CHC Helicopter Corp., Barrick Gold Corporation and Hawaiian Holdings L.L.C.
Director since December 1992
No Board Committees

Michael S. Dell Mr. Dell currently serves as Chairman of the Board of Directors and Chief Executive Officer. He has held the title of Chairman of the Board since he founded the Company in 1984. Mr. Dell served as Chief Executive Officer of Dell from 1984 until July 2004 and resumed that role in January 2007. He serves on the Foundation Board of the World Economic Forum, serves on the executive committee of the International Business Council, and is a member of the U.S. Business Council. He also serves on the U.S. President’s Council of Advisors on Science and Technology and sits on the governing board of the Indian School of Business in Hyderabad, India.
Age: 43
Director since May 1984
No Board committees

William H. Gray, III Mr. Gray is Chairman of the Amani Group (a consulting and advisory firm), a position he has held since August 2004. Mr. Gray was President and Chief Executive Officer of The College Fund/UNCF (educational assistance) from 1991 until he retired in June 2004. He was a member of the United States House of Representatives from 1979 to 1991. During his tenure, he was Chairman of the House Budget Committee, a member of the Appropriations Committee and Chairman of the House Democratic Caucus and Majority Whip. He is an ordained Baptist Minister and last pastored at Bright Hope Baptist Church of Philadelphia from 1972 until 2007. Mr. Gray is also a director of J.P. Morgan Chase & Co., Prudential Financial Inc., Visteon Corporation and Pfizer Inc.
Age: 66
Director since November 2000
Board committees: Governance and
Nominating, Leadership Development and Compensation

Sallie L. Krawcheck Ms. Krawcheck is the Chairman and Chief Executive Officer, Citi Global Wealth Management. From 2002 until March 2007, Ms. Krawcheck served as Chief Financial Officer and Head of Strategy for Citigroup Inc. She is also a member of the Citi Management, Operating and Business Heads Committees. Ms. Krawcheck joined Citi in October 2002 as Chairman and Chief Executive Officer of Smith Barney. Prior to joining Citi, Ms. Krawcheck was Chairman and Chief Executive Officer of Sanford C. Bernstein & Company. She also served as an Executive Vice President of Bernstein’s parent company, Alliance Capital Management, from 1999 to 2001. Ms. Krawcheck is a member of the Board of Directors of the University of North Carolina at Chapel Hill Foundations, Inc., the Board of Directors of Carnegie Hall, the Board of Overseers of Columbia Business School and the Board of Trustees for the Economic Club of New York.
Age: 43
Director since July 2006
Board committees: Finance, Governance and Nominating

Alan (A.G.) Lafley Mr. Lafley is the Chairman of the Board and Chief Executive Officer of The Procter & Gamble Company. Mr. Lafley joined Procter & Gamble in 1977, and has served in a variety of executive level positions since 1992. He was named President and Chief Executive in 2000 and Chairman of the Board in 2002. Mr. Lafley also serves on the Board of General Electric Company, and on the Board of the Cincinnati Center City Development Corporation. He is a Trustee of Hamilton College and is a member of the Business Roundtable and the Business Council.
Age: 60
Director since July 2006
Board committees: Finance, Leadership
Development and Compensation (Chair)

Judy C. Lewent Until September 2007, Ms. Lewent served as the Executive Vice President, Chief Financial Officer of Merck & Co., Inc. She served as Chief Financial Officer of Merck starting in 1990 and also held various other financial and management positions after joining Merck in 1980. Ms. Lewent is also a director of Motorola, Inc. and Thermo Fisher Scientific Inc. Ms. Lewent is a trustee and the chairperson of the audit committee of the Rockefeller Family Trust, a life member of the Massachusetts Institute of Technology Corporation and a member of the American Academy of Arts and Sciences.
Age: 59
Director since May 2001
Board committees: Audit, Finance (Chair),

Thomas W. Luce, III Mr. Luce currently serves as President, Chief Executive Officer, and Director of the National Math and Science Initiative Inc., a not-for-profit organization dedicated to expanding programs that have a proven positive impact on math and science education. He served as United States Assistant Secretary of Education for Planning, Evaluation and Policy Development from July 1, 2005, until his resignation September 1, 2006. From 1997 until 2005, Mr. Luce was a partner of the business advisory firm Luce & Williams, Ltd. Mr. Luce was a founding partner and managing partner of the law firm of Hughes & Luce, LLP from 1973 until his retirement from the firm in 1997, and was Of Counsel with that law firm until December 2003.
Age: 67
Director from November 1991 - September
2005 and September 2006 - present
Board committees: Audit

Klaus S. Luft Mr. Luft is the founder and Chairman of the Supervisory Board of Artedona AG, a privately held mail order e-commerce company established in 1999 and headquartered in Munich, Germany. He is also owner and President of Munich-based MATCH — Market Access Services GmbH & Co., KG. Since August 1990, Mr. Luft has served as Vice Chairman and International Advisor to Goldman Sachs Europe Limited. From March 1986 to November 1989, he was Chief Executive Officer of Nixdorf Computer AG, where he served for more than 17 years in a variety of executive positions in marketing, manufacturing, and finance. Mr. Luft is the Honorary Consul of the Republic of Estonia in the State of Bavaria.
Age: 66
Director since March 1995
Board committees: Audit

Alex J. Mandl Mr. Mandl is currently the non-Executive Chairman of Gemalto, a company resulting from the merger of Axalto Holding N.V. and Gemplus International S.A. From June 2006 until December 2007, Mr. Mandl served as Executive Chairman of Gemalto. Before June 2006, Mr. Mandl was President, Chief Executive Officer and a member of the Board of Directors of Gemplus, positions he held since August 2002. He has served as Principal of ASM Investments, a company focusing on early stage funding in the technology sector, since April 2001. From 1996 to March 2001, Mr. Mandl was Chairman and CEO of Teligent, Inc., which offered business customers an alternative to the Bell Companies for local, long distance and data communication services. Mr. Mandl was AT&T’s President and Chief Operating Officer from 1994 to 1996, and its Executive Vice President and Chief Financial Officer from 1991 to 1993. From 1988 to 1991, Mr. Mandl was Chairman of the Board and Chief Executive Officer of Sea-Land Services Inc. Mr. Man Age: 64 dl is also a board member of Hewitt Associates, Inc., Horizon Lines, Inc. and Visteon Corporation.
Director since November 1997
Board committees: Audit (Chair), Governance
and Nominating

Michael A. Miles Mr. Miles is a special limited partner and a member of the Advisory Board of the investment firm Forstmann Little and Co. He is the former Chairman of the Board and Chief Executive Officer of Philip Morris Companies Inc., having served in those positions from September 1991 to July 1994. Prior to September 1991, Mr. Miles was Vice Chairman and a member of the board of directors of Philip Morris Companies Inc. Mr. Miles is also a director of Time Warner Inc., AMR Corporation and Citadel Broadcasting Corp. and a trustee of Northwestern University.
Age: 68
Director since February 1995
Board committees: Governance and
Nominating (Chair), Leadership Development and Compensation

Sam Nunn Mr. Nunn is Co-Chairman and Chief Executive Officer of the Nuclear Threat Initiative (NTI), a charitable organization working to reduce the global threats from nuclear, biological and chemical weapons. He was a Senior Partner at the law firm of King & Spalding, Atlanta, Georgia, from 1997 until 2003. From 1972 through 1996, he served as a United States Senator from Georgia. During his tenure as Senator, he served as Chairman of the Senate Armed Services Committee and the Permanent Subcommittee on Investigations. He also served on the Intelligence and Small Business Committees. Mr. Nunn also serves as a director of Chevron Corporation, The Coca-Cola Company and General Electric Company.
(Presiding Director)
Age: 69
Director since December 1999
Board committees: Finance, Leadership Development and Compensation


MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Our Company

As a leading technology company, we offer a broad range of product categories, including desktop PCs, servers and networking products, storage, mobility products, software and peripherals, and services. We are the number one supplier of personal computer systems in the United States, and the number two supplier worldwide.

We manufacture many of the products we sell and have manufacturing locations worldwide to service our global customer base. We believe that our manufacturing processes and supply-chain management techniques provide us a competitive advantage. We have relationships with third-party original equipment manufacturers that build some of our products to our specifications. In addition, we are continuing to expand our use of original design manufacturing relationships and manufacturing outsourcing relationships in order to generate cost efficiencies, deliver products faster and better serve our customers in certain segments and geographies.

Our core business strategy is built around our direct customer model, relevant technologies and solutions, and highly efficient manufacturing and logistics; and we are expanding that core strategy by adding new distribution channels to reach even more commercial customers and individual consumers around the world. Using this strategy, we strive to provide the best possible customer experience by offering superior value; high-quality, relevant technology; customized systems and services; superior service and support; and differentiated products and services that are easy to buy and use. Historically, our growth has been driven organically from our core businesses. Recently, we have begun to pursue a targeted acquisition strategy designed to augment select areas of our business with more products, services, and technology that our customers value.

We also offer various financing alternatives, asset management services, and other customer financial services for business and consumer customers. To reach even more customers globally we have launched new distribution channels to reach commercial customers and individual consumers around the world; we sell products indirectly through third-party solution providers, systems integrators, and third-party value-added resellers. In Fiscal 2008, we announced PartnerDirect, a global program that brings our existing partner initiatives under one umbrella in the U.S. PartnerDirect includes partner training and certification, deal registration, dedicated sales and customer care, and a dedicated web portal. We intend to expand the program globally.

We sell our products and services directly to customers and through a variety of indirect sales channels. Continuing our strategy and efforts of better meeting customers’ needs and demands, we began offering select products in retail stores in several countries in the Americas, EMEA, and APJ during Fiscal 2008. These actions represent the first steps in our retail strategy, which will allow us to extend our business model to reach customers that we have not been able to reach directly.

We have always strived to simplify and lower costs for our customers while expanding our business opportunities. To continue to meet this goal, sustain our business strategy, and improve our business, we are focused on improving our current state and reigniting growth. We believe these actions will help position us for sustainable long-term profitable growth.


• Improving our current state — We are focused on eliminating bureaucracy and improving competitiveness by enhancing our productivity and becoming more efficient while strengthening our operating processes and internal controls. Our new and experienced executive leadership team is working together to increase productivity and efficiency across all functions. We are focused on improving product innovation by shortening our product development cycle time and examining our supply chain models. Lastly, we are examining our pricing and margin strategies to improve our profitability.


• Reigniting growth — We are enabling our growth strategy by focusing on five key areas:


– Global Consumer — In Fiscal 2009, our consumer segment will expand beyond the U.S. to include worldwide sales to individual consumers and select retailers as a part of an internal consolidation of our consumer business. The consolidation will improve our global sales execution and coverage through better customer alignment, targeted sales force investments in rapidly growing countries, and improved marketing tools. We are also designing new, innovative products with faster development cycles and competitive features. Lastly, we have rapidly expanded our retail business in order to reach more consumers.

– Enterprise — We are focused on simplifying IT for our customers to allow customers to deploy IT faster, run IT at a total lower cost, and grow IT smarter. As a result of our “simplify IT” focus, we have become the industry leader in server virtualization, power, and cooling performance.

– Notebooks — Our goal is to reclaim notebook leadership by creating the best products while shortening our development cycle and being the most innovative developer of notebooks. To help meet this goal, we have recently separated our consumer and commercial design functions and launched several notebook products. We expect to launch more notebook products in Fiscal 2009.

– Small and Medium Business — We are focused on providing small and medium businesses the simplest and most complete IT solution by extending our channel direct program (PartnerDirect) and expanding our offerings to mid-sized businesses. We are committed to improving our storage products and services as evidenced by our new Building IT-as-a-Service solution, which provides businesses with remote and lifecycle management, e-mail backup, and software license management.

– Emerging countries — As a part of our growth strategy, we are focusing on and investing resources in emerging countries — with an emphasis on Brazil, Russia, India, and China. We are also creating custom products and services to meet the preferences and demands of individual countries and various regions.

We continue to grow our business organically and through strategic acquisitions. During Fiscal 2008, we acquired five companies, among which the two largest were EqualLogic, Inc. (“EqualLogic”) and ASAP Software Express, Inc. (“ASAP”), and we purchased CIT Group Inc.’s (“CIT”) 30% interest in Dell Financial Services, L.P. (“DFS”). We expect to continue to periodically make strategic acquisitions in the future.

Fiscal 2008 Performance


Share position
• We shipped 40 million units for calendar year 2007 according to IDC, resulting in a worldwide PC share position of 14.9%. After leading the worldwide PC market for the past six years, we fell to the second position for calendar year 2007. We lost share, both in the U.S. and internationally, as our growth did not meet the overall PC growth. Our U.S. Consumer segment continued to underperform, which slowed our overall growth in unit shipments, revenue, and profitability. This was mainly due to intense competitive pressure, particularly in the lower priced desktops and notebooks where competitors offered aggressively priced products with better product recognition and more relevant feature sets. A slight decline in our worldwide desktop shipments also was a factor in our losing worldwide PC share position; worldwide desktop shipments grew 5% during calendar year 2007.

Net revenue
• Fiscal 2008 net revenue increased 6% year-over-year to $61.1 billion, with unit shipments up 5% year-over-year, as compared to Fiscal 2007 net revenue which increased 3% year-over-year to $57.4 billion on unit growth of 2% over Fiscal 2006 net revenue of $55.8 billion.

Operating income
• Operating income was $3.4 billion for Fiscal 2008, or 5.6% of net revenue compared to $3.1 billion for Fiscal 2007, or 5.4% of net revenue, and $4.4 billion or 7.9% of net revenue in Fiscal 2006.

Net income
• Net income was $2.9 billion for Fiscal 2008, or 4.8% of net revenue compared to $2.6 billion for Fiscal 2007, or 4.5% of net revenue, and $3.6 billion or 6.5% of net revenue in Fiscal 2006.

Earnings per share
• Earnings per share increased 15% to $1.31 for Fiscal 2008, compared to $1.14 for Fiscal 2007 and $1.47 for Fiscal 2006.



MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

Our Company

As a leading technology company, we offer a broad range of product categories, including desktop PCs, notebooks, software and peripherals, servers and networking products, services, and storage. We are the number one supplier of personal computer systems in the United States, and the number two supplier worldwide.

We have manufacturing locations around the world and relationships with third-party original equipment manufacturers. This structure allows us to optimize our global supply chain to best serve our global customer base. We continue to expand our supply chain which allows us to enhance product design and features, shorten product development cycles, improve logistics, and lower costs, thus improving our competitiveness.

We were founded on the core principle of a direct customer business model which included build to order hardware for consumer and commercial customers. The inherent velocity of this model, which included a highly efficient global supply chain, allowed for low inventory levels and the ability to be the industry leader in selling the most relevant technology, at the best value, to our customers. Our direct relationships with customers also allowed us to bring to market products that featured customer driven innovation, thereby allowing us to be on the forefront of changing user requirements and needs. Over time we have expanded our business model to include a broader portfolio of products, including services, and we have also added new distribution channels, such as consumer retail, system integrators, and value added resellers, which allow us to reach even more end-users around the world. We also offer various financing alternatives, asset management services, and other customer financial services for business and consumer customers. As a part of our overall growth strategy, we have executed targeted acquisitions to augment select areas of our business with more products, services, and technology.

Our new distribution channels include the launch in Fiscal 2008 of our global retail initiative, offering select products in retail stores in the Americas; Europe, Middle East, and Africa (“EMEA”); and Asia Pacific-Japan (“APJ”). In Fiscal 2008, we also launched PartnerDirect, a global program that will bring our existing value-added reseller programs under one umbrella including training, certification, deal registration, focused sales and customer care, and a dedicated web portal.

We continue to simplify technology and lower costs for our customers while expanding our business opportunities. Underpinning these goals is our commitment to achieving world-class competitiveness, low cost and expense, any-to-any supply chain, services and solutions, and sales effectiveness. We are currently focused on five key growth priorities which, when coupled with our core competencies, we believe will drive an optimal balance of long-term sustained growth, profitability, and cash flow:


– Global Consumer — In the first quarter of Fiscal 2009, we realigned our management and reporting structure to focus on worldwide sales to individual consumers and retailers as a part of an internal consolidation of our consumer business. Our global consumer business is comprised of on-line sales, sales over the phone, and sales through our retail channel. The global consolidation of this business will improve our global sales execution and coverage through better customer alignment, targeted sales force investments in rapidly growing countries, and improved marketing tools. We are also designing new, innovative products with faster development cycles and competitive features including the new Studio line of notebooks, which allow consumers greater personalization and self expression. Finally, we have rapidly expanded our retail business in order to reach more consumers.


– Enterprise — In the enterprise, our solution mission is to help companies of all sizes simplify their IT environments. The complete solution includes servers, storage, services, and software. At the core of this simplification problem is complexity in IT architecture and operations developed over decades and ineffective services models that create unnecessary complexity and cost. We are focused on helping customers identify and remove this unnecessary cost and complexity. This year we have strengthened our storage portfolio with expanded EqualLogic solutions, new Power Vault storage products, and fourth generation DellEMC storage systems. We also invested in power and cooling solutions for our data center platforms, including blade servers, and as a result we have become the industry leader in server virtualization, power, and cooling performance.

– Notebooks — Our goal is to reclaim notebook leadership by creating the best products while shortening our development cycle and being the most innovative developer of notebooks. To help meet this goal, we have separated our consumer and commercial design functions to drive greater focus and launched several notebook products. Industry analysts expect the sale of notebook units globally to outpace that of desktops for the first time next year and for that trend to continue into the future. In third quarter of Fiscal 2009, we introduced a new addition to our Dell Inspiron products with our new 3G enabled Inspiron Mini. This year, we also had the largest global product launch in our company’s history with our new E Series commercial Latitude and Dell Precision notebooks. We expect to continue to launch a number of new notebook products throughout the remainder of Fiscal 2009, targeting various price and performance bands.

– Small and Medium Business — We are focused on providing small and medium businesses the simplest and most complete IT solution, customized for their needs, by extending our channel direct program (PartnerDirect) and expanding our offerings to mid-sized businesses. We are committed to improving our storage products and services as evidenced by our new Building IT-as-a-Service solution, which provides businesses with remote and lifecycle management, e-mail backup, and software license management.

– Emerging countries — We are focused on and investing resources in emerging countries with an emphasis on Brazil, Russia, India, and China, where we expect a majority of the worldwide growth to occur in the next four years. We are also creating customized products and services to meet the preferences and demands of individual countries and various regions, including the new Vostro A notebooks and desktops designed specifically for cost sensitive growing businesses in emerging economies.

We continue to invest in initiatives that will align our new and existing products around customers’ needs in order to drive long-term, sustainable growth, profitability, and cash flow. We also continue to grow our business organically and through acquisitions. During the first nine months of Fiscal 2009, we acquired two companies, with the larger being MessageOne, Inc. These acquisitions are targeted to further expand our service capabilities. We expect to make more acquisitions in the future.

Third Quarter Performance

During the third quarter of Fiscal 2009, we faced a challenging IT end-user demand environment as current economic conditions influenced global customer spending behavior. We saw a meaningful decline in global IT end-user demand in September versus August, and this trend continued into October. Given the challenging environment, we focused on profitable growth opportunities, operating expense reductions, and optimizing product costs. In the third quarter, we also realized greater than typical declines in component costs. We believe that global IT industry end-user demand will continue to be challenging, and we will continue to focus on diversifying our revenue and profit base, optimizing our product mix, and aggressively managing our cost structure.


Share position
• We shipped approximately 10.5 million units, resulting in a worldwide PC share position of 14.2%, a decrease of approximately one-half percentage point year-over-year.

Net revenue
• Net revenue decreased 3% year-over-year to $15.2 billion, with unit shipments up 3% year-over-year.
Operating income
• Operating income increased 22% year-over-year to $1.0 billion for the current quarter, or 6.7% of revenue, as compared to $829 million or 5.3% of revenue for the third quarter of Fiscal 2008.

Earnings per share
• Earnings per share increased 9% to $0.37 for the current quarter compared to $0.34 for the third quarter of Fiscal 2008.

Consolidated revenue decreased 3% year-over-year for the third quarter of Fiscal 2009 and increased 6%, year-over-year, for the first nine months of Fiscal 2009. During the third quarter of Fiscal 2009, our global commercial business revenue declined 6% year-over-year on a unit shipment decline of 5% due to the challenging global IT end-user demand environment. Our global consumer business partially offset the declines in our global commercial business by posting year-over-year revenue growth of 10% for the third quarter of Fiscal 2009. For the first nine months of Fiscal 2009, our global commercial business grew 3% year-over-year and our global consumer business grew 19% year-over-year. During the third quarter of Fiscal 2009, we grew revenue in our mobility, software and peripherals, and services product lines as compared to the third quarter of Fiscal 2008. For the first nine months of Fiscal 2009, we grew revenue across all of our product lines with the exception of desktops. Revenue outside the U.S. comprised 48% of consolidated revenue for the third quarter of Fiscal 2009, compared to 46% for the same period last year. Collectively, Brazil, Russia, India, and China (“BRIC”) year-over-year revenue growth was 20% on unit growth of 43% for the third quarter of Fiscal 2009. To continue to capitalize on and increase international growth, we are tailoring solutions to meet specific regional needs, enhancing relationships to provide customer choice and flexibility, and expanding into these and other emerging countries that represent 85% of the world’s population.

The U.S. Dollar strengthened during the third quarter of Fiscal 2009 against most major currencies, especially the Euro and British Pound. In such an environment, foreign denominated revenues and expenses translate to less U.S. Dollars. We manage our business on a U.S. Dollar basis and we have a comprehensive hedging program to substantially mitigate, but not completely eliminate, the impact of currency fluctuations on our financial results. We may periodically adjust local currency product and services pricing in response to currency fluctuations. The impact of the currency movements on our revenue growth in the third quarter of Fiscal 2009 was a benefit of approximately 2% - 3% against the same period of last year.

Operating income increased 22% year-over-year to $1.0 billion from $829 million for the third quarter of Fiscal 2009 as compared to the third quarter of Fiscal 2008. The improvement in operating income was driven by lower component costs, an improved mix of products and services, and lower operating expenses as we began to realize the benefits from our cost-improvement initiatives. Operating expenses declined 11%, reaching its lowest level in the past seven quarters. The increase in profitability as a percentage of revenue was most pronounced in the results of our APJ Commercial and Global Consumer segments. In the third quarter, the Global Consumer segment operating income was 4% of revenue. In the near-term, we expect the operating income percentage for Global Consumer to be in the 1% - 2% range as we balance profitability with growth in our expansion in this strategic market. Net income decreased 5% year-over-year to $727 million during the third quarter of Fiscal 2009. Impacting net income was a decline in investment and other, net and a higher effective income tax rate due to our geographic mix of pre-tax income.

Operating income increased 3% year-over-year to $2.7 billion for the nine months ended October 31, 2008. The increase in operating income was due to reduced operating expenses, component cost declines, and an improved mix of product and services. We continued to carefully manage our operating expenses while continuing to invest in selected strategic areas. In addition, for the first nine months of Fiscal 2009, adjustments to correct items related to prior periods, in the aggregate, increased income before taxes by approximately $110 million. The two largest of these corrections include a reversal of the excess amount of the provision for Fiscal 2008 employee bonuses and foreign exchange rate errors. Correcting these errors increased income before tax by $46 million and $42 million, respectively. We recorded the correction of these errors in the first quarter of Fiscal 2009. For the first nine months of Fiscal 2009, net income decreased 6% year-over-year to $2.1 billion. Net income was impacted by a decline in investment and other, and an increase in our effective tax rate for the first nine months of Fiscal 2009.

Our average selling price (total revenue per unit sold) during the third quarter and first nine months of Fiscal 2009 decreased 6% and 7%, respectively, year-over-year, which primarily resulted from our actions to increase our presence in consumer retail. Our recent market strategy has been to concentrate on solutions sales to drive a more profitable mix of products and services, while pricing our products to remain competitive in the marketplace. In the third quarter and first nine months of Fiscal 2009, we continued to see competitive pressure, particularly for lower priced desktops and notebooks, as we targeted a broader range of products and price bands. We expect that this competitive pricing environment will continue for the foreseeable future.

Revenues by Segment

We conduct operations worldwide. Effective the first quarter of Fiscal 2009, our operating structure consisted of the following four segments: Americas Commercial, EMEA Commercial, APJ Commercial, and Global Consumer. Our commercial business includes sales to corporate, government, healthcare, education, small and medium business customers, and value-added resellers and is managed through the Americas Commercial, EMEA Commercial, and APJ Commercial segments. The Americas Commercial segment, which is based in Round Rock, Texas, encompasses the U.S., Canada, and Latin America. The EMEA Commercial segment, based in Bracknell, England, covers Europe, the Middle East, and Africa; and the APJ Commercial segment, based in Singapore, encompasses the Asian countries of the Pacific Rim as well as Australia, New Zealand, and India. The Global Consumer segment, which is based in Round Rock, Texas, includes global sales and product development for individual consumers and retailers around the world. See Note 12 of Notes to Consolidated Financial Statements included in “Part I — Item 1 — Financial Statements” for additional information about our operating segments.

CONF CALL

Lynn A. Tyson

Thank you. With me today are Chairman and CEO Michael Dell, and Senior Vice President and CFO Brian Gladden. Brian will review our third quarter results and how our business model is positioned to effectively compete in this demand environment. He will also review the progress we’ve made in our initiatives to improve our competitiveness. Michael will follow with his perspectives on how our products and services are well suited to how customers are approaching their IT spending in this environment.

To get additional insights on our results this quarter, please read the Q&A with Michael and Brian that we posted on our Dell Shares blog on Dell.com. Also we’ve expanded the web depth that accompanies this call to capture additional information many of our shareholders have requested. All growth comparisons made on this call are year-over-year unless otherwise stated. Our IR calendar for the balance of the year includes Michael at CSFB on December 2 and [bee logs] covering our global services and consumer businesses.

Finally I’d like to remind you that all statements made during this call that relate to future results and events are forward-looking statements that are based on our current expectations. Actual results could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties which are discussed in our annual and quarterly SEC filings and in the cautionary statement contained in our press release and on our website. With that I’d like to turn it over to Brian.

Brian T. Gladden

Thanks Lynn. We’re pleased with our performance this quarter, especially against the backdrop of slowing global IT demands but we still have more work to do. Our direct model affords us the benefit of reading and reacting to demand signals faster than any company in our industry. As we’ve been indicating throughout this fiscal year, Dell has seen weakening in global IT and user demand and we expect this weaker demand environment to continue for the foreseeable future.

On our second quarter call we said we’d already taken actions to improve profitability in the company and you’re seeing it in our results this quarter. We achieved these results by continuing to improve our mix of products and services while also realizing the benefits of our initiatives to improve our cost structure and competitiveness. Our goal continues to be to drive a balance of liquidity, profitability and growth and optimize cash returns, regardless of the macroeconomic cycle.

So let me turn to the quarter which begins on Page 5 of our web deck. Revenue declined 3% on a 3% increase in units. Operating income reached 6.7% of revenue which helped to drive earnings per share up 9% to $0.37 a share. The improvement in operating income was driven by gross margins of 18.8% which benefited from improved mix, lower component costs and our cause initiatives in the quarter.

Improvement in operating income was also aided by strong, OpEx discipline with OpEx as a percentage of revenue of 12.1%. On a dollar basis this is an 11% decline in OpEx dollars versus last year. We also reduced headcount by another 2,200 sequentially. Our tax rate in the quarter was 28%, slightly higher than second quarter, primarily reflecting a shift in the mix of income to higher tax jurisdictions. We pointed out this dynamic to you in our second quarter earnings as well.

I also want to highlight that in this quarter, we overlapped an 18% tax rate in Q3 of last year. In the quarter on a pretax basis we absorbed $26 million of expense for amortization of purchased intangibles and $17 million in business realignment costs. We also recorded lower bonus expenses in the quarter versus last year, which favorably impacted operating income margin by about 50 basis points sequentially.

Cash flow from operations was a negative $86 million. Simply explained, while our receivables were down in the quarter with lower revenue, our payables were down significantly more as we reduced spending in the second half of the quarter. When our shipments, production and procurement returned to a more typical relationship, we expect a reversal of this cash dynamic. Our cash conversion cycle ended at negative 25 days, a decline of 4 days from our last quarter.

Year-to-date cash flow from operations is $1.2 billion. In the quarter we spent $400 million to buy back roughly 21 million shares. Despite what we believe to be an attractive valuation, we were conservative with our share repurchase this quarter, choosing instead to conserve cash given highly uncertain demand and capital markets. We ended the quarter with $8.9 billion in cash and investments.

Now let me turn to our business segments, which began on Page 8 of the web deck, with additional information in the supplemental section. I spent time with many of you after our second quarter earnings and I realized that we have an opportunity to better differentiate for you the dynamics of our global consumer business versus our global commercial businesses. So let me start with our global commercial business, which on a trailing four quarters basis is about 96% of our profit and 82% of our revenue.

Our customers here are our large commercial public and small and medium businesses. By the end of the second quarter we’d seen a slowdown on most verticals and we drove demand in areas where we had both profit and growth opportunities. As a result, revenue declined 6% on a 5% [audio impairment] decline in units. Operating income margins however [audio impairment] of 130 basis points sequentially to 8.1% of revenue, driven by our decision to protect this profitability as well as favorable OpEx scaling in a slowing demand environment.

Over the last four quarters, our mix of revenue and profit in our commercial business has improved with over a third of our revenues now coming from higher margin products like storage services and software peripherals. Michael will dive a little deeper into our enterprise products.

Notebook units were flat as we transitioned to our new Latitude E Series. Server units declined 4% and storage revenue was flat. Enhanced services revenue which is largely driven by our commercial business was up 7% to $1.4 billion. Looking at the regions, America’s commercial had an 8% decline in revenue on a 14% decline in units as operating income improved both sequentially and year-over-year. This reflects an improved mix of products and services and lower component costs.

EMEA commercial had a 5% decline in revenue on flat unit growth. As we mentioned last quarter, we took actions to improve profitability in Europe and these actions yielded a significant sequential improvement in operating income dollars in the quarter. The majority of this improvement was driven by lower OpEx and a better mix of products and services in the third quarter.

In APJ Commercial, revenue was up 2% on a 15% increase in units, while operating income was up over 60%. Performance was aided by strong double-digit unit growth in emerging countries. We also had great success with the channel business and in penetrating lower tier cities in China by leveraging the recently launched Vostro A Series. This product was specifically designed for emerging countries and now all the commercial products in emerging countries are cost optimized.

Let me turn to the global consumer business, which on a trailing four quarter basis is 4% of our operating income and 18% of our revenue. This business is undergoing a profound transformation. Our over arching goals with global consumer include broadening our product portfolio with a focus on great products that customers get excited about; expanding our points of distribution, including retail; growth in developing markets; an acceleration in our direct business; improving profitability by optimizing product costs; reducing OpEx and increasing the revenue and profit opportunities on each unit that we sell.

And in the quarter, revenue was up 10% on a 32% increase in units or 1.2 times the rate of the consumer industry. This growth was fueled by our continued success in the global retail channel and a more diversified portfolio of leading edge products. Year-to-date we’ve launched an industry leading product like the Inspiron 15-25, the Studio Hybrid Desktop and the Inspiron Mini. All these products have received rave reviews and have been recognized with multiple awards.

Operating income reached $112 million for the global consumer business or 4% of revenue versus a loss in the third quarter of last year. Year-to-date operating income was 1.2% of revenue. The improving in profitability year-over-year was driven by a 24% reduction in OpEx dollars. Sequentially, gross margins improved as roughly half of our volume has gone through a first round of cost optimization activity. And we also benefited from lower product and component costs.

In the near term, as this business continues to expand throughout the full spectrum of growth, I think operating income margins will be in the 1 to 2% range. With all the initiatives we have underway, we’re confident that over time we can improve margins even further for the global consumer business.

Before I turn to the outlook, let me touch on our cost initiatives, our commitment to our financing business and our overall liquidity. We continue to make significant progress against our cost initiatives, which benefit both the cogs and the OpEx line. As mentioned earlier, and we go into more detail on Pages 11 and 12 of our web deck, a larger portion of our total unit volume is now cost optimized which, depending upon the platform, can yield up to 30% reduction in the product cost.

OpEx in the quarter was down over $200 million versus the third quarter of last year and since the second quarter of last year our headcount is down by close to 11,600 heads net of acquisitions. And as we expand our global manufacturing and logistics footprint, we now have about a quarter of our transactional products going through contract manufacturers. This accomplishment positions us well to rapidly adjust our cost structure in an environment of slowing demand.

As we announced in September, after a strategic assessment we decided to keep Dell Financial Services. DFS is a strategic asset for Dell and drives incremental sales in margin and it’s profitable for us in the current environment and credit cycle. We will continue to effectively manage credit and funding risks in the DFS business. While DFS credit losses have increased as the environment has become more challenging, we continue to believe we’re adequately reserved. We tightened credit requirements five times over the last 18 months and we’re confident in our ability to fund new businesses and secure [cash] receivables.

Established securitizations remain liquid, although as would be expected deal costs have increased. As the credit market stabilizes, we’ll work to identify and execute cost effective funding strategies that will have a minimal impact on our corporate debt capacity.

Turning to liquidity on Page 16 and 17 of the deck, we’re comfortable with where we’re positioned and we’re not constrained. We have access to traditional short term and long term funding vehicles. We have an established commercial paper capacity of $1.5 billion with $250 million outstanding at the end of the quarter. And we issued $1.5 billion of long term debt in the first quarter of this year.

We filed a new debt shelf registration earlier this month which we can use for future debt issuances on an as needed basis as spreads come in and as capital market conditions improve. Before I turn it over to Michael, let me leave you with some key points on the quarter and our view of what we’re seeing in the industry.

Our direct model’s uniquely positioned to give us demand trends early, which allows us to adjust rapidly. And in Q3 we adjusted to the realities of the current industry dynamics. In a challenging demand environment, we focused on growth opportunities with a bias towards protecting profitability while improving our mix of products and services. This will continue, although there will be product segments and countries where we selectively choose to grow at a multiple of the industry.

Our initiatives to improve competitiveness and reduce costs are bearing fruit, as are the investments we’ve made to broaden our product portfolio in both our consumer and commercial businesses. In a softening demand environment, component cost declines typically accelerate and companies with superior asset velocities are able to take advantage of these improvements faster than others.

We believe global industry demand will continue to be challenging and we’ll work rigorously to scale our costs accordingly. We’ll continue to incur costs as we realign our business and improve our competitiveness, reduce headcount in certain areas and invest in infrastructure and acquisitions. In summary, we’ll continue to diversify our revenue base and products and aggressively drive our cost reduction initiatives which over time will yield improved liquidity, improved profitability and growth. With that, I’ll turn it over to Michael.

Michael S. Dell

Thank you Brian. We have been involved in a significant transformation here at Dell over the past 18 months. In April we outlined for you our five growth initiatives of consumer, enterprise, notebooks, S&V and emerging countries. In addition, we discussed our plans to improve our competitiveness. And we’ve made significant progress along those initiatives. We’ve identified and are aggressively taking down our cost structure by about $3 billion to regain cost leadership.

We’re well into transitioning to a higher mix of contract manufacturing to drive competitiveness, we’ve reduced our G&A substantially; our OpEx is now down by over $200 million in the third quarter versus the same quarter last year; we’ve revamped our entire product line in every category; and we’ve regained feature design leadership in many segments. So there’s been a great deal of progress. There is much to do but these are important foundations that position us to be a stronger and more nimble company.

This is a more challenging IT spending environment and there are three things you need to think about when considering Dell. First is that we are focused on expense management and regaining our cost leadership. Clearly there was progress in the quarter on G&A and cause consistent with the plan we outlined. And we’re on a path that will yield significantly increased cost savings; and an advantage cost structure in our direct business, which is roughly 75% of revenues; and a competitive cost structure in our channel business.

This will give us the ability to deliver not only more value for our customers but increase profitability. Second, our focus is on expanding our presence in the enterprise. Customers are looking for great technology to drive IT productivity and simplification, and they want it to be cost effective. This [absolutely] plays to Dell’s strengths and we can help them here. Virtualization, particularly in servers and storage, are key technologies that we’re embracing to drive this. So we’re taking a number of actions to address these needs.

First, we’re expanding our server coverage up to 95% of the market opportunities next year. We’ve also introduced the fourth generation of our Dell EMC Storage systems. We’ve expanded our ecologic solutions, introduced a new Power [Volt] product lines, all placing us in Gartner's leaders' quadrant for enterprise storage arrays. We’re significantly growing our virtualization solutions to help customers improve the ability to deploy and manage these solutions.

We’ve been a leader in power and cooling solutions with very efficient blades and two and four socket blade products that are 25% better in performance for watt than competitors. And we’ve expanded our data center custom solutions business with customers like Facebook, Microsoft, Amazon, Akamai and Baidu.

And finally, we’ve been growing our services activity. With remote infrastructure management we have an opportunity to go after the $2 that is tacked onto the every $1 that is spent in hardware. Now and this is really a major customer pain point in the roughly $1.2 trillion IT industry. So third for us in consumer business, clearly we’re making some progress. New products, we’ve got better cost, as we continue to make progress here those cost improvements will begin to show up in our emerging country business and our small medium business.

The consumer business had operating income of 1.7% so far this year, while units grew twice the industry and share was up 140 basis points. In the BRIC countries we grew 20% versus last year and BRIC is now 9.4% of revenues. So why don’t I stop there and we’ll open it up for questions.



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