Enterprise

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.

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.

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

Data is generated at a faster rate than ever before and the need to manage this data efficiently is extremely critical.  Also, with heightened regulations, enterprises are required to store more data for longer periods of time, which also increases the demand for storage capacity. 

Based on this massive data growth, storage is considered more resilient than other IT hardware in this challenging economy, but customers still require optimal, cost effective solutions as budgets are more constrained.  Customers also want confidence that their data is easily available and protected.  Recent IDC research estimates the annual cost to maintain storage is 1.5x the cost to acquire the storage.  We believe these challenges provide Dell an opportunity to offer customers solutions that will require lower maintenance and improve their overall ROI.

So why Dell?  Dell offers a complete storage solutions portfolio which includes EMC, PowerVault, and EqualLogic that covers file storage, block storage, and data protection.  Due to Dell's recent announcement on the expansion of its enterprise technology portfolio, I'd like to focus on the EqualLogic PS Series.  The recent expansion includes the EqualLogic PS4000 storage array which is designed for remote offices and small medium businesses, provides an affordable entry point for smaller configurations, and offers the same benefits as previous PS Series generations.  EqualLogic PS Series have a comprehensive feature set built-in with the software and applications expected from an enterprise-level SAN.  This all inclusive feature comes at no additional charge rather than à la carte pricing, which can become costly for customers.  There is no additional software to install or service costs to incur to initiate the data management and protection features for this enterprise-class SAN.

The EqualLogic PS Series solution simplifies storage technology, management, and business practices.  The PS Series is an iSCSI SAN, so the use of IP and Ethernet networking technology keep costs down on switching hardware and on training costs. Also, instead of making customers play a capacity guessing game, and over-invest in hardware, the PS Series can be expanded modularly, so customers buy only what they need now and pay as they grow - all without disrupting applications.  With the EqualLogic peer storage architecture, customers can buy one generation of hardware, expand with a second and third generation of arrays - all online, all within the same SAN, and then retire the older hardware as they see fit.  Customers also have the option to download the latest software items to update their arrays at no additional cost.  All of these unique features yield TCO benefits:  Less time managing storage, all-inclusive software package, pay-as-you-grow model, and cost-effective iSCSI network all help reduce the total cost of ownership for storage.

In 2008, Dell was #1 in iSCSI storage and also received the PilotHouse Award as the Best Overall Storage Provider for Virtual Environments.  Dell also ranked in the March 2009 Issue of Storage Magazine as #1 midrange array provider in terms of user service and reliability.  The PS Series 2008 sales growth was 134% Y/Y.  Also, 82% of the EQL sites were new enterprise storage sites, where our indirect Partners represented more than 55% of these new sites.

The end result is a win-win situation with happy, loyal customers and a sustainable, profitable business. 

I recently sat down with Jeff Clarke, Vice Chairman, Technology and Operations, to discuss a range of topics that have received investor attention including:

• Declining Client ASPs in the commercial customer business
• Desktop and mobility virtualization
• Progress on our $4 billion cost initiative
• Optimization of our global manufacturing and logistics network
• What we are going to do with the savings we realize from some of these initiatives

As always, I look forward to your questions and comments!