Analyst Meeting

As a follow-up to our Analyst meeting, I recently sat down with Steve Felice, president of Small and Medium Business, to discuss a range of topics that have received investor attention including:

• Dell's Go-to-Market Strategy
• Differentiation in the Channel
• Indirect Model in Asia
• Current Macro Environment

Please watch the video below.  If you would like to get more details from our analyst meeting, you can view the presentations and webcast from this meeting by clicking here.  As always, I look forward to your questions and comments!

-Rob

Dell Equity Analyst Meeting

Today more than 200 participants, including analysts and investors, joined us in Austin for Dell's Analyst meeting.  There were also a record breaking number of webcast attendees for this meeting, where we broke our record of 400, rising to nearly 500 participants. This meeting was an opportunity to hear directly from Dell's senior leadership on our near-term operating agenda and long-term strategy and address questions or concerns.  The presentations from this meeting are available for viewing online,

This year, the meeting and briefings took place the same day.  Dell executives discussed the company's strategy and operating agenda along with a financial overview and update on its four customer segments. 

We are competing in a rapidly changing environment.  As a result, we are improving our core business performance while expanding and extending across a broader set of customer solutions.   Key messages delivered today were Dell's differentiated view of how to win in enterprise, our strategic mission "to provide disruptively great value to our customers", and that both these items will be realized through a combination of internal investments, partnerships and inorganic growth.

The meeting was opened by Michael Dell, Chairman of the Board and CEO, where he discussed Dell's key assets, view on the enterprise, and long-term priorities.  Michael noted that Dell has a strong presence and currently holds #1 or #2 share position in most key segments.  He also covered strategic priorities to deliver operating income and cash flow growth as well as the requirements needed to win longer-term.

Brian Gladden, CFO, followed and built on striking the optimal balance between liquidity, profitability and growth.  Brian reviewed Dell's operating agenda, gave an update on the solid progress on $4B cost reductions, and provided a long-term value creation framework that articulated Dell's vision for revenue growth, profitability and cash flow generation.  He also stated that Dell is well positioned to benefit from an economic recovery and will continue to provide strong liquidity.

Steve Schuckenbrock, President of Large Enterprise, walked us through our higher-value & higher-margin enterprise vision which addresses innovation and virtualization in next-generation data centers vs. our competitors' full-stack approach.  He also reviewed how Dell is delivering steady growth in its core business while powering enterprise efficiency through innovation without legacy.  For example, we approach services very differently from our competitors.  We believe services should be customizable, a la carte, and available remotely.  We let customers choose which services they want and when they want them.  And we provide solutions where consultants are available - but not required. 

Paul Bell, President of Public Sector business, addressed how Dell is aligning its global organization for balanced geographic expansion via vertical solutions designed for three unique customer bases -Education, Government, and Healthcare.  Paul mentioned the challenges in this segment due to the macro environment, but also highlighted opportunities that exist internationally as well as those related to stimulus funds. Requirements needed to win in the Public sector include deep expertise in the sector-specific challenges, solutions investments, technology leadership, and solid partnerships.

Steve Felice, President of Small & Medium Business, presented Dell's plans to lead in the SMB space through innovative solutions and its go-to-market strategy.   Steve reviewed the varied needs across the customer base of Small Businesses and Medium Businesses as well as regional opportunities to grow the business. He highlighted the solutions and product offerings that will help drive growth in each of these areas along with the benefits offered through SMB's go-to-market strategy.  Having a multi-channel strategy will enable Dell to expand presence in under-represented geographies and drive incremental growth in enterprises and solutions.

Ron Garriques, President of Dell's Consumer Group, walked through consumer's brand architecture, its multi-channel customer portfolio and how it's bringing a disruptive approach to PCs.   Dell grew to 33,000 retail stores globally in two years.  Clearly, there is a lot of opportunity to continue to grow in this retail space.  Ron reviewed Consumer's plan to grow faster than the industry through aggressively managing costs to reflect the multi-channel infrastructure, expanding global presence, and offering competitive products.  He also reviewed plans to reinvigorate Dell.com to create a destination for all customers.

If you haven't already seen the presentations, I encourage you to watch a replay of them here. 

As always, we welcome any questions or comments.

-Rob

This afternoon after the close of the financial markets, we shared a press release announcing that year-over-year demand for our information-technology products appears to have stabilized, and that we expect to report a slight sequential revenue increase in our fiscal second-quarter 2010, which ends July 31.  In the announcement, we also said that we anticipate a modest decline in Q2 gross margins, the result of higher component costs, a competitive pricing environment, and an unfavorable mix of product and business-segment demand.  Also, we shared that over the longer horizon we are targeting 5-7 percent compounded annual sales growth, operating income at or above 7 percent of revenue, and cash flow from operations exceeding net income. It's important to point out that such results are dependent on broad global economic improvement accompanied by higher worldwide IT spending, including sustained double-digit growth rate in demand for computer systems.  As always is the case with announcements like these, I highly encourage you to read the complete press release for additional details and disclosures.

This news was released prior to our analyst meeting, which will take place Tuesday, July 14^th here in Austin, TX and is available live via webcast on Dell.com/Investor.  The analyst meeting is an opportunity for analysts, investors, and you to listen to Dell Leadership and review our strategy and financial overview, and ask questions directly to the executives which you can do via the web this year.   At the analyst meeting, Dell executives will discuss the company's strategy and operating agenda along with a financial overview and update on its four customer segments.

As always, our IR team is here to answer your questions.

 - Rob

The second and final day of our equity analyst meeting featured presentations by Michael Dell, Chairman of the Board and CEO, and Don Carty, Vice Chairman and CFO. 

Right up front, Michael addressed Dell's ability to execute.  He made it clear that Dell is making progress on transforming the company and we are seeing evidence in our recent growth, yet we still have to move faster on costs.  There are no longer any fixed costs within Dell - essentially everything is variable right now.  We have a $3 billion cost opportunity and we're taking aggressive actions to restore our competitive advantage.  We believe operating expense will be down as a percentage of revenue this year.  We also want to deliver a unit growth premium to the industry - this was the case in Q4, and it looks like it is continuing in Q1.  

Don Carty spoke about Dell's financial heritage - one built on striking the optimal balance between liquidity, profitability and growth.  He said that Dell's execution against these priorities hasn't been up to our standards or your expectations.  Dell is strengthening its competitive position and improving profitability by reducing total costs in three ways.  First, we will reduce operating expense, including headcount and compensation.  Second, we will reduce product and procurement costs by designing for price segments and removing features that are not valued by our customers.  Finally, we will reduce manufacturing and logistics costs by optimizing our global manufacturing network.

Later in the morning, other senior executives hosted panel discussions on our five key growth initiatives. 

Steve Felice, SVP and President of Dell Asia/PAC, reviewed our strategy in emerging countries.  Emerging countries represent 85% of the world's population, 30% of worldwide GDP, more than 50% of the worldwide GDP growth... and are a significant opportunity for Dell.  In the IT hardware space, the next billion customers will come from emerging countries.  By 2012, these countries will make up 38% of the world's PC shipments, up from 11% in 1996 (per IDC and Dell estimates).  

Dell is tailoring its products, services and engagement models in these countries to help ensure our place in this tremendous growth opportunity.  In India and Brazil, for example, we largely work directly with customers.  China is closer to a 50/50 split between direct and the channel, while Russia is predominantly channel focused.  We complement these approaches with specific products and services tailored to the needs of customers in those countries.

Dave Marmonti, SVP and President of Dell EMEA, then discussed what we're doing in small and medium enterprises (SME).  Within our SME initiative, we have four global sub-initiatives that will drive our growth: sub-segmentation, customer relationship management, IT-as-a-service and a flexible global channel strategy.  Ultimately, we'll bring differentiated products and capabilities to SMEs who just want to focus on their business, not their IT.

Ron Garriques, President of Dell's Global Consumer Group, said that his goal is simple and straightforward - grow faster than the industry and do so profitably with a great cash conversion cycle.   We get there by getting to the point where COGS and operating expense is competitive and best in class; and by innovating our products and services in order to delight customers independent of the channel they buy through. Growing the profitability of this business is the number one priority.

Jeff Clarke, SVP of Dell's Business Client Product Group, covered our growth strategy in notebooks.  In a nutshell, Dell will deliver more segment-specific products for consumers, SMEs and customers in emerging countries, while being cost competitive across all price bands and channels.

Finally, Brad Anderson, SVP of Dell‘s Business Enterprise Product Group, talked about what we're doing in enterprise.  Last year, $289 billion was spent on enterprise-related IT. Dell's share was a mere 4.4 percent of that.  We get a significant share of total server revenue, but we're under-represented in the other categories of spend - storage, systems management, professional services and support services, etc. So we're creating solutions for customers' greatest challenges.  We'll simplify IT with differentiated, industry-leading solutions, including blades, power & cooling, virtualization, iSCSI storage and cloud computing.

Each of these growth priorities implies there are significant opportunities ahead for Dell.  Our growth in every instance won't be linear, but taken together they represent a thoughtful vision of our industry, the problems and solutions we're tackling, and the white space we're addressing.  It's clearly up to us to drive the right cost model to enhance our competitive position.

Again, if you haven't already seen the webcast or presentation, I encourage you to watch a replay of them here. 

Today, 250 equity analysts and institutional investors joined us in Round Rock for Dell's equity analyst meeting. These meetings, which are available via live webcast, serve two important purposes.  First, they give this audience and all of you an opportunity to hear directly from Dell's senior leadership, and second, it's our chance to help you understand where we're going financially, share our key initiatives and address questions and concerns.

The meetings and briefings are spread over two days, with the first day being a prerequisite to discussing our growth priorities on day two.  We spent the first day providing a framework by which investors could understand the fundamental changes we're making to Dell's business model - from manufacturing to channels to services.  

Dell has always been known for its direct model.  With it, we created a direct customer relationship model and build-to-order manufacturing capability like the world had never seen.  Our assets were global and our cycle times were some of the shortest in the industry. 

But today's PC economics are much different.  Moore's law led to better performance, rapid growth and lower selling prices, ultimately leading to smaller absolute cost advantages.  And growth shifted from desktops to notebooks and from large enterprise customers to consumers and small enterprises.  Our customers are more diverse than ever before.  We now need to serve them in very different ways. 

Mike Cannon, President of Dell Global Operations, talked about how Dell is optimizing its global manufacturing network to better meet customer needs.  By matching product design to customer segments, we're able to eliminate embedded product costs.  Getting this part right actually enables us to think more broadly about our manufacturing model and enhance the value we provide our customers.

Many have also questioned how being direct works with channel. The reality is that we have a $10 billion global partner business that we've steadily built for 23 years.  Paul Bell, SVP & President of Dell Americas, spoke to our channel strategy and the investments we're making to better work with VARs and systems integrators. The flexible engagement model we've developed is backed by a compelling value proposition for our partners: our strong brand; a broad portfolio of industry-leading products; and simple, beneficial terms.  It's designed to minimize conflict while building trust and mutually beneficial relationships.  Since we announced this new initiative in Q3, we've worked hard to bring our regional partners onboard to make our solutions available in the geographies that need them most.  

Steve Schuckenbrock, SVP Global Services & CIO, spoke about how customers spend a massive share of their IT budgets on services and how they face a burning need to shift this spend from maintenance to innovation.  We approach services very differently from our competitors.  We believe services should be customizable, a la carte, and available remotely.  So Dell's new services model combines disruptive technologies with our core strengths to provide customers convenient and affordable enterprise-class support and monitoring services.  Through ProSupport and the assets we acquired through several acquisitions we are building a platform that allows us to remotely manage the client lifecycle.  We let customers choose which services they want and when they want them.  And we provide solutions where consultants are available - but not required.  We have a $6.2 billion global services business today, and there is no reason it can't double over the next 3-4 years.

These are changes in the way Dell interacts with customer. They set a foundation upon which we'll build our future success.

If you haven't already seen the webcasts or presentations, I encourage you to watch a replay of them here.