Dell Shares

We just got back from SRI in the Rockies where I had an opportunity to meet with several socially responsible investors and stakeholders. Dell was happy to be a sponsor and help celebrate SRI in the Rockies 20th anniversary. This is an important event that brings together a community of investors, stakeholders and academics all focused on creating a cleaner environment, more socially responsible business practices, and better working conditions for everyone.

I held a short group presentation to discuss engagement between our corporate responsibility and IR function and our stakeholders at large. Engagement with our stakeholders has always been an important part of raising our awareness at Dell. We began more than 12 years ago when I first received a call to fill out a SRI survey and we had no corporate responsibility team at the time. We went out to disparate groups throughout the organization to answer most of these questions.

Today things have changed significantly. We have a strong Corporate Responsibility team and through involvement of stakeholders like you, Dell took a leadership position in becoming the first company to offer a free consumer recycling program, the first to become operationally carbon neutral, and now we publish our list of Tier 1 suppliers. Every product we make is more energy efficient and has a bottom line effect for both our customers and Dell.

Our progess here has been more of a journey and you, the stakeholders and SRI community, have always been there steering and mentoring us as we go. During our discussion, one of our long time friends in this process has been Tim Smith from Walden Asset Management who has always counseled us on important issues. We appreciate this candid feedback. To Tim and others, we say that we appreciate your help, and look forward to your continued help and involvement.

Please take a look at our Corporate Responsibility report. We have made a lot of progress but there is always more to do. If you have feedback, please share it.

Thanks. And we look forward to next year's SRI in the Rockies conference in San Antonio.

As we meet with investors, we have been getting a lot of questions about a pending corporate upgrade cycle and whether Windows 7 will be a catalyst for PC demand.

First, let me say that we're very excited about the Windows 7 launch next week.  Dell is one of Microsoft's biggest OEM partners, and due to a collaborative engineering effort that extends over the past three years, we really feel customers will reap the benefits from upgrading to Win7.  Windows 7 has some very compelling features ranging from better applications and drivers to faster boot times and quick online capabilities. 

So why Windows 7?

Beginning with boot time - it's fast.  Windows 7 uses less memory to boot the OS than Vista.  Microsoft removed unnecessary services and drivers from automatically loading, which reduces the boot time and the OS footprint occupied in memory.  The user interface also has several cool new features.  Jump lists or pinned applications facilitate opening recently viewed items, such as files, folders, or websites in a more organized fashion.  And the snap feature allows you to snap two windows to the side of the screen and compare them side by side with ease.

Windows 7 makes it easier than ever to go mobile.  Improved wireless connectivity results in less time to locate and connect to a network.  And with location aware printing in the Professional and Ultimate versions of Windows 7, you no longer have to manually switch printers when moving from home to work or network to network.  In addition, it can also run in XP mode which is great for customers that need a way to deal with legacy applications that aren't compatible with Vista or Windows 7.  Clearly, these are just a few of the cool features you will find, so check out more details in our Direct2Dell blog.

As Michael recently stated regarding the use of Windows 7, "You will love your PC again".

What about a corporate PC upgrade cycle?

In commercial accounts, increases in information technology spending are most strongly correlated with improvements in corporate profitability and that will be the key driver of a commercial refresh.  Specific to Win7, we have only seen about 30% of our commercial customers adopt Vista with the rest staying on older operating systems.  With a weak economy, the installed base has increased to about five years for desktops and 3-4 years for notebooks. So many of our customers are working with older machines and running an operating system that is almost 8 years old.   This coupled with the fact that new PCs are faster, considerably more energy efficient, and have much better graphics capabilities make for a compelling upgrade. 

We're also working with Microsoft on the launch of Windows 7 next week, and on the upcoming launch of Office 2010.  Everything we see right now from the direct conversations with customers to surveys with CIOs tell us an upgrade cycle is forthcoming and likely in 2010 - helped by Win7 but really driven by an improving economy.

We're moving right along with the acquisition of Perot Systems!  Today, we commenced our tender offer to acquire the company. 

What is a tender offer you ask? 

The tender is a formal process of making a public offer directly to Perot's shareholders to buy their shares at the previously stated price of $30 per share.  The offer was filed with the Securities and Exchange Commission. To learn more, I encourage you to read the tender offer, the press release we issued, and take a look at the ad that appears in today's Wall Street Journal.

We've taken some other steps getting us closer to closing the deal.  Since the merger announcement on September 21, we have submitted competition law filings in the United States and some other countries.  As a result, we are now in a waiting period that the government may choose to shorten or extend pending any antitrust concerns.  These filings and waiting periods are pretty typical for any transaction of this type.

We have also begun integration planning with Perot Systems.  Teams are being put in place to oversee this integration planning, which includes organizational resource alignment, financial reporting implications, systems integration plans, and other typical things associated with an integration process.  While we are engaged in the planning process, we are also mindful that that we cannot combine the two companies until we close the transaction. 

So what happens next with the tender offer?

Unless extended, the tender offer begins today and ends at midnight on November 2.  Perot shareholders have this period to tender their shares for the offer price of $30 per share.  Upon acceptance for payment of shares in the tender offer, Perot Systems becomes a subsidiary of Dell.

Today's news represents the next step in the acquisition process, and when completed, this bigger and better Dell is expected to help customers grow and thrive with a broader range of IT services and solutions.

We look forward to sharing with you more details through this exciting process.  Once we close on the acquisition, you'll be hearing more detailed thoughts about our services strategy, organization, key initiatives and financial information.  At that time, Dell leaders will provide more detail around our growth, synergy and integration plans.

Until then, your questions and comments are welcome.

SPECIAL NOTE:  This blog post is for informational purposes only, and is not an offer to purchase or a solicitation of an offer to sell securities.  The tender offer is being made only pursuant to the Offer to Purchase, Letter of Transmittal and related materials that Dell and DII- Holdings Inc. have filed with the SEC on a Tender Offer Statement on Schedule TO on October 2, 2009.  In addition, Perot Systems has filed a Solicitation Recommendation Statement on Schedule 14D-9 with respect to the tender offer on October 2, 2009.  The Tender Offer Statement (and related materials) and the Solicitation/Recommendation Statement contain important information that should be read carefully before any decision is made with respect to the tender offer.  Those materials may be obtained free of charge from D.F. King & Co., Inc., the information agent for the tender offer, toll-free at (800) 488-8095 (banks and brokers call collect (212) 269-5550).  In addition, all of those materials (and all other offer documents filed with the SEC) are available at no charge on the SEC's website at www.sec.gov.

Today, Dell and Perot Systems entered a definitive agreement for Dell to acquire Perot Systems in a transaction valued at $3.9 billion.  Terms of the pairing were approved by boards of both companies.

We anticipate the combination will close by end of Dell's fiscal 4th quarter, pending regulatory approval, and will be funded with existing cash.  Perot Systems' current CEO, Peter Altabef will lead the combined services units of joint Perot Systems' and Dell's services units.  The new business unit will be called Perot Systems, a Dell Company and will be run out of Perot's current Plano, Texas campus.

This acquisition is about our strategy to provide next-generation IT service delivery and grow our enterprise revenue base.  This is a key acquisition in our strategy to transform the company and IT services will be a significant part of our strategy and we have been focused on finding the right asset in this space, which Perot Systems provides.  Perot Systems' expertise in infrastructure & operations, business processes, application development services strongly complements Dell's existing services offerings and global reach.  Not only do they have a robust services portfolio, but they have tremendous segment expertise, including growth areas such as healthcare and government. 

This combination allows Dell to gain a scalable asset that we can leverage our direct customer footprint to build out rapidly.  We think we can add on other assets (including ours), and globalize Perot Systems into a strong global service company.  Perot Systems' world-class services innovation brings several key service offerings we don't enjoy today.  Another critical element to understand regarding this announcement is that Dell and Perot Systems are very familiar with each other from a capability and cultural standpoint.  We have enjoyed a longstanding relationship over the past several years and with our announcement today take this relationship to the next level, which will allow us to deliver the best possible value for our customers. The pairing results in a compelling combination of companies that have similarly strong, relationship-based business cultures, and that are known for focus on helping customers thrive by using IT for greater effectiveness and productivity.

There will be more details about this acquisition once we close and satisfy the customary regulatory requirements involved.  In the end, our strategic mission remains the same -- to provide disruptively great value to our customers... while balancing our financial goals of liquidity, profitability, growth.   Thanks and we welcome your questions as always.

Rob

Additional Information

The planned tender offer described in this blog posting has not yet commenced.  The description contained in this blog posting is not an offer to buy or the solicitation of an offer to sell securities.  At the time the planned tender offer is commenced, Dell will file a tender offer statement on Schedule TO with the Securities and Exchange Commission (the "SEC"), and Perot Systems will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the planned tender offer.  The tender offer statement (including an offer to purchase, a related letter of transmittal and other tender offer documents) and the solicitation/recommendation statement will contain important information that should be read carefully before making any decision to tender securities in the planned tender offer.  Those materials will be made available to Perot Systems's stockholders at no expense to them.  In addition, all of those materials (and all other tender offer documents filed with the SEC) will be made available at no charge on the SEC's website: www.sec.gov.

I am pleased to have Brian Gladden, Senior Vice President and CFO, join us on Dell Shares to provide his view on the second quarter, the economy, industry demand, and the company's outlook. 

Dell announced second-quarter fiscal-year 2010 financial results on August 27th. Dell reported improved business performance with revenue up 3% sequentially to $12.8 billion.  EPS was $0.24 per share and operating expenses were down 14% versus Q2 last year.  In addition, cash flow from operations exceeded $1 billion.     

I strongly encourage you to read the full press release and earnings presentation; and listen to our conference call that can be found on the investor relations web site.   As always, we encourage you to ask questions or leave comments on Dell Shares.

Best,

Rob