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Article by DailyStocks_admin    (07-02-08 10:02 AM)

Dell Inc. CEO MICHAEL S DELL bought 4503600 shares on 7-1-2008 at $22.14

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.

CEO BACKGROUND

• 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.

• 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. 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. Prior to that, 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 engaged in numerous business and private investment activities with a variety of companies. Mr. 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. and Barrick Gold Corporation and serves as Chairman of the Board of Virgin America Airlines.

• Bradley R. Anderson — Mr. Anderson joined us in July 2005 and serves as Senior Vice President, Business Product Group. In this role, he is responsible for worldwide engineering, design, development, and marketing of our enterprise products, including servers, networking, and storage systems. Prior to joining Dell, Mr. Anderson was Senior Vice President and General Manager of the Industry Standard Servers business at Hewlett-Packard Company (“HP”), where he was responsible for HP’s server solutions. Previously, he was Vice President of Server, Storage, and Infrastructure for HP, where he led the team responsible for server, storage, peripheral, and infrastructure products. Before joining HP in 1996, Mr. Anderson held top management positions at Cray Research in executive staff, field marketing, sales, finance, and corporate marketing. Mr. Anderson earned a bachelor of science in Petroleum Engineering from Texas A&M University and a Master of Business Administration from Harvard University. He serves on the Texas A&M Look College of Engineering Advisory Council.


• Paul D. Bell — Mr. Bell has been with us since 1996 and has served as Senior Vice President and President, Americas since March 2007. In this role, Mr. Bell is responsible for all sales and customer support operations across the Americas region other than our consumer business. From February 2000 until March 2007, Mr. Bell served as Senior Vice President and President, Europe, Middle East, and Africa. Prior to this, Mr. Bell served as Senior Vice President, Home and Small Business. Prior to joining Dell in July 1996, Mr. Bell was a management consultant with Bain & Company for six years, including two years as a consultant on our account. Mr. Bell received bachelor’s degrees in Fine Arts and Business Administration from Pennsylvania State University and a Master of Business Administration degree from the Yale School of Organization and Management.

• Michael R. Cannon — Mr. Cannon joined us in February 2007 as President, Global Operations. In this role, he is responsible for our manufacturing, procurement, supply chain, and facilities activities worldwide. Prior to joining Dell, Mr. Cannon was President, Chief Executive Officer, and a director of Solectron Corporation from January 2003 to February 2007, and President, Chief Executive Officer, and a director of Maxtor Corporation (now a part of Seagate Technology) from July 1996 to January 2003. Mr. Cannon has also worked at IBM’s Storage Systems Division. He began his career in engineering at The Boeing Company, where he held a management position with the Manufacturing Research and Development organization. Mr. Cannon studied mechanical engineering at Michigan State University and completed Harvard Business School’s Advanced Management Program. He currently serves on the board of Adobe Systems.

• Jeffrey W. Clarke — Mr. Clarke has served as Senior Vice President, Business Product Group since January 2003. In this role, he is responsible for worldwide engineering, design, development, and marketing of our business client products, including Dell OptiPlex tm desktops, Latitude tm notebooks, Precision tm workstations, and Vostro tm desktops and notebooks. Mr. Clarke joined Dell in 1987 as a quality engineer and has served in a variety of engineering and management roles. In 1995 Mr. Clarke became the director of desktop development, and from November 2001 to January 2003 he served as Vice President and General Manager, Relationship Product Group. Mr. Clarke received a bachelor’s degree in Electrical Engineering from the University of Texas at San Antonio.

• Andrew C. Esparza — Mr. Esparza joined us in 1997 as a director of Human Resources in the Product Group. He was named Senior Vice President, Human Resources in March 2007 and was named an executive officer in September 2007. In this role, he is responsible for driving the strategy and supporting initiatives to attract, motivate, develop, and retain world-class talent in support of our business goals and objectives. He also has responsibility for corporate security and corporate responsibility on a worldwide basis. He currently is an executive sponsor for aDellante, our internal networking group responsible for the development of Hispanic employees within the company. Prior to joining Dell, he held human resource positions with NCR Corporation from 1985 until 1997 and Bechtel Power Corporation from 1981 until 1985. Mr. Esparza earned a bachelor’s degree in business administration with a concentration in human resource management from San Diego State University.

• Stephen J. Felice — Mr. Felice serves as Senior Vice President and President, Asia Pacific-Japan. He was named Senior Vice President in March 2007, after having served as Vice President, Asia Pacific-Japan since August 2005. Mr. Felice leads our operations throughout the APJ region, including sales and customer service centers in Penang, Malaysia, and Xiamen, China. Mr. Felice joined us in February 1999 and has held various executive roles in our sales and consulting services organizations. From February 2002 until July 2005, Mr. Felice was Vice President, Corporate Business Group, Dell Americas. Prior to joining Dell, Mr. Felice served as Chief Executive Officer and President of DecisionOne Corp. Mr. Felice also served as Vice President, Planning and Development, with Bell Atlantic Customer Services. He spent five years with Shell Oil in Houston. Mr. Felice holds a bachelor’s degree in business administration from the University of Iowa and a Master of Business Administration degree from the University of Houston.

• Ronald G. Garriques — Mr. Garriques joined us in February 2007 as President, Global Consumer Group. In this role he is responsible for all aspects of our consumer business, including sales, marketing, and product design.

Before joining Dell, Mr. Garriques served in various leadership roles at Motorola from February 2001 to February 2007, where he was most recently Executive Vice President and President, responsible for the Mobile Devices division. He was also Senior Vice President and General Manager of the Europe, Middle East, and Africa region for the Personal Communications Services division, and Senior Vice President and General Manager of Worldwide Products Line Management for the Personal Communications Services division. Prior to joining Motorola, Mr. Garriques held management positions at AT&T Network Systems, Lucent Technologies, and Philips Consumer Communications. Mr. Garriques holds a master’s degree in business administration from The Wharton School at the University of Pennsylvania, a master’s degree in mechanical engineering from Stanford University, and a bachelor’s degree in mechanical engineering from Boston University.


• Mark Jarvis — Mr. Jarvis joined us in October 2007 as Senior Vice President, Chief Marketing Officer. He is responsible for our global marketing efforts, spanning the consumer and commercial businesses, and including global brand, online, and communications. From April 2007 until October 2007, Mr. Jarvis served as a consultant to Dell in the Chief Marketing Officer role. Prior to joining Dell, Mr. Jarvis spent 14 years at Oracle, where he launched numerous products and drove highly innovative marketing programs, including Oracle’s E-Business Network and Oracle Technology Network, and also managed Oracle’s showcase OpenWorld Conference.

• David A. Marmonti — Mr. Marmonti serves as Senior Vice President and President, Europe, Middle East, and Africa, having been appointed to that position in March 2007. In this role, he is responsible for all business operations across the EMEA region, including sales and customer call centers in the region. Mr. Marmonti joined us in 1998 and has held a variety of roles, including Vice President and General Manager of our Public Business Group; Vice President and General Manager of our Mid-Markets and Preferred Corporate Accounts segments; Vice President and General Manager of our EMEA Home and Small Business division; Vice President of Marketing & e-business for the U.S. Consumer segment; and Director and General Manager of the U.S. Asset Recovery Business. Prior to joining Dell, Mr. Marmonti spent 16 years at AT&T in a variety of senior roles, including executive positions in sales and marketing, serving corporate customers. Mr. Marmonti holds a bachelor’s degree in business administration and marketing from the University of Missouri at St. Louis.

• Stephen F. Schuckenbrock — Mr. Schuckenbrock joined us in January 2007 as Senior Vice President and President, Global Services. In September 2007, he assumed the additional role of Chief Information Officer. He is responsible for all aspects of our services business, with worldwide responsibility for Dell enterprise service offerings, and is also responsible for our global information systems and technology structure. Prior to joining us, Mr. Schuckenbrock served as Co-Chief Operating Officer and Executive Vice President of Global Sales and Services for Electronic Data Systems Corporation (“EDS”). Before joining EDS in 2003, he was Chief Operating Officer of The Feld Group, an information technology consulting organization. Mr. Schuckenbrock served as Global Chief Information Officer for PepsiCo from 1998 to 2000. Mr. Schuckenbrock earned a bachelor’s degree in business administration from Elon University.

• Lawrence P. Tu — Mr. Tu joined us as Senior Vice President, General Counsel and Secretary in July 2004, and is responsible for overseeing Dell’s global legal department and governmental affairs. Before joining Dell, Mr. Tu served as Executive Vice President and General Counsel at NBC Universal for three years. Prior to his position at NBC, he was a partner with the law firm of O’Melveny & Myers LLP, where he focused on high technology, internet, and media related transactions. He also served five years as managing partner of the firm’s Hong Kong office. Mr. Tu’s prior experience also includes serving as General Counsel Asia-Pacific for Goldman Sachs, attorney for the U.S. State Department, and law clerk for U.S. Supreme Court Justice Thurgood Marshall. Mr. Tu holds Juris Doctor and bachelor of arts degrees from Harvard University, as well as a master’s degree from Oxford University, where he was a Rhodes Scholar.

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.

Results of Operations

Consolidated Operations

Fiscal 2008 revenue increased 6% year-over-year to $61.1 billion, with unit shipments up 5% year-over-year. Revenue grew across all regions: Asia Pacific-Japan (“APJ”) grew 15%; Europe, Middle East, and Africa (“EMEA”) increased 12%; and the Americas grew 3%. Revenue outside the U.S. represented approximately 47% of Fiscal 2008 net revenue, compared to approximately 44% in the prior year. Outside the U.S., we produced 14% year-over-year revenue growth for Fiscal 2008; however, our unit growth was below the overall unit growth rate of the international PC market. During Fiscal 2008, the U.S. dollar weakened relative to the other principal currencies in which we transact business; however, as a result of our hedging activities, foreign currency fluctuations did not have a significant impact on our consolidated results of operations. Combined Brazil, Russia, India, and China (“BRIC”) revenue growth during Fiscal 2008 was 27%. 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. Within the Americas, Americas Business revenue grew by 6% and U.S. Consumer revenue declined by 12% during Fiscal 2008. Worldwide, all product categories grew revenue over the prior year other than desktop PCs, which declined 1% as consumers continue to migrate to mobility products. Desktop PC revenue in the Americas and EMEA regions declined 4% and 3% year-over-year, respectively, as opposed to desktop PC revenue in APJ, which increased 12%.

Fiscal 2007 revenue increased 3% year-over-year to $57.4 billion, with unit shipments up 2% year-over-year. Revenue grew across the EMEA and APJ regions by 6% and 12%, respectively, while the Americas region revenue remained flat year-over-year. Revenue outside the U.S. represented approximately 44% of Fiscal 2007 net revenue, compared to approximately 41% in the prior year. Outside the U.S., we produced 10% year-over-year revenue growth for Fiscal 2007. During Fiscal 2007, Americas Business revenue grew by 3% and U.S. Consumer revenue declined by 11%. All product categories grew revenue over the prior year periods, other than desktop PCs. Desktop PC revenue in the Americas and EMEA regions declined 12% and 6% year-over-year, respectively. We believe that this decline in desktop PC revenue reflected an industry-wide shift to mobility products. Our growth underperformed the industry’s growth in Fiscal 2007, particularly in our U.S. Consumer segment, as we were out of product feature set and price position.

Operating income and net income increased 12% and 14% year-over-year to $3.4 billion and $2.9 billion, respectively, for Fiscal 2008. The increased profitability was mainly a result of strength in mobility, solid demand for enterprise products, and a favorable component-cost environment. In Fiscal 2007 and Fiscal 2006, operating and net income were $3.1 billion and $2.6 billion, and $4.4 billion and $3.6 billion, respectively. Net income for Fiscal 2006 includes an income tax repatriation benefit of $85 million pursuant to a favorable tax incentive provided by the American Jobs Creation Act of 2004. This tax benefit is related to the Fiscal 2006 repatriation of $4.1 billion in foreign earnings.

Our average selling price (total revenue per unit sold) in Fiscal 2008 increased 2% year-over-year, which primarily resulted from our pricing strategy, compared to a 1% year-over-year increase for Fiscal 2007. Our recent pricing strategy has been to concentrate on solutions sales, realign pricing, and drive a better mix of products and services, while aggressively pricing our products to remain competitive in the marketplace. In Fiscal 2008, we continued to see intense competitive pressure, particularly for lower priced desktops and notebooks, as competitors offered aggressively priced products with better product recognition and more relevant feature sets. As a result, particularly in the U.S., we lost share in the U.S. consumer segment in notebooks and desktops, which slowed our overall growth in unit shipments, revenue, and profitability. We expect that this competitive pricing environment will continue for the foreseeable future.

Revenues by Segment

We conduct operations worldwide and manage our business in three geographic regions: the Americas, EMEA, and APJ. The Americas region covers the U.S., Canada, and Latin America. Within the Americas, we are further segmented into Business and U.S. Consumer. The Americas Business (“Business”) segment includes sales to corporate, government, healthcare, small and medium business, and education customers, while the U.S. Consumer segment includes sales primarily to individual consumers and selected retailers within the U.S. We have developed and started implementing a plan to combine the consumer business of both EMEA and APJ with the U.S. Consumer business and re-align our management and financial reporting structure. We will begin reporting worldwide Consumer once we complete the global consolidation of this business, which we expect to be the first quarter of Fiscal 2009. The changes have had no impact on our operating segment structure to date. The EMEA region covers Europe, the Middle East, and Africa. The APJ region covers the Asian countries of the Pacific Rim as well as Australia, New Zealand, and India.

During the second half of Fiscal 2008, we began selling desktop and notebook computers, printers, ink, and toner through retail channels in the Americas, EMEA, and APJ in order to expand our customer base. Our goal is to have strategic relationships with a number of major retailers in our larger geographic regions. In the U.S., we currently have relationships with retailers such as Staples, Wal-Mart, and Best Buy; and in Latin America, we have relationships with retailers, including Wal-Mart and Pontofrio. Additionally, some of our relationships include Carphone Warehouse, Carrefour, Tesco, and DSGi in EMEA; and in APJ, we are working with retailers such as Gome, HiMart, Courts, and Bic Camera.

• Americas — Americas Business represented the majority of our absolute dollar revenue growth in both Fiscal 2008 and Fiscal 2007. During Fiscal 2008, Americas revenues increased 3% year-over-year representing 61.1% of our total net sales as compared to 63.4% in Fiscal 2007. Revenue from sales of software and peripherals and mobility products led the region’s growth during Fiscal 2008. The overall increase in net sales was partially offset by a decline in net sales of desktops. Revenue from the sale of mobility products led the region’s growth and grew by single digits in both Americas Business and U.S. Consumer in Fiscal 2007. However, this growth was also offset by the continuing trend of declines in desktop PC sales as wireless capabilities, falling prices, and a growing need for mobility have increased the preference and demand for notebooks.


– Business — Americas Business grew revenue as well as units by 6% in Fiscal 2008, compared to 3% revenue growth on flat unit growth in Fiscal 2007. The increase in revenue in Fiscal 2008 resulted primarily from the sale of mobility products, which grew 11% in Fiscal 2008 compared to Fiscal 2007. The unit volume increases resulted from strong growth in laptops. Americas International, which includes countries in North America and Latin America other than the U.S., drove the majority of the increase in revenue in the Americas in both years. Americas International produced revenue growth of 17% year-over-year for Fiscal 2008 as compared to 19% revenue growth year-over-year in Fiscal 2007. In Fiscal 2007, the slow down of net revenue growth was due to desktop weakness, lower demand, and a significant decline in our Public business.


– U.S. Consumer — U.S. Consumer revenue and unit volume decreased 12% and 20%, respectively, in Fiscal 2008, compared to revenue and unit decreases of 11% and 14%, respectively, in Fiscal 2007. U.S. Consumer revenue declined as compared to Fiscal 2007 primarily due to a 19% and 29% decline in desktop revenue and unit volume, respectively. In Fiscal 2008, this segment’s average selling price increased 10% year-over-year compared to a 3% year-over-year increase from a year ago, mainly due to realigning prices and selling a more profitable product mix. We continue to see a shift to mobility products in U.S. Consumer and our other segments as notebooks become more affordable. In response to this environment, we have updated our business model for U.S. Consumer and have entered into a limited number of retail distribution arrangements to complement and extend the existing direct business. In the fourth quarter of Fiscal 2008, the U.S. Consumer business began to improve and posted revenue growth of 12% over the fourth quarter of Fiscal 2007, which reflects changes we have made to the business to reignite growth, including introducing four notebook families for consumers in six months. In Fiscal 2009, we expect to continue to expand our product offerings by launching 50% more new notebooks than in Fiscal 2008. U.S. Consumer revenue and unit volume decreased 11% and 14%, respectively, in Fiscal 2007 compared to revenue growth of 5% on unit growth of 9% in Fiscal 2006. U.S. Consumer revenue growth slowed as compared to Fiscal 2006 primarily due to a 25% decline in both desktop revenue and unit volume.


• EMEA — During Fiscal 2008, EMEA represented 25% of our total consolidated net revenue as compared to 24% in Fiscal 2007. EMEA had 12% year-over-year net revenue growth as a result of unit shipment growth of 7%. Average price per unit increased 4%, which reflects the mix of products sold and a benefit from the strengthening of the Euro and British Pound against the U.S. dollar during Fiscal 2008, offset by our pricing strategy. The revenue growth was primarily a result of higher demand for mobility products, represented by a 20% increase in revenue on a unit shipment increase of 24%. Growth in services revenue also contributed to EMEA’s strong Fiscal 2008 performance as EMEA’s services revenue grew 30% year-over-year. These increases were partially offset by a 3% decrease in desktop sales. At a country level, Poland, Austria, Greece, France, and Germany experienced strong growth in Fiscal 2008. We recently reorganized our EMEA operations to focus our sales teams on specific customer types, as opposed to our previous country focus, to reignite growth and provide more consistent offerings to our customers.

In Fiscal 2007, the segment’s performance was largely attributed to growth in mobility products, where year-over-year unit volumes and revenue grew 29% and 15%, respectively, compared to 49% and 23%, respectively, in Fiscal 2006. This growth occurred primarily in France and Germany in Fiscal 2007, with Germany leading the region’s progress. The United Kingdom experienced weak demand in its consumer business, resulting in a 2% year-over-year decline in revenue for Fiscal 2007. With the exception of desktop PCs, all product categories in this region experienced growth for Fiscal 2007 compared to Fiscal 2006, with mobility, storage, and services revenues posting strong gains.


• Asia Pacific-Japan — During Fiscal 2008, APJ’s revenue continued to improve, with 15% revenue growth year-over-year. Consistent with the EMEA segment, these increases were mainly a result of strong growth in mobility. Sales of mobility products increased 33% year-over-year and unit volume increased 32% in Fiscal 2008. Sales of mobility products grew due to a shift in customer preference from desktops to notebooks as well as the strong reception of our Inspiron tm and Vostro tm notebooks. APJ also reported 20% growth in servers and networking revenue on unit growth of 5% primarily due to our focus on delivering greater value within customer data centers with our rack optimized server platforms, whose average selling prices are higher than our tower servers. These increases were partially offset by a 10% decrease in services revenue. From a country perspective, India, Thailand, Taiwan, Malaysia, and China experienced significant revenue growth during Fiscal 2008. Significant growth in India and China during Fiscal 2008 contributed to a revenue growth rate of approximately 27% for our targeted BRIC countries.

In Fiscal 2007, APJ reported 12% revenue growth on 20% unit growth. The region was led by 26% year-over-year revenue growth in China during Fiscal 2007. Fiscal 2007’s improved performance was partially offset by Japan’s results, which saw revenue decline of 5% year-over-year. In Fiscal 2007, India, South Korea, Singapore, and Malaysia produced significant year-over-year revenue growth at a higher rate than the overall region. All product categories in this region experienced revenue growth during Fiscal 2007 with mobility leading the growth with a revenue increase of 12% on unit growth of 31% during Fiscal 2007. Also driving this growth were increases in services, software and peripherals, and storage.

For additional information regarding our reportable segments, see Note 11 of Notes to Consolidated Financial Statements included in “Part II — Item 8 — Financial Statements and Supplementary Data.”

• Desktop PCs — During Fiscal 2008, revenue from desktop PCs (which includes desktop computer systems and workstations) decreased slightly from Fiscal 2007 revenue on a unit decline of 2% even though worldwide industry unit sales grew 5% during calendar 2007. The decline was primarily due to us being out of product feature and price position and consumers’ migration to mobility products. Our U.S. Consumer segment continued to perform below expectation in Fiscal 2008 with a 19% decrease in desktop revenue year-over-year; however, in the fourth quarter of Fiscal 2008, desktop revenues for U.S. Consumers grew 5% over the fourth quarter of Fiscal 2007. U.S. Consumer was the primary contributor to our worldwide full year decline in desktop revenue with EMEA also contributing to the decline with a 3% decrease in revenue during Fiscal 2008 as compared to Fiscal 2007. The decline in revenue in our U.S. Consumer and EMEA segments was offset by a strong performance in APJ, where desktop sales increased 12% during Fiscal 2008 over prior year, while desktop sales in our Americas Business segment remained relatively flat during the same time period. We will likely see rising user demand for mobility products in the foreseeable future that will contribute to a slowing demand for desktop PCs as mobility growth is expected to outpace desktop growth at a rate of approximately six-to-one. In Fiscal 2008, we introduced Vostro tm desktops specifically designed to meet the needs of small business customers.

In Fiscal 2007, revenue from desktop PCs decreased 8% year-over-year on unit decline of 5%. Desktop PCs in the Americas declined year-over-year during Fiscal 2007, but was offset by single-digit growth in the APJ region during the same period. Desktop PCs, as compared to mobility products, led Fiscal 2007 in volume; however, our desktop PC average selling price decreased 3% from Fiscal 2006 to Fiscal 2007, which contributed to the overall revenue decline.


• Mobility — In Fiscal 2008, revenue from mobility products (which includes notebook computers and mobile workstations) grew 13% year-over-year on unit growth of 16%. All segments experienced strong growth except U.S. Consumer, whose revenue and units declined 10% during Fiscal 2008 as compared to Fiscal 2007. During the same period mobility revenue in APJ grew 33% on unit growth of 32%; EMEA revenue grew 20% on unit growth of 24%; and Americas Business revenue grew 11% on 17% unit growth. Even though we posted double-digit mobility growth during Fiscal 2008, according to IDC, industry mobility shipments grew 34% during calendar 2007. To capitalize on the industry growth in mobility, we have separated our consumer and commercial design functions — focusing our consumer team on innovation and shorter design cycles. As a result, we have launched four consumer notebook families in the past six months, including Inspiron tm color laptops and XPS tm laptops, for which the demand has been better than expected. As a result, the fourth quarter of Fiscal 2008 mobility revenues for U.S. Consumer grew 25% over the fourth quarter of Fiscal 2007. We also introduced Vostro tm laptops, specifically designed to meet the needs of small business customers. During the fourth quarter of Fiscal 2008, we launched our first tablet — the Latitude tm XT, the industry’s only sub-four pound convertible tablet with pen and touch capability. As notebooks become more affordable and wireless products become standardized, demand for our mobility products continues to be strong, producing robust year-over-year revenue and unit growth. We are likely to see sustained growth in our mobility products in the foreseeable future due to the continued industry-wide migration from desktop PCs to mobility products.

In Fiscal 2007, revenue from mobility products grew by 8% year-over-year as compared to 20% in the previous year. The impact of the diminished growth was particularly acute in the U.S. and led to a loss of share as compared to Fiscal 2006. The slow growth resulted from both our product feature set and related value offering, particularly in the consumer business, as well as our inability to reach certain customer sets. Our EMEA region led the growth in our mobility product category with a 15% increase in Fiscal 2007.


• Software and Peripherals — In Fiscal 2008, revenue from software and peripherals (“S&P”) (which includes Dell-branded printers, monitors not sold with systems, plasma and LCD televisions, projectors, and a multitude of competitively priced third-party printers, televisions, software, digital cameras, and other products) increased 10% year-over-year. EMEA lead S&P revenue growth with a year-over-year increase of 14%, and Americas Business and APJ revenue growth was 11% and 10%, respectively, during Fiscal 2008 as compared to Fiscal 2007. The increase in S&P revenue is primarily attributable to strength in imaging and printing, digital displays, and software licensing. With the acquisition of ASAP, a leading software solutions and licensing services provider, in the fourth quarter of Fiscal 2008, we now offer products from over 2,000 software publishers.

In Fiscal 2007, revenue from software and peripherals increased 8% year-over-year. The overall increase in Fiscal 2007 S&P revenue was led by the APJ region with growth of 38%, while U.S. consumer sales declined 8%. This increase was primarily attributable to a 12% year-over-year increase in software revenue that was offset by declines in our imaging product revenue.


• Servers and Networking — In Fiscal 2008, servers and networking revenue grew 12% on unit growth of 6% year-over-year as compared to industry unit growth of 8%. Our unit growth was slightly behind the growth in the overall industry, while we improved our product feature sets by transitioning to new platforms, and as we managed through the realignment of certain portions of our sales force to address sales execution deficiencies. A significant portion of the revenue growth is due to higher average selling prices, which increased 5% during Fiscal 2008 as compared to the prior year. Fourth quarter year-over-year revenue growth of 2% was below industry growth and our expectations as conservatism in the U.S. commercial sectors affected sales of our server products. All regions experienced strong year-over-year revenue growth with APJ leading the way with 20% growth on unit growth of 5%; additionally, server and networking revenue increased 16% and 8% in EMEA and the Americas, respectively. For Fiscal 2008, we were again ranked number one in the United States with a 34% share in server units shipped; worldwide we were second with a 25% share. Servers and networking remains a strategic focus area. Late in the fourth quarter, we launched our 10G blade servers — the most energy efficient blade server solution on the market. Our PowerEdge servers are ranked number one in server benchmark testing for overall performance, energy efficiency, and price.

In Fiscal 2007, servers and networking revenue grew 7% on unit growth of 6% year-over-year. During Fiscal 2007 we introduced our new ninth generation (9G) PowerEdge servers with Intel’s Xeon 5100 series processors, and we began shipping two new PowerEdge servers featuring AMD Opteron tm processors, providing our customers with an additional choice for high-performance two-socket and four-socket systems. We also launched the industry’s first standards-based Quad-Core processors for two-socket blade, rack, and tower servers. These additions contributed to the 6% year-over-year revenue increase in Fiscal 2007 in the Americas Business segment.


• Services — In Fiscal 2008, revenue from services (which includes the sale and servicing of our extended product warranties) increased 5% year-over-year compared to a 20% increase in Fiscal 2007. EMEA drove services revenue growth with a 30% increase in Fiscal 2008 as compared to Fiscal 2007, and Americas Business contributed with 3% revenue growth. This growth was offset by revenue declines in U.S. Consumer and APJ of 16% and 10%, respectively. Strong Fiscal 2008 services sales increased our deferred service revenue balance by approximately $1.0 billion in Fiscal 2008, a 25% increase to approximately $5.3 billion. In Fiscal 2007, our deferred service revenue increased $514 million or 14% to approximately $4.2 billion. During Fiscal 2008, we acquired a number of service technologies and capabilities through strategic acquisitions of certain companies. These capabilities are being used to build-out our mix of service offerings. In the first quarter of Fiscal 2009, we introduced ProSupport, which distilled ten service offerings down to two customizable packages spanning our commercial product and solutions portfolios with flexible options for service level and proactive management.

In Fiscal 2007, revenue from services increased 20% year-over-year including a 26% year-over-year growth in revenues outside the Americas. We introduced our new Platinum Plus offering during Fiscal 2007, which contributed to an increase in our premium service contracts.


• Storage — In Fiscal 2008, storage revenue increased 8% as compared to a 21% increase in Fiscal 2007. All regions contributed to the revenue growth, led by EMEA, which experienced strong growth of 18%; additionally, APJ and the Americas increased 10% and 5%, respectively. In Fiscal 2008, we expanded both our PowerVault and Dell EMC solutions that drove both additional increases in performance and customer value. During the fourth quarter of Fiscal 2008, we completed the acquisition of EqualLogic, Inc., an industry leader in iSCSI SANs. With this acquisition, we now provide much broader product offerings for small and medium business consumers. Industry analysts believe that the iSCSI SAN space is expected to grow over 125% annually over the next five years.

In Fiscal 2007, storage revenue sustained double-digit growth with a 21% year-over-year increase. The Americas led the revenue growth in Fiscal 2007 with a year-over-year increase of 21%. In Fiscal 2007, we also announced a five-year extension to our partnership with EMC. These portfolio enhancements continue to deliver lower cost solutions for our customers.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Consolidated Operations

Consolidated revenue grew 9% year-over-year in the first quarter of Fiscal 2009. We grew revenue across all segments, led by Global Consumer with 20% revenue growth year-over-year. APJ Commercial and EMEA Commercial also experienced strong year-over-year revenue growth of 19% and 15%, respectively. Our mobility products and software & peripherals business experienced significant revenue growth year over year as well, with growth rates of 22% and 17%, respectively. Revenue and profitability growth during the first quarter of Fiscal 2009 was partially offset by the decline in desktop revenue. Revenue outside the U.S. comprised just over 50% of consolidated revenue for the first quarter of Fiscal 2009, compared to 47% for the same period last year. Combined Brazil, Russia, India, and China (“BRIC”) year-over-year revenue growth was 58% on unit growth of 73% for the first quarter of Fiscal 2009. The weakening dollar helped to stimulate overall demand; generally, foreign currency exchange rates increased approximately 4% against the U.S. dollar. However, we generally pass on these foreign currency benefits to customers through lower local currency pricing of products and services, as we typically manage our business on a U.S. dollar basis. 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.

Operating income decreased 4% year-over-year to $899 million for the first quarter of Fiscal 2009. The decline in operating income is mainly due to a less favorable cost environment than a year ago as we are overlapping a period of unprecedented cost declines. Net income increased 4% year-over-year to $784 million during the first quarter of Fiscal 2009 primarily due to higher investment and other income related to a foreign exchange rate error adjustment from prior periods and a lower effective tax rate. The first quarter of Fiscal 2009 includes the correction of certain items related to prior years totaling approximately $110 million on a pre-tax basis. The two largest items include a Fiscal 2008 employee bonus reversal and a foreign exchange rate error correction of $46 million and $42 million, respectively, on a pre-tax basis.

Our average selling price (total revenue per unit sold) in the first quarter of Fiscal 2009 decreased 10% year-over-year, which primarily resulted from our strategy to participate in a broader range of products and price bands, which helped to fuel unit growth. In addition, we have concentrated on solutions sales, realigning pricing, and driving a better mix of products and services, while pricing our products to remain competitive in the marketplace. In the first quarter of Fiscal 2009, we continued to see competitive pressure, particularly for lower priced desktops and notebooks. However, we were able to gain share across all regions and major products during the first quarter of calendar 2008. 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, we combined our consumer businesses of EMEA, APJ, and Americas International (formerly reported through Americas Commercial) with our U.S. Consumer business and re-aligned our management and financial reporting structure. As a result, effective in 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. We revised previously reported operating segment information to conform to our new operating structure in effect as of May 2, 2008.

During the second half of Fiscal 2008, we began selling desktop and notebook computers, printers, ink, and toner through retail channels in the Americas, EMEA, and APJ in order to expand our customer base. Our goal is to have strategic relationships with a number of major retailers in our larger geographic regions. During the first quarter of Fiscal 2009, we expanded our global retail presence, and we now reach more than 13,000 retail locations worldwide.

• Americas Commercial — Americas Commercial revenue increased 1% with unit shipments up by 3% year-over-year for the first quarter of Fiscal 2009. Growth in the commercial side of Americas International, which includes countries in North and South America other than the United States, drove the majority of the increase in revenue in Americas Commercial. This growth was partially offset by weaker performance with our financial services customers and small-and-medium business customers. We anticipate continued conservative spending in the U.S. in the second quarter of Fiscal 2009. From a product perspective, the slow net revenue growth in the first quarter of Fiscal 2009 was due to decreases in desktop and mobility sales of 12% and 2%, respectively, on unit decline of 2% and growth of 11%, respectively. This was offset by strong revenue growth of enhanced services and software and peripherals, which grew 26% and 13%, respectively, during the first quarter of Fiscal 2009. Growth in Americas International was led by Brazil Commercial, which experienced a 50% year-over-year increase in revenue during the first quarter of Fiscal 2009 as compared to Fiscal 2008.

• EMEA Commercial — During the first quarter of Fiscal 2009, EMEA Commercial represented 24% of our total consolidated net revenue as compared to 22% in the first quarter of Fiscal 2008. EMEA Commercial had 15% year-over-year net revenue growth as on unit shipment growth of 30%. The revenue growth was primarily a result of higher demand for mobility, represented by a 32% increase in revenue on a unit shipment increase of 59%. Growth in storage revenue also contributed to EMEA Commercial’s strong first quarter Fiscal 2009 performance as EMEA Commercial’s storage revenue grew 48% year-over-year. The strengthening Euro and British Pound against the U.S. dollar during the first quarter of Fiscal 2009 helped to stimulate overall demand; however, we generally pass on these foreign currency benefits to customers through lower local currency pricing of products and services, as we typically manage our business on a U.S. dollar basis. Average price per unit decreased 12%, which reflects the mix of products sold, slightly offset by our pricing strategy.

• APJ Commercial — During the first quarter of Fiscal 2009, APJ Commercial experienced a 19% year-over-year increase in revenue to $2.0 billion. For the first quarter of Fiscal 2009, sales of mobility products and unit volume increased year-over-year by 36% and 46%, respectively. Sales of mobility products grew due to the continued shift in customer preference from desktops to notebooks. APJ Commercial also reported 10% revenue growth in servers and networking on unit growth of 23% primarily due to our focus on delivering greater value within customer data centers with our rack optimized server platforms, whose average selling prices are higher than our tower servers. From a country perspective, India, Indonesia, Thailand, Philippines, China, and Malaysia, experienced significant revenue growth during the first quarter of Fiscal 2009. Significant growth in India and China during Fiscal 2009 contributed to a revenue growth rate of 52% and 30%, respectively, for these targeted BRIC countries. According to IDC data, APJ commercial grew more than three times the market, excluding Dell.

• Global Consumer — Global Consumer revenue increased 20% year-over-year on unit growth of 47% for the first quarter of Fiscal 2009. We grew two times faster than the industry on a unit basis and increased our global share to 9%. The increase in Global Consumer revenue is mainly due to strong mobility sales and software and peripherals growth. Mobility revenue increased 49% in the first quarter of Fiscal 2009 on a unit increase of 78% as compared to the first quarter of Fiscal 2008, and software and peripherals grew 28% during the same time period. Our mobility growth in this segment can be partially attributed to our entrance into retail distribution arrangements, which began in the second half of Fiscal 2008, and the continued shift of consumer preference from desktops to laptops. Our software and peripherals growth is due to a strong performance in software licensing. These increases were offset by a 5% decrease in desktop revenue although desktop units grew 16%.


We are continuing to invest in initiatives that will align our new and existing products around customers’ needs and wants in order to drive long-term, sustainable performance, and in Fiscal 2009, we expect to launch more new notebooks than in Fiscal 2008.

Revenue by Product and Services Categories

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 computer systems, mobility products, software and peripherals, servers and networking products, and storage products. In addition, we offer a range of services.

CONF CALL

Lynn Tyson

Thank you. With me today are Chairman and CEO Michael Dell; Vice Chairman and CFO Don Carty and I'm very pleased to introduce Brian Gladden, SVP and our incoming CFO. Don will review our first quarter results, Brian will make a few comments and then he'll turn the call over to Michael who will cover our strategy and progress on our long-term goals and then we'll move on to Q&A. And as the operator noted, there is a new procedure that's been implemented by our conference call provider and you will only be able to queue up for your questions at the end of the prepared comments.

Please make sure to review our web deck on dell.com/investor for additional information on our results and as we mentioned last year, starting this quarter we now have four new external reporting segments: Americas Commercial, EMEA Commercial, APJ Commercial and Global Consumer. Prior to this quarter we had three segments: Americas, EMEA and APJ and we broke out U.S. Consumer.

So that you can easily update your models, our earnings release and web deck contain a table that has fiscal 2008 quarterly revenue and operating income broken out by the new four external reporting segments. Also, any references we make to Dell's unit growth as a multiple of the growth of the industry excludes Dell and all growth rates are year over year unless otherwise noted.

Please visit us at Dell Shares, our IR blog on dell.com where you can ask questions and find timely information on our business and our strategies. In late June, we will post a v-log featuring Brad Anderson, our Senior Vice President and head of our Enterprise business. Brad will take you through our virtualization strategy. If there are any specific questions you'd like us to address in the v-log, please let me or my team know.

On July 18 we will host our annual meeting of shareholders in Austin, Texas and our Q2 earnings call is scheduled for August 28 at 4 pm Central Daylight.

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 cost-sharing statement contained in our press release and on our website.

I'd now like to turn the call over to Don.

Don Carty

Thanks Lynn and good afternoon. A year ago, almost to the day, we laid out for you the five actions that we were taking to transform the company and restore our competitiveness, reignite growth and build the solutions that we believe were critical to customer needs. Those five actions were restructuring the organization to move decision-making closer to the customer; improving customer satisfaction; introducing new innovative products across our entire portfolio and across all our regions; globalizing services which at its core simplifies IT for our customers; and a comprehensive review of all costs with the goal of streamlining structure, eliminating bureaucracy and better aligning expenses with the business environment and our growth opportunities.

I think our results this quarter demonstrate we have made some progress, though there is still a lot more to be done. Driven by a more robust and targeted product portfolio, we had unit share gains worldwide in all major product categories and of course in all major regions.

A couple of examples, worldwide consumer units were up 47% and APJ and EMEA commercial units were up 31% and 30% respectively. Very importantly for us in the key so-called BRIC countries where over [14]% of the industry growth will come from in the next five years, we outperformed all major competitors across all product categories. We had revenue up 58% on a 73% increase in units. For us, BRIC now stands at close to 9% of our revenue mix. I should add our revenue mix from outside the United States reached a record high of 50%.

On the OpEx front we had our best OpEx scaling versus revenue growth in over two years and OpEx dollars actually declined sequentially against an increase in both units and revenue.

Our headcount is now down year-over-year by 7,000 excluding the impact of acquisitions and I think now well within striking distance of the 8,900 target that we talked to you about a year ago. As we said in April, we believe we have opportunities to reduce our headcount even further.

We improved operating income margin sequentially and we drove – and importantly we drove a 12% increase in earnings per share. Last year we said that the transformation of our company would take about 18 months to take hold. I think these results are evidence that our strategy of trying to reignite growth as a first step was the right one for us. Now with our sights firmly on improving our competitiveness, we are really beginning to realize the benefits of some of the cost initiatives that we've talked to you about.

As I take you through our results in more detail, you'll see that some aspects of our business have improved growth, some have improved profitability and some have both. We are very confident as we continue to execute against our growth strategies that all aspects of our business will benefit and contribute to an optimized balance of liquidity, profitability and growth for the company as a whole.

Let me turn to our first quarter results in more detail and then I'll make a couple of comments about our outlook for the balance of the year.

In the first quarter, we generated $16 billion in revenue, a 9% increase on a 22% increase in units, that's obviously our fastest growth in units in over two years. On a regional and channel basis, the growth in units was driven in large measure by emerging countries. It was also driven by our retail initiatives. On a product basis, the growth in units was driven by a 43% increase in mobility products.

Operating expenses were down 100 basis points sequentially to 12.9% of revenues. Operating income was $899 million or 5.5% of revenue resulting in earnings per share of $0.38.

Consistent with what we have talked about and what we did in the fourth quarter of last year, we have included in our earnings disclosure table some – a quantification of the impact of certain items that are in our GAAP results so let me briefly just touch on those and give you an indication of what lines of our P&L you'll find the impact on.

We had $106 million in expense which amounts to $0.04 a share that related to our ongoing efforts to realign our business; it includes largely severance costs and facility closures. But by way of reference, $82 million of that $106 million shows up in our OpEx.

We had $26 million or $0.01 a share in the amortization expenses of purchased intangible assets associated with the acquisitions we did. That $26 million ends up getting split about evenly between COGS and OpEx . We had $19 million in expense or $0.01 a share in investigative related costs and all of that expense, as it has in the past, falls into the OpEx category.

We had a $42 million increase in financing and other income or $0.02 a share related to an error in currency exchange rates from prior periods. We had a $46 million or $0.02 a share reversal in the provision for employee bonuses for fiscal 2008. Most of that, although not all of it, is in OpEx. We had a reduction in a litigation reserve related to a favorable ruling in a patent case of $55 million or $0.02 a share. All of that is in our – is in the COGS line.

I should, I just mentioned by way of reference we have been talking about investigative related expenses kind of every quarter to keep you up-to-date on that. That number is starting to drop to a smaller number and I think will probably drop a little further in the next quarter. I think it's small enough now that we will quit identifying it separately in future quarters.

Our cash flow from operations was $143 million. Cash flow was impacted by slightly lower payables but largely because the first quarter is the quarter where we have some significant outflows of cash associated with tax and associated with bonus payments. Our ability to generate cash remains very robust. I think it is evidenced by our trailing four quarter cash flow from operations of $4.2 billion and we believe that on an annualized basis, we can still easily generate cash flow from operations in excess of our net income.

We ended the quarter with $9.8 billion in cash and investments. In the quarter we spent $1 billion to buy back 52 million shares. That has driven over weighted average share count down to 2.04 billion. That is a 10% reduction versus Q1 of last year. Our share count actually finished the quarter at 2.02 billion and this quarter we expect to spend at least $1 billion on share repurchase.

During the quarter we raised $1.5 billion in private placement debt for general corporate purposes and we paid off $200 million in debt. Relative to F&O, I do want to point out that we think our run rate F&O will be in the $20 million to $30 million range per quarter driven by the reduction in our cash balances which of course are earning lower yields as well and we have increased interest expense that is driven by that higher debt balance.

Our cash conversion cycle which declined versus last year was negative 30 days, driven by increases in DSO, in DSI and a slight decrease in days payable outstanding. We expect our cash conversion cycle to remain significantly negative and we believe for this year will generally be in the 30 day range or better, reflecting in part our entry into the retail channel and on the inventory side, some strategic buys we have been making as we move through the year. Our return on total capital for the quarter was 42%.

Let me turn to some regional and product highlights. In APJ Commercial our revenue was up 19% to $2 billion on a 31% increase in units. Operating income was up 52% on a very balanced country segment and product performance. Revenue in India and China grew at 52% and 30% on a 68% and 43% increase in units respectively. This performance drove share gains in both countries, highlighted by India where our commercial units grew at significant multiple to market and we increased our share position by a full 4 points. We also claimed the number two share position in servers.

Global consumer revenue was up 20% to $2.9 million on a 47% increase in units and while off to an admittedly easy compare, profitability did improve and we talked a little bit about that when we were on the call last quarter. It now stands at 1.2% of revenue.

On a unit basis we grew it over two times the industry and we increased our global share by 1.2 points to 8.8%. We expand our global retail presence, adding Suning in China and Costco in the United States. We now have over 13,000 points of presence.

In addition, we continue to develop products that have more competitive features, more design, more cost points and while we still have a lot of work to do in the consumer business I think we're all comfortable with their performance and their progress in Q2 -- Q1.

Turning to EMEA Commercial, revenue was up 15% to $3.8 billion on a 30% increase in units with the fastest growth in the industry among major vendors, server units were actually up 20%, 2.5 times the rate of the industry. Growth in notebooks also outpaced the industry with a 59% increase in units. From a country perspective, units were up 20% in the UK and the region saw strong double-digit growth in several emerging countries like Russia and Turkey and the Ukraine.

Profitability in EMEA was adversely impacted by a favorable warranty change that actually helped Q1 of last year but more importantly a significant severance charge that was part of that $106 million I talked about earlier in Q1 of this year.

In our America's commercial business, revenue increased 1% to $7.3 billion on a 3% increase in units. Server shipments rose by 20%, more than four times the rate of the industry. Our mobility products were up 11% and desktops declined 2%. Operating income declined as the business absorbed acquisitions and invested in sales capability, particularly in the emerging markets of Latin America and I might add in sales capability associated with our storage products.

Similar to Q4, we continue to see conservatism in the U.S., especially in the financial sector as well as State and local governments and as well in the small and medium enterprise space.

I will just touch briefly on some product highlights. In client mobility units up 43% as we grew at a premium to the industry and that drove a 22% increase in revenue. We also grew at a premium to the industry in desktops with a 9% increase in units which drove a 5% decline in revenue. Growth in enterprise products and services accelerated very nicely in the quarter. Server revenues were up 4% but on a 21% increase in units, our fastest unit growth in over two years and three times the rate of the industry and that allowed us to gain 1.5 points of share in the quarter.

Our storage revenue jumped a very solid 15%, driven by strong growth from our Power Vault, Direct [inaudible] products and a full quarter now of EqualLogic. Our enhanced services revenue is up 13% aided by the first full quarter of our new Pro Support offerings. Our services attach rates increased by 24% and a key leading indicator of services growth, our deferred services revenue balance grew 23% to $5.4 billion.

Software and peripherals revenue increased 17%. As a result of our ASAP acquisition, S&P growth was aided by strength in software resale and the licensing business associated with that acquisition.

During the fourth quarter we spent $170 million net of cash – I am sorry, during the first quarter we spent $170 million net of cash acquired on acquisitions, closing on two: MessageOne and the Networked Storage Company.

Lastly, our strategic assessment of our financing business, DFS, continues. We should have an update for you by the third quarter.

As you will see when we file our 10-Q in early June, this capability, this financing capability continues to be a key enabler of sales for our U.S. business, especially Consumer Direct, and we believe we are very nicely and adequately reserved against the backdrop of what's happening in the credit markets.

In sum, I am really quite pleased with our performance in the quarter. I believe we are on the right trajectory to meet the long-term targets we set for you in April, which are to grow faster than the industry while generating sustainable EPS and cash flow growth.

Before I turn it over to Brian, let me just make a couple of observations about our outlook. There are a few items you should consider as you think about our performance over the balance of the year. First, we will continue to incur costs as we realign our business to improve competitiveness, reduce headcount and invest in infrastructure and acquisitions.

Second, we are seeing conservatism in IT spending in the U.S. and that has extended modestly from global and large customers into public, small and medium business accounts and we expect that to continue through the summer, particularly as many of these customer segments are seasonally slower.

Third, you will recall that we are overlapping a period of record cost declines in the same period last year.

Fourth, we will continue to benefit from improving performance in areas like emerging countries, notebooks, enterprise and services which collectively are driving a more diversified portfolio of geographies and products. Against this backdrop, we recently shared with you our plans to improve our competitiveness and we're targeting $3 billion in annualized savings by fiscal 2011. Long term our focus remains on growing units faster than the industry, improved profitability and superior cash returns with the focus on making decisions that deliver the best long-term results for our shareholders.

Now I personally couldn't be happier to introduce Brian Gladden. All of us at Dell are delighted that we were able to attract to the team someone with Brian's operational and financial background.

As you know, Brian joined Dell last week from Innovative Plastics Holdings BV, formerly, of course, GE Plastics. There Brian was President and CEO and prior to that he spent nearly 20 years at GE where he held a variety of financial and leadership roles including VP and GM of GE Plastics, CFO of GE Plastics, and CFO of GE Medical Systems Healthcare IT business. Brian will formally take the reigns as CFO on June 13, 2008 at which time I will happily move back to director-only status.

Brian Gladden

Thanks Don. On behalf of the company and our shareholders I'd like to thank you for the outstanding contributions that you have made to the organization as CFO over the past 16 months. Not to mention your board tenure of 16 years. Your personal commitment to integrity, transparency and accountability have set the bar for the entire company. We look forward to your continued leadership on the board.

I'm now nine days into my new role here and I'm ramping up quickly on Dell and the industry. Don and I are meeting regularly to discuss the organizational priorities and challenges and I'm quickly integrating into regular operating rhythms and bi-costly – bi-weekly cost meetings. I'm pleased with where we are headed. I feel strongly that a world-class financial organization is built around four key imperatives.

First, controllership and integrity must be at the heart of everything we do.

Second, we must be operationally engaged as business partners that help drive growth and profitability.

Third, we must engage with and respond to you, the owners of our company.

Finally, we must be good stewards of our company's capital, making decisions that maximize cash returns and drive long-term value creation. I look forward to meeting with you in the coming months. I'm very open to your ideas, concerns and feedback. This ensures that we, the Dell team, have the right priorities and plans to capture the incredible opportunities in front of us.

Let me now turn it over to Michael.

Michael Dell

Thank you Brian and welcome. In April I laid out long-term goals to drive shareholder value, including unit growth at a premium to the industry, executing on our $3 billion cost opportunity, delivering sustained EPS growth and executing on our five core initiatives and also growing our retail and channel for scale and profit.

We grew significantly faster than the industry on a worldwide basis and this was despite a more conservative commercial IT spending environment in the United States. We targeted $3 billion in annualized cost savings and have started to make progress and we are beginning to see positive results in our performance as cost savings begin to flow through the P&L during this quarter.

Let me go into a bit more detail. First we grew faster than the industry worldwide in all major product categories and regions and it has been three years since we have accomplished this.

Worldwide, we grew units 22% while the industry was up 14%. Looking at our major regions, we grew 11% in the United States while the industry was essentially flat.

In APJ we grew over 42% while the industry was up just 14% and in EMEA we grew 28% while the market was up 19%. This marks the first time in two years that we have outgrown the industry in all major regions.

On the product side, in notebooks we grew 43% while the industry was up 36% and in servers we outgrew all major competitors with a 21% increase in units while the industry grew 7%. In desktops we were up 9% while the industry contracted in the quarter and in storage our growth revenues accelerated to 15%.

On the cost side, we have identified and are aggressively targeting COGS and OpEx savings and I continue to lead meetings every two weeks for each focus area. We have detailed road maps, targeted savings, actions, executive ownership with accountabilities and specific timelines for the capturing of savings.

In the first quarter, we made progress against our initial goal of reducing headcount by 8,900. Year over year we've reduced our headcount before the impact of acquisitions by 7,000 which includes 3,700 just during this past quarter.

In our first quarter we recognized $106 million in severance and facilities-related expenses and we'll see more benefits as we fully move throughout the year. We also made adjustments to our compensation plans including evaluating and aligning our long-term incentive plans both cash and equity to current market conditions. Our total operating expenses were down 7% sequentially and while we still have much to do, I am encouraged by the progress we have made. I believe you see additional productivity improvements in the form of OpEx scaling and some additional headcount reductions even as we invest significantly in growth areas.

Turning to products, we grew faster than the industry in every worldwide product category. In the enterprise which is a core initiative for us, we had particularly strong results. In January, we launched nine new servers including the M600 and M605 two socket blades and the M1000E Blade enclosure, the R805 and R905 virtualization optimized servers. In addition, we are a leader in disruptive solutions for the cloud, powering about half of the fastest-growing Chinese Internet companies as well as the largest portal and the largest search engine providers in China. These launches, combined with our existing leading edge server line up helped us grow more than 8 percentage points faster than the industry and gain 1.5 share points worldwide.

In storage, we grew revenues by 15% and based on our own estimates, we again took share worldwide in Q1 with the launch of the Dell EqualLogic, PS5000 IP SAN and our Dell EMC-AX4 and 5I SANs, we extended our position as the number one worldwide provider of iSCSI SAN solutions.

Finally, our emerging country initiative had strong results. Recall that we define emerging countries as BRIC plus 10 and the combined 14 countries grew units at 62% and the revenue accelerated to 47% led by strong share gains in Brazil, India and China.

During the quarter we also launched the Dell 500 notebook which was specifically designed for emerging countries. We are now shipping this in China and India and will launch additional countries as well as we catch up with the phenomenal demand that we are seeing for this product.

We also launched our Partner Direct program in Europe and APJ this quarter. Since we launched the program in the United States in the fourth quarter, we have added over 3,500 new global partners and our channel business is now on a $12 billion run rate.

While I'm encouraged with our progress, we still have much work to do to restore our competitive position but over time I am confident that our broad, long-term goals which include our growth initiatives will drive growth in revenue, earnings, cash and ultimately shareholder value.

Let me turn it back over to Lynn.


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