Dell Shares

Brian participated in a fireside chat at the Morgan Stanley Annual Technology Conference yesterday.  You can sign up and be notified in advance via email of these events.  He started off by providing a brief overview of our latest quarterly and fiscal year results and then did some Q&A. In his message to investors, Brian emphasized profitability and liquidity as the two foremost priorities for us in this current economic environment and expressed confidence in our ability to extract further cost improvements in the business and emerge in a stronger competitive position.  As a short recap, I've included a few questions and answers Brian took during the meeting. I encourage you listen to the full webcast by clicking here.  As always, please provide your comments on Dell Shares.

1.       How would you characterize the current demand environment?

• The demand environment continues to be pretty tough year to date and we are seeing a lot of customers deferring purchase decisions due to the economy.
• We expect broad-based challenging environment to continue as budgets are likely to remain pressured at least through the first half of 2009.
• Our demand in Q4 was more linear than Q3 but the trends late in Q4 and in early Q1 are still negative.
• Do not know what magnitude of slowdown will be - but we will be nimble enough to rapidly adjust to the realities of the demand environment.

2.       How are you going to maintain gross margins in this environment?

• We have made significant progress in taking cost out of the box but there's more work to be done.
• We continue to make progress on the price and sell-to-value side of the equation as we introduce new products and will place an emphasis on smart pricing of these products.
• Progress here has provided a buffer to declining volumes late in the year and enabled us to remain competitive and deliver stable gross margins.
• We are confident in our ability to extract cost improvements even in a slowing demand environment and emerge in a stronger competitive position.

3.       Why haven't you made more acquisitions?

• Historically, our focus has been on organic growth... that model has worked for us successfully in the past.
• Having said that, we have made 9 acquisitions in the last year and a half and will continue to look for more opportunities that make strategic sense.
• We continue to look for opportunities in enterprise products, software and services, but it take two willing parties to make an acquisition work.
• In this environment, there's not much M&A activity going on because companies are not willing to sell at these low valuations.

4.       Can you comment a little bit on how you are managing working capital at Dell?

• Liquidity is #1 priority for us in this environment.
• During this period of declining revenue growth, we are aggressively managing our cash conversion cycle.
• For inventory, we have reduced our strategic buys, which also helps us benefit from cost deflation.
• Our payables have been impacted by the demand environment but we do not expect any significant structural changes.
• Given the current demand environment we would like to maintain our cash conversion cycle, and we continue to believe there are opportunities to improve our cash conversion cycle over time.

5.       Where should we expect to see Dell 2 years from now?

• We will take advantage of this downturn to reshape our revenue portfolio and better position us competitively.
• Over time, our goal is to move the weight of our portfolio to higher margin offerings and recurring revenue streams.
• We will accomplish this by migrating to a solutions-driven business with an increased mix of enterprise products, services and bundled solutions.
• We will also make strategic acquisitions as necessary that fit our model.