tbr 4q10 dell inc. report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


COMPUTER BUSINESS QUARTERLYSM

Dell Inc.Fourth Calendar Quarter 2010Fourth Fiscal Quarter 2011 Ended Jan. 28, 2011

TBR OUTLOOK – NEUTRAL TBR SCORE (0-10 SCALE)

5.09

Publish Date: March 14, 2011Author: Greg Richardson ([email protected]),CBQ AnalystContent Editor: John Spooner, CBQ Director

TBR

Dell Inc. 4Q10 | Computer Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis

3 Executive Summary 8 Strategic Overview 10 Corporate SWOT Analysis

14 Financial Model Strategy

17 Go-to-Market & Product Strategies

20 Alliance & Acquisition Strategies 21 Geographic Analysis 22 Resource Management Strategy 25 Future Outlook

Company Data Models

27 Income Statement28 Balance Sheet29 Segment Revenue Model30 Revenue Unit & ASP Model31 Geographic Model32 Operating Expense Model33 Financial Strategy Graphs35 Resource Management Graphs36 Future Outlook Graph37 Acquisition Table40 Alliances Tables43 Product Portfolio Table46 About TBR

Contents

TBR


Dell will leverage expansion in China and increasing demand for mobile devices to drive revenue growth in 2011

Key TBR Conclusions

Dell will give up PC unit growth at the expense of improved profitability

• Dell will no longer forfeit PC profitability to win on price. The company has committed to not waver from its pricing levels to augment unit growth, resulting in mostly flat ASPs year-to-year.

• Dell is leaning on ongoing supply chain simplification and changes to sales compensation to trigger improved sales effectiveness and increase gross margin.

• TBR expects Dell to leverage the increased capital flexibility from increased gross profits to invest in sales and marketing initiatives to create a longer runway to growth.

Mobile devices will provide growth opportunities in clients, infrastructure and services

• Dell is expanding its mobile device portfolio to capitalize on surging demand for tablets and smartphones, and is leveraging the low-cost devices as vehicles for growth in emerging markets.

• TBR anticipates that Dell will benefit from higher demand for infrastructure supporting mobile devices, including servers and storage to handle increased Internet datacenter traffic and mobile device management solutions to work with new devices in business environments.

Western China is the next great growth frontier for Dell

• TBR believes Dell will leverage its 10-year, $100 billion investment in Western China to expand its addressable market and drive growth by increasing the company’s “feet on the street” presence in tier-one and tier-two cities in Western China.

• Dell’s efforts to grow in China are aimed at reigniting global consumer demand, which has proved uncertain in recent quarters, particularly in mature markets.

Executive Summary

TBR


Dell’s goal of improved profitability is the blueprint for all the company’s strategic investments in 2011

Dell Corporate Strategies• Balance unit growth and profitability: Avoid

unprofitable sales, except in instances of strategic share gain, such as cloud computing or retail.

• Target the high end: Bundle professional services with enterprise servers and storage to enhance the Dell value proposition to businesses.

• Invest: Spend to improve Dell hardware and services through internal product development and acquisition.

TBR Position:Dell has prioritized improving profitability and is positioning its corporate initiatives and strategies –from acquisitions to sales approach – to help achieve this goal.• Dell is demonstrating that it will no longer forfeit PC

profitability to win on price. Instead, the company is focused on delivering improved gross margins in its PC business, enabling additional investments in sales and R&D to create a longer runway for growth.

• Dell has taken its focus away from selling individual hardware products and placed it on integrating its menu of offerings into larger, need-based solutions. The company will leverage this strategy to increase the efficiency of its sales process, while simultaneously adding margin through higher-value solutions.

• Dell is leveraging acquisitions to expand its solutions business, better positioning itself to achieve improved profitability. TBR expects Dell to maintain its acquisition momentum in 2011, targeting companies that can play crucial roles in its large, integrated solutions.

Executive Summary

DELL 4Q10 PERFORMANCE VS. EXPECTATIONS(In $ Millions) Consensus Guidance Range Actual

Revenue 15,720$ $15,480 - $16,040 15,692$

Operating Income 949$ N/A 1,145$

Non-GAAP EPS 0.37$ $0.33 - $0.43 0.48$ DELL 1Q11 GUIDANCE AND EXPECTATIONS

(In $ Millions) TBR Estimate Consensus Guidance Range

Revenue 15,618$ 15,490$ $14,860 - $15,840

Operating Income 1,205$ N/A N/A

Non-GAAP EPS N/A 0.34$ $0.30 - $0.39

TBR


A focus on innovation and providing customers with comprehensive, bundled solutions positions Dell for strong revenue and profit growthQuarterly Segment Performance

Segment Key Changes & Drivers 4Q10Revenue

Growth Y/Y Trends to Monitor

PCs

PC revenue growth decelerated in 4Q10, as consumer demand remained weak and Dell redirected its revenue and profit growth investments to its solutions business.

$8.4 billion 4.2%

Dell’s device business will leverage new mobile offerings based on Windows 7 and Android to drive growth in 2011.

Software & Peripherals

Increased sales of peripherals and strong global demand, particularly in APAC, contributed to S&P growth in 4Q10.

$2.7 billion 7.0%

TBR expects Dell to add emphasis to its S&P business in 2011, leveraging software as a key differentiator in its solutions business.

Servers & Storage

A better-than-expected pricing environment, coupled with demand resulting from enterprise and SMB IT refresh cycles, led to double-digit servers and storage growth in 4Q10.

$2.1 billion 15.9%

Dell will leverage investments in R&D and acquisitions to create high-value solutions that lead to cross-selling opportunities.

Enhanced Services

Increasing demand for large enterprise enhanced services set the stage for revenue and profit growth in 4Q10.

$1.9 billion 1.1%

Services will remain integral to Dell in developing a portfolio of all-inclusive, integrated solutions for increased corporate profitability.

Executive Summary

TBR


Dell will drive revenue and profit growth in 2011 by building integrated solutions and improving internal efficienciesRevenue• Revenue increased 5.3% year-to-year to $15.7 billion in 4Q10, driven

by strong performance within Enterprise Solutions and Services. • Server revenue led in terms of segment revenue growth, increasing

15.9% year-to-year during the quarter.• Notebook unit shipments increased 4.0% from the year-ago quarter

to 6.1 million, with desktop unit shipments growing 3.2% to 5.0 million in 4Q10.

Expenses• Dell’s operating expenses increased 9.5% year-to-year to $2.1 billion

and to 13.7% of total revenue, compared to 13.1% in 4Q09, as the company invested in its solutions teams and sales capacity to position for revenue growth.

• TBR estimates Dell’s headcount increased by 2,000 employees as the company integrated employees of acquired companies.

• COGS fell to 79.0% of revenue from 83.4% in 4Q09 as a result of lower component costs and improved sales efficiencies.

Margins• Dell’s focus on cost reduction and process optimization across its

business segments drove strong gross and operating income growth of 33.3% and 124.5% year-to-year, respectively.

• Dell’s gross margin increased to 21.0% in 4Q10 from 16.6% in 4Q09 and 19.5% in 3Q10; operating margin grew 60 basis points sequentially and 390 basis points annually to 7.3%.

$179 $169 $510 $1,145

$1,780 $1,977

$12,431$12,401

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

4Q09 4Q10

In $

Mill

ions

DELL OPERATING METRICS

COGS

SG&A

Operating Income

R&D

TBR

SOURCE: TBR AND DELL

$3,547 $3,278

$3,336 $3,749

$3,820 $3,973

$4,197 $4,692

$0

$4,000

$8,000

$12,000

$16,000

4Q09 4Q10

Reve

nue

(In

$ M

illio

ns)

Ca lendar Quarter

DELL GLOBAL BUSINESS SEGMENT REVENUE

Large Enterprise

Public

SMB

Consumer

TBR


Executive Summary

TBR


GO-TO-MARKET & PRODUCT METRICSTBR

ScoreCompany

FigureAverage in Class

Standard Deviation/2

Annual revenue per salesperson* 4.44 $3,615 $5,994 $4,240Cost per revenue dollar 5.42 0.07$ 0.09$ 0.03$ Cost per margin dollar 3.37 0.34$ 0.24$ 0.06$ Channel expense as a % of S&M expense 6.81 6.1% 19.8% 7.5%Marketing expense as a % of S&M expense 5.53 21.7% 26.3% 8.7%Annual sales expense per sales employee* 5.39 $236 $280 $111Annual marketing expense per marketing employee* 5.16 $270 $282 $75TOTAL AVERAGE TBR SCORE*in $ thousands

5.02

RESOURCE MANAGEMENT METRICSTBR

ScoreCompany



Days sales outstanding 3.68 58.1 47.1 8.4Turns on inventory 7.73 38.1 17.4 7.6Days inventory outstanding 7.42 9.6 36.6 11.2Fixed asset turnover 6.44 32.1 16.1 11.1Days cash outstanding 5.18 82.4 88.8 36.9Total asset turnover 6.93 1.6 1.1 0.2Debt/asset ratio 4.85 0.6 0.6 0.1Current ratio 4.67 1.5 1.6 0.3Return on assets 5.29 7.2% 6.2% 3.5%Return on equity 4.99 39.4% 40.1% 63.0%Headcount growth YTY 5.27 2.1% 4.1% 7.3%Annual revenue per employee 4.88 $631 $670 $324Annual G&A expense 5.96 $200 $259 $62Annual R&D expense per developer 6.54 $150 $296 $95TOTAL AVERAGE TBR SCORE*in $ thousands

5.83

4Q09 1Q10 2Q10 3Q10 4Q10Financial Model Strategy: 5.67 5.34 5.09 4.88 4.75Go-to-Market & Product Strategy: 5.14 5.09 5.10 5.20 5.02Resource Management Strategy: 6.25 6.01 5.73 5.63 6.32TOTAL AVERAGE TBR SCORE: 5.68 5.45 5.25 5.15 5.09

TBR SCORING SUMMARY:

Dell’s climb to profitability will remain slow, challenging its financialand overall TBR metrics through 1H11

Key ■ Represents an area where Dell is currently challenged versus peers ■ Represents an area where Dell is outperforming its peers

■ Represents an area where Dell is neither significantly outperforming nor underperforming its peers

FINANCIAL METRICSTBR

ScoreCompany



Revenue (in $ Mill ions) 5.75 15,692$ $12,081 $4,796Gross Margin 3.21 21.0% 36.4% 8.6%SG&A (% of revenue) 6.19 12.6% 18.1% 4.6%Sales & Marketing (% of revenue) 6.01 9.9% 14.2% 4.3%General & Admin (% of revenue) 6.36 2.7% 3.9% 0.9%R&D (% of revenue) 7.03 1.1% 7.4% 3.1%Operating Margin 4.45 7.3% 10.9% 6.5%Net Margin 4.70 5.9% 7.7% 5.8%Revenue Growth YTY 3.46 5.3% 20.4% 9.8%Gross Profit YTY change 5.11 33.3% 31.5% 15.6%SG&A YTY change 4.54 11.1% 7.0% 8.8%Sales & Marketing YTY change 5.02 8.2% 8.4% 10.5%General & Admin YTY change 3.20 22.9% 3.1% 11.0%R&D YTY change 6.52 -5.6% 9.5% 9.9%Operating income YTY change 4.71 124.5% 332.8% 725.5%Net Income YTY change 4.79 177.5% 599.1% 1973.3%TOTAL AVERAGE TBR SCORE 4.75

Dell’s strong resource management metrics, particularly inventory turns and days inventory outstanding, were hindered by underperformance in its financial metrics, as its consumer PC business continues to run at a loss, resulting in weak corporate margins compared to peers.

Executive Summary

TBR


Dell will achieve profit goals via IT bundles and expense cutsStrategy Overview

Function Key Strategies TBR Assessment

Overall

• Dell has reignited its PC business, growing units while increasing profits via expense cuts. • The company is making progress

in increasing profitability via solutions sales of servers, storage and services to enterprise customers.

►

• Dell’s server business is benefiting from the company’s solutions strategy, growing revenue by double digits in 4Q10.• Hardware components plummeted during 4Q10, while

improved restructuring efforts helped expand manufacturing efficiencies, pushing gross margin 440 basis points above 3Q09.

Financial

• Leverage Perot Systems to boost services profit by increasing sales of servers, services, storage and software.• Leverage cost cuts to bolster PC

profitability and fund price cuts to grow market share during the PC upgrade cycle.

►

• Dell’s acquisition of Perot Systems has increased services revenue by double digits on a year-to-year basis, but growth will slow in 4Q10 due to less favorable compares.• Dell’s gross margin experienced a revival in 4Q10 due to a

streamlined supply chain and a drop in component costs. Dell has also been trimming the fat from its laptop lineup, simplifying its consumer offerings to reduce costs.

Go-to-Market

• Expand global emerging markets presence by tapping retailers and VARs.• Deliver client and enterprise

products that address new market niches, ranging from smartphones to cloud computing.

►

• Dell is pursuing growth by using its position in retail and the VAR channel to drive hardware and services sales in emerging markets.• Dell will target commercial and public segments for

bundled, needs-based solution. For instance, Dell is delivering a healthcare-specific archiving system based on its ObjectStore platform.

TBR


Dell is reshaping its business by using acquisitions to invest in expansion outside the PC and x86 spacesFunction Key Strategies TBR Assessment

Alliances, Acquisitions & Resource Management

• Dell is directing R&D and acquisition activity to services, computing appliances, smartphones and tablets to capitalize on new opportunities for revenue and profit growth.

►

• Mobile devices have failed to attract attention in the consumer segment. Dell will be reabsorbing the segment back into the company, while altering its strategy to cater to public sector and enterprise.• It is too soon to tell whether Perot Systems will drive

sustained, high-double-digit growth of Dell servers and storage by encouraging Perot services-only customers to also purchase Dell hardware.

Operations & Global Delivery Model

• Dell is rearchitecting its PC designs and manufacturing to save on costs; the company consolidated its European PC production in Lodz, Poland and transferred its ownership to manufacturer Foxconn. • Dell is expanding its

manufacturing operations to China to improve costs of labor and increase unit sales in China’s fast-growing economy.

►

• Dell’s efforts to outsource manufacturing and redesign its PC platforms to extricate unnecessary costs have resulted in lower costs of goods sold.• Dell’s $100 billion investment in China over the next 10 years

will help solidify Dell’s commitment to sustain growth in region while aiming to reduce labor cost by bringing manufacturing to the region.

Strategy Overview

TBR


Dell will go where the growth is – to enterprise products and services – while expanding sales channels in global emerging markets

Corporate SWOT Analysis

Opportunities• Introduce Streak tablet to gain share in the

growing tablet market • Leverage acquisitions to create new

opportunities for revenue growth and profitability

• Target China’s fast-growing market by investing $100 billion to expand its presence and capabilities within the region

Weaknesses• Dell’s lack of profitability in consumer PCs takes

a toll on its PC gross margin • Poor consumer adoption of Dell’s mobile

devices has forced the company to go in a new direction, threatening short-term revenue and profit opportunities

• Dell’s presence in the retail space is weak compared to high-end brands with competitive pricing

Strengths• Dell’s diverse product and services lineup and

large PC and server installed base creates opportunities to upsell professional services

• The Dell Data Center Solutions group’s cloud computing business, with customers Amazon, Ask.com and Microsoft

• Dell’s Latitude E family of business notebooks• Dell’s position as a green IT vendor

Threats• Aggressive pricing in the cloud market will

limit profitability• HP’s growing diversity in services and

software threatens the Dell-on-Dell sales approach

• Despite sinking shipments, desktop PCs represent more than 20% of Dell’s quarterly revenue

TBR


Dell will leverage mobile device demand to cultivate client and enterprise sales and drive growth across its portfolio in 2011Scenario Analysis: Leverage mobile device adoption to drive revenue and profit growth across business units

Key takeaway: Tablets and smartphones will drive unit growth, creating a foundation for client and datacenter sales in 2011

• Demand for tablets and smartphones provides Dell with a two-pronged opportunity for growth: devices and the infrastructure needed to support them. On the device side, we expect Dell to aggressively pursue share in both consumer and commercial mobile device markets to drive volume growth. Dell is setting the stage for expansion in the mobile device space by delivering products based on Android and Windows 7 operating systems. TBR anticipates adoption between the two platforms will be different, as consumers demand the content consumption-focused Android devices, and professionals demand the application interoperability of a Windows-based system. In 4Q10, Dell launched its Venue and Venue Pro devices and will follow up with 10-inch Windows and Android tablets in 1H11.

• TBR expects Dell to capitalize on the demand for datacenter products that support the growing amount of data generated by mobile devices. Expanding on its solutions strategy, Dell unveiled mobile device management services for organizations that demand a tool to manage the onslaught of consumer-owned devices making their way onto networks. We anticipate Dell will couple these services with compute and storage infrastructure to drive high-margin, solutions sales in the mobile device management space.

Scenario Analysis

Consumer devices

Enterprise devices

Enterprise solutions

• In-demand products• Added scale through

larger volume

• Vertical-centric solutions

• Interoperable with existing Windows infrastructure

• Demand for servers and storage for increased traffic

• New services for mobile device management

Tablets and smartphones

Mobile device value-add across Dell’s portfolio

TBR


Acquisitions enable Dell to remain in step with competitors and rapidly expand its portfolio to accommodate changing customer needs

Scenario Analysis: Utilize acquisitions to build a high-margin solutions portfolio

Key takeaway: Acquisitions accelerate Dell’s push into a cloud-and vertical-centric solutions focus, and enable Dell to keep pace with growing competitors • TBR expects Dell to maintain its acquisition momentum in 2011,

targeting firms that offer value-add, adjacent technologies that enhance the capabilities of Dell’s core products.

• Acquisitions enable Dell to rapidly augment its portfolio to accommodate key growth areas, such as cloud and vertical-centric computing, while helping establish the company as a solutions provider rather than point-product vendor.

• Acquisitions enable Dell to keep pace with key competitors, including HP, IBM and, increasingly, EMC, which are all aggressively escalating their solutions focus.

• TBR expects competitive efforts in the acquisition space to remain strong through 2011, as IT purchasers are increasingly turning to IT providers as trusted advisors rather than simply product vendors.

• Dell’s efforts to expand via acquisition were evidenced in 4Q10 by the following purchases:• Compellent Technologies – Virtualized storage• SecureWorks Inc. – Security for cloud environments• InSite One Inc. – Cloud-based medical archiving technology• Boomi – Cloud integration services

Scenario Analysis

StorageCompellent – Virtualized-storageOcarina – Deduplication and compressionEqualLogic – iSCSI-based storage arrays

Software and AppliancesScalent– Integration management solutionsASAP software – Remote managementKACE – Systems management appliance

ServicesPerot – Professional servicesAllin – IT consulting for Microsoft environments

Cloud Boomi – Professional servicesSecureWorks – Security for cloud environmentsInSite One – Cloud-based medical archiving

Dell acquisitions in key growth areas

TBR


Dell will expand its presence in emerging Chinese cities to drive volume growth and offset uncertain consumer demand in mature marketsScenario Analysis: Expand in Western China to capitalize on an underpenetrated, growing customer base

Key takeaway: Dell’s sales, marketing and customer service investments in Western China are aimed at accelerating growth by building a stronger local presence with more feet on the street.

• Dell is positioning for growth in second- and third-tier cities by investing $100 billion in manufacturing, customer service, sales and marketing over the next 10 years in Western China, which Dell sees as underpenetrated compared to the more established regions surrounding Shanghai and Beijing. In January, Dell opened its first Western China Customer Service Center, located in Chengdu, as part of this investment.

• TBR expects Dell to leverage its growing portfolio of low-cost devices to penetrate cost-sensitive markets in less-developed regions. In April, Dell will utilize a “smart” product launch in Beijing to demonstrate the capabilities of its smartphones, tablets and other mobile devices to the Chinese market.

• Dell will open more than 1,000 “commercial experience centers” in China during 2011 to reduce the company’s traditional reliance on phone and web orders and increase its “feet on the street” presence in the region.

• Dell is timing its push into China to charge head-first at Lenovo, which remains the incumbent share champion in the region, while taking advantage of quality and customer service issues that surfaced with HP in China in 2010.

Existing Dell China location

New Dell China location

Shanghai – R&D and product design

Dalian – International service center

Xiamen – Two manufacturing facilities; one enterprise command center

Chengdu – Manufacturing and customer support centers

Map of Dell’s China facilities

Scenario Analysis

TBR


Dell’s efforts to improve its cost structure while simultaneously investingin its product portfolio lay the foundation for new growth during 1H11

Financial Model Strategy

Revenue Performance Revenue and Growth Drivers

4Q10 Revenue: $15.7 billion, 5.3% YTY

• Dell’s efforts to develop needs-based solutions to capitalize on the corporate refresh cycle and offset weak consumer spending drove corporate revenue growth during 4Q10.

• Segment growth was led by Dell’s server business, which increased 15.9% YTY to $2.1 billion, or by 120 basis points, to 13.3% of revenue, and its SMB business, which rose 12.4% YTY to $3.7 billion, or by 150 basis points, to 23.9% of revenue.

Revenue & Growth Outlook

• TBR estimates Dell’s corporate revenue will increase by 5.0% annually in 1Q11, as the company works to cut costs while simultaneously investing moderately to position for future growth.

• A favorable cost environment and strong services backlog is expected to help overcome a historical seasonal dip in both public and consumer spending to result in a profitable 1Q11.

0%

10%

20%

30%

40%

50%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.

Perc

ent A

pps

Reve

nue

DELL PERCENT REVENUE BY SEGMENT

Global Consumer Americas Commercial EMEA Commercial APAC Commercial

TBR


11.0%

20.5%21.7%

19.4%

5.3% 5.0% 16.2%

5.0%7.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

$0$10$20$30$40$50$60$70

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11Est.

CY10 CY11Est.

CY12Est.

In $

Bill

ions

DELL'S NET REVENUE, GROWTH AND PROJECTIONS

Revenue Revenue Growth Year-to-Year Net

Rev

enue

Gro

wth

Yea

r-to

-yea

r

NOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively.SOURCE: DELL AND TBR

TBR

TBR


Reduced component and direct labor costs position Dell for revenueand margin growth going forward

Cost & Margin Performance Cost Structure & Margin Performance

4Q10 Total OPEX: $2.1 billion

COGS,Gross

Margin

• Dell’s COGS was 79.0% of revenue, down from 80.5% in 3Q10 and 83.4% in 4Q09 as a result of reduced component costs and efforts to consolidate its consumer and SMB businesses, both ultimately driving gross margin in 4Q10.

• Dell’s gross margin increased to 21.0% in 4Q10 from 16.6% in 4Q09.

SG&A

• SG&A expense increased 11.1% YTY and accounted for 12.6% of 4Q10 revenue.

• Dell invested to expand its solutions and sales capacity and improve its employee compensation plans to drive growth.

Operating Margin & Outlook

• Dell’s operating margin increased 390 basis points from 4Q09, and 60 basis points from 3Q10, to 7.3% in 4Q10.

• TBR estimates Dell’s operating margin will continue to grow on year-to-year and sequential bases, reaching 7.7% in 1Q11.


46,010 46,010 46,010 45,000 45,000

20,425 20,425 20,425 21,400 21,400

17,029 17,029 17,029 18,800 18,8008,236 8,236 8,236 8,300 8,300

4,300 4,300 4,300 4,500 4,500

0

20,000

40,000

60,000

80,000

100,000

4Q09 1Q10 2Q10 3Q10 4Q10

Tota

l Hea

dcou

nt

DELL HEADCOUNT

Research & Development General & Administrative Manufacturing

Sales & Marketing Services & Support

TBR


16.6% 16.9% 16.6%19.5% 21.0% 21.5%

18.5% 19.5% 18.0%

3.4% 3.5% 4.8%6.7% 7.3% 7.7% 5.6%

7.8% 6.3%

0%

5%

10%

15%

20%

25%

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est. CY10 CY11 Est. CY12 Est.

Gro

ss a

nd O

pera

ting

Mar

gin

DELL'S GROSS AND OPERATING PROFIT AND PROJECTIONS

Gross Margin Operating Margin

NOTE: Annual gross and operating profit and projections are for calendar 2010 , 2011, and 2012,respectively.SOURCE: TBR AND DELL

TBR

TBR


Strong commercial demand will help Dell overcome weak consumer spend and unfavorable compares in its services business and drive growth

Segment Performance Segment Drivers

Segment Financials

PCs

• Dell’s notebook PC revenue increased 4.2% year-to-year, with 4.3% unit shipment growth offsetting a slightly depressed ASP.

• Dell’s desktop revenue grew 3.7% year-to-year, as 3.2% unit shipment growth augmented a slight uptick in ASP.

Servers & Storage

• Double-digit gains in server revenue overcame a 4.2% YTY decline in external storage revenue to drive segment growth.

• Dell’s server revenue growth was driven by strong demand for both blade and rack servers from enterprise and SMB customers during the quarter.

Services

• Enhanced services revenue grew 1.1% YTY in 4Q10, muted by an unfavorable compare resulting from the Perot acquisition.

• Dell’s service segment is expected to rise by 70 basis points YTY to 13.4% of corporate revenue in 1Q11.

Software & Peripherals

Dell’s Software & Peripherals revenue grew 7.0% year-to-year in 4Q10 as demand for additional displays remained strong.


-40%-20%0%20%40%60%80%100%

0%

5%

10%

15%

20%

25%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11Est.

Reve

nue

Gro

wth

Mar

gins

DELL PROFITABILITY AND GROWTH

Gross Margin Operating Margin Net Margin Revenue Growth Year-to-Year

SOURCE:TBR AND DELL

TBR

$8,098 $8,148 $8,570 $8,504 $8,434 $8,482

$2,477 $2,496 $2,535 $2,579 $2,651 $2,365 $1,804 $1,785 $1,890 $1,844 $2,090 $1,999 $1,922 $1,891 $1,915 $1,924 $1,943 $2,100

$599 $554 $624 $543 $574 $672

0%

20%

40%

60%

80%

100%

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.Perc

ent o

f Tot

al R

even

ue

DELL SEGMENT CONTRIBUTIONS

Storage Services Server SW & Peripherals PC


TBR

TBR


Go to Market & Product Strategies

Dell leverages a strong solutions strategy to capitalize on a commercial IT refresh cycle and combat the effects of weak consumer spending

Segment Key Changes & Drivers Estimated Revenue

Y/Y Growth Trends to Monitor

Large Enterprise

The Large Enterprise segment posted strong revenue growth and improved profitability, as customers invested to refresh IT systems and resume projects put on hold by the economic recession, and as the product mix shifted to solutions.

$4.7 billion 11.8%

Dell will target continued momentum in the Large Enterprise market by focusing on vertical-specific and integrated solutions.

PublicRevenue from the public sector increased to approximately 40% of Dell’s services revenue in 4Q10 despite tight customer spending in Europe.

$4.0 billion 4.0%

The public sector will maintain revenue and profit growth into 1H11, due to a shifting product mix toward solutions and stabilizing demand.

SMBIn 4Q10, SMB led Dell’s customer segments in revenue growth, as Dell continued to leverage Perot to drive its solutions business down the stack.

$3.7 billion 12.4%

Dell will continue working to expand into emerging markets like India and China to accelerate SMB growth in 1H11.

Consumer

The consumer segment bucked traditional seasonality and experienced revenue decline in 4Q10, primarily due to an unfavorable compare as a result of a strong Windows 7 launch in 4Q09.

$3.3 billion –7.6%

TBR estimates Dell’s consumer revenue will grow 6.2% YTY in 1Q11, though declining by 250 basis points as a percentage of revenue to 19.3%, as Dell ramps investment to drive greater profitability from the segment.

TBR


Dell will ride a wave of demand for tablets to accelerate growth in the consumer and commercial markets in 2011Tablets will provide Dell with tools to uncork growing portions of the consumer and commercial markets, positioning the company to inject unit and profit growth into its PC business• Dell will leverage tablets to buck recent headwinds in the consumer market. The company announced it will

deliver 10-inch Android and Windows 7-based systems in 1H10, aiming to shed the image of its initial 7-inch Streak device, which faced adoption challenges.

• TBR expects Dell to drive tablet expansion in the enterprise market with its Windows 7 tablet, due out in 1H11. We believe tablet adoption in the enterprise will increase with Windows, as users seek interoperability with common business applications. Additionally, we anticipate Dell will work to couple its mobile device management services with servers, storage and tablets as a larger solution.

Indirect Sales Approach• Leverage retail and VAR partners to

sell consumer and business systems on a worldwide basis

• Utilize two to three top retailers in each geography; focus on notebook PCs

• Support VAR partners with geo-specific products (such as Vostro A), specialized pricing, marketing resources, training/certification and Dell support services

• Offer VARs deal registration

Direct Sales Approach

• Deliver a range of business and consumer PCs and services directly to customers

• Provide a consultative sales approach to customers, including the best elements of Dell’s product portfolio, regardless of geography

• Target top enterprise customers’ integrated product bundles while providing enhanced products and services to SMBs and consumers

Dell Revenue Contributionsby Customer Segment

reflects increase or decrease as a percent of overall revenue during the quarter

21%Consumer

24%SMB

25%Public

30%Large Enterprise


TBR


Dell is leveraging the combination of its products and services to create vertical-centric solutionsIndustries Products & Strategies Market Implications

GovernmentDell is targeting its solutions strategy to its government customers as the company leverages its products and services to provide support to the U.S. government and military.

Dell is driving customer adoption of its products and services through providing integrated solutions that address key vertical customer pain points.

Education Dell is developing need-based solutions to address the particular customer pain points within the education industry, including the coupling of the infrastructure and client pieces of the company’s portfolio.

Healthcare• Dell remains aggressively committed to developing comprehensive,

fully-integrated solutions that integrate Intelligent Data Management with hardware, creating a patient-centric healthcare environment.

• To bring this solutions concept to fruition, Dell continues to engage in acquisitions of solution-based companies, as evidenced by the purchase of InSite One, a developer of cloud-based medical archiving technologies, announced in December 2010.

• Capitalizing on growing demand for mobility is key to Dell gaining traction in healthcare; the company piloted Mobile Clinical Computing solutions at 10 European hospitals in 4Q10.


TBR


Dell is dipping into its wallet to enhance its portfolio of enterprise solutions to drive revenue and profit expansionTBR Assessment: Strategic acquisitions enable Dell to grow its enterprise storage, services and solutions businesses

Dell leverages acquisitions to shed its M.O. of high-volume PC and x86 server manufacturer to become a provider of solutions that offer functionality and position for diversified revenue

Acquisitions are paving the road to diverse revenue and profit growth• Dell continues to leverage acquisitions to expand outside of its core business areas. Through

acquired companies, Dell is building an arsenal of solutions to attach to its standard hardware products, better positioning the company to compete with the likes of IBM and HP, which go to market with large, integrated solutions.

• TBR believes the acquisitions will support Dell’s corporate profit growth. Offering hardware and software that enable the development of virtualized environments as well as design, implementation and support services enable Dell to position itself as a solutions provider. Dell can use its strength in standard hardware to drive attached sales of higher-margin software and services.• In December, Dell acquired SAN-vendor Compellent Technologies to round out its storage

portfolio and add fuel to its push into the enterprise cloud and virtualization markets. Dell will leverage Compellent’s SAN portfolio combined with EqualLogic’s iSCSI portfolio and Dell’s DAS and object-storage offerings to penetrate storage markets up and down its stack. Dell will augment its x86 business with Compellent’s SAN portfolio to go to market with stronger integrated datacenter solutions.

• Also in December, Dell announced its intent to purchase cloud-based medical archiving solutions developer InSite One. Dell will augment its proprietary hardware offerings with InSite One’s technology to develop patient-centric solutions and gain a stronger foothold in the rapidly growing vertical.

• In February, Dell acquired Security-as-a-Service provider SecureWorks, which has expertise around Managed-Security Services, Security and Risk Consulting Services and Threat Intelligence.

Alliance & Acquisition Strategy

TBR


Dell continues to develop integrated solutions offerings to gain a stronger foothold in emerging markets and combat weakness in mature markets

Geographic Analysis

Geo Key Changes & Drivers Revenue Y/YGrowth Trends to Monitor

U.S./ Americas

The Americas region is Dell’s largest geographic revenue contributor, accounting for 58.8% of corporate revenue and posting its fifth consecutive quarter of year-to-year revenue growth following the recession.

$9.2 billion 3.0%

TBR anticipates the Americas will sustain moderate year-to-year revenue growth in 1Q11, as Dell touts strong integrated enterprise solutions and as consumer demand strengthens.

EMEADell’s EMEA revenue declined by 50 basis points from 4Q09 to 22.2% of revenue, due to continued reductions in government spending within the region.

$3.5 billion 3.0%

TBE expects Dell to post double-digit growth in EMEA in 1Q11, as economic recovery drives increased public and consumer spending.

APAC

Dell’s APAC revenue increased 180 basis points year-to-year to 19.0% of total revenue and maintained Dell’s strongest geographic growth rate in 4Q10, driven by success in the emerging markets of Southeast Asia.

$3.0 billion 16.5%

TBR believes Dell’s APAC revenue will grow 100 basis points YTY to 18.1% of revenue in 1Q11, as Dell increases its IT management solution offerings to expand its traction in the region.

Emerging Markets

The contribution to revenue from BRIC countries increased to 13% in 4Q10, growing 21% annually led by India, which rose 37%. Dell works to capitalize on consumer and commercial demand brought about by strengthening economies via an increased channel presence and developing a competitive portfolio of integrated solution offerings.

Dell will work to drive sales of its enterprise-level products and services to gain a stronger foothold and increase its margins in key emerging markets globally.

TBR


Investments in acquisitions will bring Dell new technologies and talent upon which it can build a solutions business

InvestmentsDell remains focused on leveraging acquisitions to

inorganically expand its storage and services capabilities and grow revenue

• Dell announced its signings of definitive agreements to acquire Compellent Technologies, a virtual storage provider, and Security-as-a-Service provider SecureWorks, in 4Q10.

• In early January, Dell acquired InSite One Inc., a cloud-based medical archiving company.

• In November, Dell announced its agreement to acquire Software-as-a-Service integration leader Boomi.

Headcount• During 4Q10, Dell kept headcount flat sequentially,

at 98,000 employees, up 2.1% year-to-year as it balances recent employee additions, namely Perot’s 23,000 employees, with streamlining efforts in less profitable areas.

• TBR anticipates the majority of Dell’s cost savings will come from efforts to reduce COGS, outsource manufacturing to low-cost countries such as Mexico, and otherwise streamline business processes, rather than through headcount attrition in the future.

Dell employs about 15,000 in India and China.

More than 40,000 of Dell’s 98,000 full-time employees

are located in the United States.

More than 10,000 are located in Dell’s Round Rock, Texas facilities.

TBR expects Dell to increase its staff in China in 2011 to

continue driving higher sales in the emerging market.

Dell’s Worldwide Operations

SOURCE: DELL AND TBR

Resource Management Strategy

Management Changes• In December, Dell appointed Royal Philips Electronics

President and CEO Gerard Kleisterlee to its board of directors. TBR believes Kleisterlee’s experience leading the global operations of all facets of Philips’ business, with a focus on Europe and Asia, will drive Dell’s global expansion.

• Additionally, Dell named Alex Mandl, a board member since 1997, as independent presiding director of the board, replacing Sam Nunn, who is scheduled to retire from the board in July.

TBR


TBR anticipates minimal headcount growth in 1Q11, as Dell works to optimize its expenses and drive profitability going forward

Function Key Changes & Drivers FTEs Y/Y Growth Trends to Monitor

Sales & Marketing

Dell continued to grow its sales and marketing headcount in 4Q10, to enhance its capabilities (with a focus on enterprise solutions) and drive new unit shipment growth.

21,400 4.8%

TBR expects a deceleration to Dell’s sales and marketing headcount growth entering 2011, as the company works to cut down on its costs.

General & Admin.

Dell’s G&A headcount remained nearly stagnant on a year-to-year and sequential basis due to the completion of the integration of Perot and ongoing efforts to streamline business processes.

8,300 0.8%

TBR anticipates null G&A headcount growth for Dell on a year-to-year basis entering 1Q11, as the company works to sustain tight cost controls.

Research & Development

Dell’s R&D headcount maintained moderate growth in 4Q10, as the company invested to shift its business mix toward sales of more profitable enterprise solutions.

4,500 4.7%We expect Dell to augment strategic relationships with R&D spend in upcoming quarters, as a key lever for future growth.

Low-cost Regions

Dell’s plans to open two manufacturing plants in Chengdu, China in 2011, which will increase its headcount in the region by approximately 3,000 people.

Dell will continue increasing its headcount in emerging markets throughout future quarters to capitalize on the significant potential for growth in the regions.


TBR


Dell Inc. Organizational ChartMichael S. Dell

Chairman of the BoardChief Executive Officer

Brad R. AndersonSenior Vice President

Enterprise Product Group

Lawrence P. TuSenior Vice President

General Counsel

Erin NelsonSenior Vice President

Chief Marketing Officer

David L. JohnsonSenior Vice President

Corporate Strategy

Stephen F. SchuckenbrockPresident

Dell Services

Stephen J. FelicePresident,Consumer and Small and Medium Business

Ron RoseSenior Vice President

Dell.com

Paul D. BellPresidentPublic and Large Enterprise

Steve H. PriceSenior Vice President

Human Resources

Jeffrey W. ClarkeVice Chairman

Operations & Technology


Brian T. GladdenSenior Vice President

Chief Financial Officer

Management Changes• On Jan. 1, 2011, Dell dissolved its Communications Group. The group’s former president, Ronald G. Garriques, will

stay with Dell as a consultant throughout 2011.• Also in January, Stephen Schuckenbrock left his post as president of Dell’s Large Enterprise segment to succeed Peter

Altabef as president of Dell Services upon the completion of the integration of Perot. Paul Bell, President of Dell’s Public segment, will lead the newly combined Public and Large Enterprise segment.

TBR


Dell will expand its storage and services business by leveraging acquisitions and alliancesTBR Outlook

Company Strategy

• To drive profitability, Dell continues to shift toward becoming a solutions provider rather than strictly a PC manufacturer by expanding its software and services capabilities, largely through strategic acquisitions, to bundle with its servers and storage systems for enterprise businesses.

• Dell will evolve its mobile device business to increase scale and drive down cost by rolling it into the rest of the company’s operations.

• Maintain a cost structure that is efficient and appropriate for demand.

Resource Management

• Dell will continue to realize upward-trending gross margins in 2011 due to a better cost environment and operational improvements to its consumer business, including expanding its manufacturing and design operations in low-cost regions.

• As Dell invests to grow sales and its enterprise business, and reacts to increased demand, TBR expects operating expenses, particularly those related to sales and marketing and research and development business processes, to rise.

Acquisitions

• TBR expects Dell to continue to make targeted software and services acquisitions, both large and small, as the company expands its portfolio with integrated, end-to-end storage and services offerings to increase its competitiveness with rivals such as Hewlett-Packard and EMC.

• We anticipate Dell will continue to leverage both acquisitions and alliances to augment its portfolio with vertical-specific technologies, to expand its traction in markets with high-growth potential, such as healthcare.

Future Outlook

TBR


High-growth emerging markets will capture Dell’s focus as mature markets continue to limit the company’s PC revenue growthTBR Outlook

Geo

• China’s western province of Sichuan will become a focal point of growth for Dell. The company will invest $100 billion over the next 10 years in increasing its presence in the region.

• Dell will continue to experience rebounds in revenue growth across all geographies as economies recover and businesses and consumers increase IT spending.

• The company remains focused on driving sales in BRIC countries, expanding upon the growth which reportedly drove its net revenues up 13% in 4Q10.

Financial• TBR believes Dell’s PC ASPs will continue rising as a result of an increasing mix of commercial

PCs due to the global enterprise PC refresh cycle.• We predict gross profit will improve as Dell continues to drive efficiency into its manufacturing

processes while utilizing low-cost labor though outsourcing.

Go-to-Market

• Dell is streamlining its consumer PC business down to three models – XPS, Inspiron and Alienware – to increase efficiency and position itself for profitable growth.

• TBR expects Dell to continue evaluating opportunities for growth by realigning its tactics to capitalize on emerging markets and product areas, while streamlining its core businesses, such as consumer PCs, to improve profitability.

Future Outlook

TBR


Income Statement

DELL INC.

In thousands except earnings per share dataCALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.FISCAL QUARTER F4Q10 F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 Est.Net Sales 14,900,000$ 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,618,000$ Cost of Sales 12,431,000 12,358,000 12,948,000 12,391,000 12,401,000 12,260,000 Gross Profit 2,469,000 2,516,000 2,586,000 3,003,000 3,291,000 3,358,000

SG&A 1,780,000 1,830,000 1,679,000 1,816,000 1,977,000 1,983,000 R&D 179,000 167,000 162,000 163,000 169,000 170,000 Operating Income 510,000 519,000 745,000 1,024,000 1,145,000 1,205,000

Financing and Other (41,000) (68,000) (49,000) 52,000 (18,000) (21,000) Pre-Tax Income 469,000 451,000 696,000 1,076,000 1,127,000 1,184,000

Income Taxes 135,000 110,000 151,000 254,000 200,000 199,000 Net Income 334,000$ 341,000$ 545,000$ 822,000$ 927,000$ 985,000$

Earnings Per Share 0.17$ 0.17$ 0.28$ 0.42$ 0.48$

Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Sales 83.4% 83.1% 83.4% 80.5% 79.0% 78.5%Gross Margin 16.6% 16.9% 16.6% 19.5% 21.0% 21.5%SG&A 11.9% 12.3% 10.8% 11.8% 12.6% 12.7%R&D 1.2% 1.1% 1.0% 1.1% 1.1% 1.1%Operating Expenses 13.1% 13.4% 11.9% 12.9% 13.7% 13.8%Operating Margin 3.4% 3.5% 4.8% 6.7% 7.3% 7.7%Net Margin 2.2% 2.3% 3.5% 5.3% 5.9% 6.3%YEAR-TO-YEAR CHANGENet Sales 11.0% 20.5% 21.7% 19.4% 5.3% 5.0%Cost of Sales 11.8% 21.5% 24.8% 16.2% -0.2% -0.8%Gross Profit 6.8% 16.1% 8.2% 34.5% 33.3% 33.5%SG&A 6.0% 13.5% 6.9% 21.0% 11.1% 8.4%R&D 1.7% 18.4% 8.7% 5.2% -5.6% 1.8%Operating Expenses 5.6% 13.9% 7.0% 19.5% 9.5% 7.8%Operating Income 11.6% 25.4% 11.0% 77.5% 124.5% 132.2%F/O 1266.7% 3300.0% 16.7% -182.5% -56.1% -69.1%Ebitda 3.3% 9.5% 10.7% 109.3% 140.3% 162.5%Income Taxes 31.1% -9.8% -3.8% 43.5% 48.1% 80.9%Net Income -4.8% 17.6% 15.5% 143.9% 177.5% 188.9%SOURCE: DELL INC.

Consolidated Statement of Income

AS A PERCENTAGE OF REVENUE

TBR

TBR


Balance Sheet

DELL INC.Consolidated Balance Sheets (In Thousands)CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10FISCAL QUARTER F4Q10 F1Q11 F2Q11 F3Q11 F4Q11ASSETSCurrent AssetsCash and Cash equivalents 10,635,000$ 10,255,000$ 11,694,000$ 12,889,000$ 13,913,000$ Short-term Investments 373,000 627,000 744,000 492,000 452,000 Accounts Receivable 5,837,000 5,880,000 6,565,000 6,407,000 6,493,000 Financing Receivables 2,706,000 3,221,000 3,272,000 3,588,000 3,643,000 Inventory 1,051,000 1,182,000 1,372,000 1,294,000 1,301,000 Other (Deferred Income Taxes, etc.) 3,643,000 3,619,000 3,562,000 3,118,000 3,219,000 Total Current Assets 24,245,000 24,784,000 27,209,000 27,788,000 29,021,000Property, Plant, & Equipment 2,181,000 2,049,000 1,980,000 1,948,000 1,953,000 Equity Securities and Other Invest. 781,000 714,000 633,000 662,000 704,000 Long-term Financing Receivables 332,000 528,000 622,000 709,000 799,000 Other Non-current Assets 345,000 327,000 294,000 235,000 262,000 Total Assets 33,652,000$ 34,241,000$ 36,640,000$ 37,154,000$ 38,599,000$ LIABILITIES AND EQUITYCurrent LiabilitiesShort-term Borrowings 663,000 1,079,000 1,627,000 826,000 851,000 Accounts Payable 11,373,000 11,402,000 12,465,000 11,278,000 11,293,000 Accrued Liabilities 3,884,000 3,449,000 3,812,000 3,898,000 4,181,000 Total Current Liabilities 18,960,000 18,880,000 20,913,000 19,095,000 19,483,000 Long-Term Debt 3,417,000 3,582,000 3,623,000 5,168,000 5,146,000 Other Non-current Liabilities 5,634,000 5,801,000 5,943,000 6,078,000 6,204,000 Total Liabilities 28,011,000 28,263,000 30,479,000 30,341,000 30,833,000 Total Stockholders' Equity 5,641,000 5,978,000 6,161,000 6,813,000 7,766,000

Total Liabilities & Equity 33,652,000$ 34,241,000$ 36,640,000$ 37,154,000$ 38,599,000$ SOURCE: DELL INC.

TBR

TBR


Appendix – Financial Models

CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.REVENUE (IN $ THOUSANDS) F4Q10 F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 Est.Total 14,900,000$ 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,618,000$ System 10,501,000$ 10,487,000$ 11,084,000$ 10,891,000$ 11,098,000$ 11,153,000$ Peripheral Products 2,477,000$ 2,496,000$ 2,535,000$ 2,579,000$ 2,651,000$ 2,365,000$ Enhanced Services 1,922,000$ 1,891,000$ 1,915,000$ 1,924,000$ 1,943,000$ 2,100,000$ Gross Profit 2,469,000$ 2,516,000$ 2,586,000$ 3,003,000$ 3,291,000$ 3,358,000$ Gross Margin 16.6% 16.9% 16.6% 19.5% 21.0% 21.5%REVENUE MODELDesktops 3,060,000$ 3,185,000$ 3,460,000$ 3,226,000$ 3,174,000$ 3,124,000$ Portables 4,503,000$ 4,408,000$ 4,540,000$ 4,693,000$ 4,690,000$ 4,763,000$ Workstations 535,000$ 555,000$ 570,000$ 585,000$ 570,000$ 595,000$ DT Workstation 385,000$ 400,000$ 410,000$ 420,000$ 410,000$ 423,000$ NB Workstations 150,000$ 155,000$ 160,000$ 165,000$ 160,000$ 172,000$ Servers 1,804,000$ 1,785,000$ 1,890,000$ 1,844,000$ 2,090,000$ 1,999,000$ External Storage 599,000$ 554,000$ 624,000$ 543,000$ 574,000$ 672,000$ Peripheral Products 2,477,000$ 2,496,000$ 2,535,000$ 2,579,000$ 2,651,000$ 2,365,000$ Enhanced Services 1,922,000$ 1,891,000$ 1,915,000$ 1,924,000$ 1,943,000$ 2,100,000$ Total 14,900,000$ 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,618,000$ PERCENTAGE OF TOTAL REVENUEDesktops 20.5% 21.4% 22.3% 21.0% 20.2% 20.0%Workstations 3.6% 3.7% 3.7% 3.8% 3.6% 3.8%Portables 30.2% 29.6% 29.2% 30.5% 29.9% 30.5%Servers 12.1% 12.0% 12.2% 12.0% 13.3% 12.8%External Storage 4.0% 3.7% 4.0% 3.5% 3.7% 4.3%Peripheral Products 16.6% 16.8% 16.3% 16.8% 16.9% 15.1%Services 12.9% 12.7% 12.3% 12.5% 12.4% 13.4%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%YEAR-TO-YEAR REVENUE GROWTHDesktops 1.7% 13.2% 17.1% 21.5% 3.7% 2.1%Workstations -25.2% 16.8% 15.2% 18.2% 6.5% 11.2%Portables 18.1% 17.5% 20.7% 15.6% 4.2% 5.8%Servers 26.1% 38.8% 34.7% 19.8% 15.9% 10.8%External Storage -14.8% 3.7% 13.2% 6.9% -4.2% 12.2%Peripheral Products -0.4% 11.1% 6.4% 7.7% 7.0% -4.5%Services 51.3% 52.7% 57.2% 54.7% 1.1% 9.3%Total 11.0% 20.5% 21.7% 19.4% 5.3% 4.8%SOURCE: TBR ESTIMATES AND DELL FINANCIALS

DELL REVENUE MODEL TBR

TBR



CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10REVENUE (IN $ THOUSANDS) F4Q10 F1Q11 F2Q11 F3Q11 F4Q11REVENUE MODEL 57.5% 56.0% 54.8% 57.1% 57.5%Total Desktop 3,445,000$ 3,585,000$ 3,870,000$ 3,646,000$ 3,584,000$ Total Portable 4,653,000$ 4,563,000$ 4,700,000$ 4,858,000$ 4,850,000$ Desktops 3,060,000$ 3,185,000$ 3,460,000$ 3,226,000$ 3,174,000$ Portables 4,503,000$ 4,408,000$ 4,540,000$ 4,693,000$ 4,690,000$ Workstations 535,000$ 555,000$ 570,000$ 585,000$ 570,000$ DT Workstations 385,000$ 400,000$ 410,000$ 420,000$ 410,000$ NB Workstations 150,000$ 155,000$ 160,000$ 165,000$ 160,000$ Servers 1,804,000$ 1,785,000$ 1,894,050$ 2,077,650$ 2,090,000$ Total 9,902,000$ 9,933,000$ 10,464,050$ 10,581,650$ 10,524,000$ UNIT SHIPMENTS (IN THOUSANDS)Total Desktop 4,675 4,728 5,271 4,651 4,824Total Portable 5,975 5,718 5,822 6,024 6,233Desktops 4,465 4,511 5,045 4,419 4,599Portables 5,907 5,649 5,731 5,931 6,143Workstations 278 286 317 324 315 DT Workstations 210 217 226 231 225 NB Workstations 68 69 91 93 90Servers 469 487 511 459 498Total 11,119 10,933 11,604 10,768 11,147UNIT SHIPMENT GROWTH YEAR-TO-YEAR Total Desktop 0.8% 12.3% 12.0% 13.0% 3.2%Total Portable 32.4% 26.7% 20.6% 10.4% 4.3%Desktops 2.1% 12.0% 11.8% 12.7% 3.0%Portables 33.5% 27.0% 20.3% 10.0% 4.0%Workstations -21.5% 17.7% 21.0% 23.8% 13.3% DT Workstations -20.8% 19.9% 15.9% 18.7% 7.1% NB Workstations -23.6% 11.3% 35.8% 38.7% 32.4%Servers 17.0% 30.0% 15.0% 4.0% 6.0%Total 16.4% 20.2% 16.3% 7.5% 0.2%PC HARDWARE AVERAGE SALES PRICE PC Total Desktop 737$ 758$ 734$ 784$ 743$ Total Notebook 779$ 798$ 807$ 806$ 778$ Desktops 685$ 706$ 686$ 730$ 690$ Portables 762$ 780$ 792$ 791$ 763$ Workstations 1,924$ 1,941$ 1,798$ 1,804$ 1,810$ DT Workstations 1,833$ 1,843$ 1,814$ 1,815$ 1,822$ NB Workstations 2,206$ 2,246$ 1,758$ 1,775$ 1,778$ Servers 3,843$ 3,667$ 3,706$ 4,529$ 4,200$ Dell AUP (w Peripherals/Services) 1,340$ 1,360$ 1,339$ 1,430$ 1,408$

Dell Hardware AUP 891$ 909$ 902$ 983$ 944$

DELL PC & SERVER REVENUE, UNIT, AND ASP MODEL

SOURCE: TBR ESTIMATES AND DELL FINANCIALS

TBR

TBR



CALENDAR 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.IN $ MILLIONS F4Q10 F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 Est.Total Revenue 14,900$ 14,874$ 15,534$ 15,394$ 15,692$ 15,618$ REVENUE BY REGIONAmericas 8,958$ 9,076$ 9,575$ 9,464$ 9,227$ 9,215$ EMEA 3,381$ 3,255$ 3,300$ 3,245$ 3,483$ 3,581$ APJ 2,560$ 2,543$ 2,658$ 2,686$ 2,982$ 2,823$ AS A PERCENTAGE OF REVENUEAmericas 60.1% 61.0% 61.6% 61.5% 58.8% 59.0%EMEA 22.7% 21.9% 21.2% 21.1% 22.2% 22.9%APJ 17.2% 17.1% 17.1% 17.4% 19.0% 18.1%YEAR-TO-YEAR CHANGEAmericas 10.8% 23.1% 17.0% 18.0% 3.0% 1.5%EMEA -3.0% 6.4% 24.0% 15.0% 3.0% 10.0%APJ 37.7% 33.1% 38.6% 30.7% 16.5% 11.0%SEQUENTIAL CHANGEAmericas 11.7% 1.3% 5.5% -1.2% -2.5% -0.1%EMEA 19.8% -3.7% 1.4% -1.7% 7.3% 2.8%APJ 24.6% -0.7% 4.5% 1.0% 11.0% -5.3%SOURCE: TBR ESTIMATES AND DELL CORP.

DELL REVENUE BREAKDOWN BY GEOGRAPHY TBR

TBR



CALENDAR QUARTER 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.Total Revenue 14,900,000$ 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,618,000$ SG&A Expense 1,780,000$ 1,830,000$ 1,679,000$ 1,816,000$ 1,977,000$ 1,983,000$ Sales & Marketing Expense 1,430,000$ 1,390,000$ 1,299,000$ 1,416,000$ 1,547,000$ 1,553,000$ General and Administrative Expense 350,000$ 440,000$ 380,000$ 400,000$ 430,000$ 430,000$ R&D Expense 179,000$ 167,000$ 162,000$ 163,000$ 169,000$ 170,000$ Total Operating Expense 1,959,000$ 1,997,000$ 1,841,000$ 1,979,000$ 2,146,000$ 2,153,000$ SALES AND MARKETING EXPENSE BREAKOUT (IN $ THOUSANDS)Sales Expense 1,030,000$ 1,015,000$ 889,000$ 996,000$ 1,117,000$ 1,123,000$ Partner and Channel Spending 95,000$ 85,000$ 85,000$ 90,000$ 95,000$ 90,000$ Marketing Spending 305,000$ 290,000$ 325,000$ 330,000$ 335,000$ 340,000$ Total Sales and Marketing Expense 1,430,000$ 1,390,000$ 1,299,000$ 1,416,000$ 1,547,000$ 1,553,000$ SPENDING AS A PERCENTAGE OF REVENUE Total Operating Expense 13.1% 13.4% 11.9% 12.9% 13.7% 13.8%Total SG&A Expense 11.9% 12.3% 10.8% 11.8% 12.6% 12.7% Sales and Marketing Expense 9.6% 9.3% 8.4% 9.2% 9.9% 9.9%Sales Expense 6.9% 6.8% 5.7% 6.5% 7.1% 7.2%Partner and Channel Spending 0.6% 0.6% 0.5% 0.6% 0.6% 0.6%Marketing Spending 2.0% 1.9% 2.1% 2.1% 2.1% 2.2% General and Administrative 2.3% 3.0% 2.4% 2.6% 2.7% 2.8%CORPORATEWIDE HEADCOUNTSales 16,525 16,525 16,525 17,500 17,500 17,500

Direct Field Sales 4,025 4,025 4,025 4,500 4,500 4,500Tele-Sales & Sales Support 12,500 12,500 12,500 13,000 13,000 13,000

Marketing 3,900 3,900 3,900 3,900 3,900 3,900General and Administrative 8,236 8,236 8,236 8,300 8,300 8,300Research and Development 4,300 4,300 4,300 4,500 4,500 4,500Services 46,010 46,010 46,010 45,000 45,000 45,000

Technical Support 22,360 21,360 20,360 20,260 20,260 20,760Deployment/Testing 2,740 3,740 4,740 4,740 4,740 4,740Professional Services 20,910 20,910 20,910 20,000 20,000 19,500

Manufacturing/Assembly and Other 17,029 17,029 17,029 18,800 18,800 16,801Total Employees 96,000 96,000 96,000 98,000 98,000 98,000SOURCE: TBR ESTIMATES AND DELL FINANCIALS

DELL INC. OPERATING EXPENSE MODEL (IN $ THOUSANDS) TBR

TBR


$0$3,000$6,000$9,000$12,000$15,000$18,000

0%

2%

4%

6%

8%

10%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11Est.

Reve

nue

(in $

Mill

ions

)

Ope

ratin

g M

argi

n

DELL REVENUE AND OPERATING MARGIN

Revenue Operating Margin


TBR

Financial Strategy GraphsAppendix – Graphs

0%2%4%6%8%

10%12%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11Est.

Perc

ent A

pps

Reve

nue

DELL PERCENT EXPENSE BY FUNCTION

S&M G&A R&D

TBR


-30%-20%-10%0%10%20%30%

$0

$4,000

$8,000

$12,000

$16,000

$20,000

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11Est.

In $

Mill

ions

DELL TWO-YEAR QUARTERLY REVENUE AND GROWTH

Revenue Y/Y Growth RateSOURCE: TBR AND DELL

TBR

TBR


Financial Strategy GraphsAppendix – Graphs

11.0%

20.5% 21.7% 19.4%

5.3%

-20%

-10%

0%

10%

20%

30%

4Q09 1Q10 2Q10 3Q10 4Q10

YEAR-TO-YEAR REVENUE GROWTH

DELL CBQ AVERAGE

TBR


16.6% 16.9% 16.6%19.5%

21.0%

0%

10%

20%

30%

40%

4Q09 1Q10 2Q10 3Q10 4Q10

GROSS MARGIN

DELL CBQ AVERAGE

TBR


TBR

3.4% 3.5%4.8%

6.7% 7.3%

0%

2%

4%

6%

8%

10%

12%

4Q09 1Q10 2Q10 3Q10 4Q10

OPERATING MARGIN

DELL CBQ AVERAGE

TBR


TBR

TBR


Resource Management Strategy GraphsAppendix – Graphs

$171 $181 $185 $190 $200

$0

$100

$200

$300

4Q09 1Q10 2Q10 3Q10 4Q10

In $

Tho

usan

ds

ANNUAL G&A EXPENSE PER G&A EMPLOYEE

DELL CBQ AVERAGE

TBR


TBR

$645 $637 $634 $623 $631

$0

$200

$400

$600

$800

4Q09 1Q10 2Q10 3Q10 4Q10

In $

Tho

usan

ds

ANNUAL REVENUE PER EMPLOYEE

DELL CBQ AVERAGE

TBR


TBR

$146 $152 $154 $154 $150

$0

$70

$140

$210

$280

$350

4Q09 1Q10 2Q10 3Q10 4Q10

In $

Tho

usan

ds

ANNUAL R&D EXPENSE PER DEVELOPER

DELL CBQ AVERAGE

TBR


TBR

TBR


Future Outlook GraphAppendix – Graphs

0.001.002.003.004.005.006.007.008.009.00

10.00

0% 5% 10% 15% 20% 25%

CBQ

Cor

pora

te S

core

Quarterly Revenue Growth Year-to-year

4Q10 CBQ VENDOR POSITION AND PROJECTION: DELL INC.

4Q10

Trailing 12-Month Average Growth for RISC/Multi-platform Vendors = 20.4%

TBR


3Q101Q11 Est.

TBR


Acquisitions drive Dell’s professional services and storage growthDell Acquisitions

Company Scope of Acquisition Deal Size

SecureWorksFebruary 2011

Dell acquired information security services provider SecureWorks to bolster its portfolio of IT-as-a-Service offerings and drive sales of bundled solutions globally. Undisclosed

Compellent TechnologiesDecember 2010

The acquisition of Compellent will expand Dell’s enterprise storage portfolio, better positioning the company to deliver need-based, integrated solutions; additionally, the nature of Compellent’s portfolio will better align Dell for growth in the cloud.

$820 million

BoomiNovember 2010

The November 2010 acquisition of Boomi will play an integral part in forming Dell’s cloud offering into a holistic solutions management business, moving the company beyond hardware.

Undisclosed

Ocarina NetworksJuly 2010

The acquisition of Ocarina Networks will enhance Dell’s solutions portfolio through the addition of deduplication and compression optimization technology for storage systems. The acquisition will allow Dell to focus on providing solution efficiency while minimizing operational and data management costs for its customers.

Undisclosed

ScalentJuly 2010

Dell has signed a definitive agreement to acquire Scalent, an advanced software and dynamic infrastructure provider, to integrate into its Advanced Infrastructure Management (AIM) solution. The company will leverage Scalent’s easily accessible data integration software to implement on Dell’s storage and network platforms.

Undisclosed

Appendix – Dell Acquisitions

TBR


Dell Acquisitions

Company Scope of Acquisition Deal Size

Kace NetworksFebruary 2010

• The acquisition of appliance solutions provider KACE Networks will expand Dell’s footprint in the public and SMB sectors by strengthening its System Management portfolio.

• The acquisition of KACE and its KBOX appliance solutions will allow Dell to enhance its bundled services offering.

• The deal is expected to close during 1Q10.

Undisclosed; TBR estimates a deal below $200 million

ExanetFebruary 2010

Dell purchased the assets of Israel-based storage company Exanet in February. The acquisition will allow Dell to open its first R&D center in Israel and strengthen its presence in the storage market and its product portfolio by utilizing Exanet’s storage technology.

$12 million

Perot SystemsSeptember 2009

• Dell moved to acquire Perot Systems in September 2009 in an effort to jump-start its professional services revenue growth.

• Perot Systems will become a subsidiary and will be known as “Perot Systems, a Dell company.”

• Following the deal, Dell’s combined services revenue will reach nearly $8 billion annually, up from $5 billion.

$3.9 billion

Allin Corp.January 2009

• Dell purchased the Microsoft IT consulting and solutions segments of Allin Corp. in January 2009 to obtain consulting expertise around core Microsoft software, such as MS Exchange, as well as the software maker’s business management products.

• Dell folded the two segments, and a total of 100 employees, into its Dell Global Services consulting group.

Purchased for $12 million in stock

Appendix – Dell Acquisitions

Acquisitions drive Dell’s professional services and storage growth

TBR


Dell AcquisitionsCompany Scope of Acquisition Deal Size

The Networked Storage CompanyFebruary 2008

• Dell’s acquisition of The Networked Storage Company, a storage-oriented services company located in Bracknell, England, complements its storage business.

• The Networked Storage Company’s capabilities dovetail with those of Dell’s largest acquisition to date: EqualLogic.

Undisclosed; TBR estimates a deal of less than $200 million

EqualLogicJanuary 2008

• Dell’s January 2008 acquisition of EqualLogic gave the PC maker greater coverage of the storage systems market with EqualLogic iSCSI products, along with relationships with VARs.

• Dell has since leveraged EqualLogic, along with its relationship with EMC, to drive higher storage revenue.

Valued at $1.4 billion

EverdreamDecember 2007

• Dell’s December 2007 acquisition of remote service provider Everdream gave the PC maker the framework it needed to provide remote management of hardware and software.

• Everdream is the backbone of Dell’s remote managed services.


ASAP SoftwareNovember 2007

• Dell’s November 2007 acquisition of ASAP gave the PC maker a platform for remotely managing software licensing.

• ASAP’s large catalog of software titles also drives significant revenue for Dell’s Software & Peripherals business.

Valued at $340 million

SilverBack TechnologiesJuly 2007

• Dell acquired SilverBack Technologies in July 2007 to gain its remote monitoring technology for PCs, servers, storage and networking products.

• SilverBack technology became the main component of Dell’s remote hardware management service.


Dell AcquisitionsAppendix – Dell Acquisitions

TBR


Dell North America Retail Partners

Retailer Relationship

Best Buy Best Buy began offering Dell consumer PCs, including Dell XPS models, in its 900 stores in the United States in January 2008.

Costco U.S.-based big box store Costco began offering Dell PCs in its stores in 1Q08.

Wal-Mart Wal-Mart offers Dell PCs in more than 4,000 of its Wal-Mart and Sam’s Club locations in the United States, Argentina, Brazil and Mexico.

StaplesStaples, which began offering Dell PCs and printers in 1,400 stores in November 2007, is currently Dell’s exclusive U.S. retail partner for printers; Staples also offers free recycling of Dell PCs, monitors, printers and peripherals at its store locations.

Dell EMEA Retail Partners

Carrefour Group Carrefour began stocking Dell PCs in its stores in France, Belgium and Spain in January 2008.

Tesco Dell partnered with Tesco, Britain’s largest retailer, in December 2007 to offer Dell PCs and displays in Tesco stores in the United Kingdom, Ireland, Poland, Czech Republic and Slovakia.

DSG International DSGI, best known for its Dixons brand, sells Dell consumer PCs in approximately 1,300 stores in Europe.

Dell APAC Retail Partners

Bic Camera Bic Camera and its Sofmap subsidiary offer Dell XPS and Inspiron desktops and notebooks to consumers in Japan. Bic Camera operates 22 stores, while its Sofmap subsidiary has 14.

Courts LTD Courts, Singapore’s largest seller of electronics, began selling Dell consumer PCs in the fall of 2007.

Croma Croma, which currently operates 21 electronics megastores in India’s largest cities, began offering Dell’s consumer PCs in April 2008.

Gome Gome, China’s largest electronics retailer, offers Dell Inspiron and XPS products in about 900 of its stores, including its 50 flagship stores in China’s Tier 1 cities.

Officeworks Officeworks offers a broad selection of Dell hardware, ranging from XPS notebooks to printers, ink and displays, throughout its 104 stores across Australia.

Suning Suning, a top Chinese electronics retailer, began offering Dell PCs in 300 stores across China in 1Q08.

Dell has partnered with top retailers in each geographyAppendix – Dell Retail Partners

TBR


Partners help Dell deliver a range of products and servicesKey Dell Partners

Company Partnership Impact on Dell

Advanced Micro Devices

PC and server processors,PC graphics

AMD provides Dell with an alterative to Intel processors for both consumer and business-oriented PCs, while AMD’s ATI division provides Dell with graphics for its desktops and notebooks.

Intel PC and server processors

• Intel provides processors and chipsets for Dell desktops, notebooks and servers.• Dell offers Intel’s processors across all of its business and consumer PC lines, as well as

servers, Precision workstations and Alienware gaming systems.

CitrixServer-based operating systems software, consulting

• Citrix provides Dell with server-based computing environments, consulting services and technical support.

• Citrix is Dell’s primary partner for thin-client deployments. Citrix also provides software to Dell for remote access.

Canonical Linux operating system software

• Dell began factory-installing the Ubuntu Linux OS, a free OS sponsored by Canonical, on its consumer PCs in May 2007.

• Ubuntu is an important part of Dell’s emerging market strategy, as many of the low-cost PCs it offers in markets such as China come with Linux as the default OS.

Cyber-Ark Software OEM partner The two companies formed a global OEM alliance through which Cyber-Ark’s Privileged

Identity Management Suite is bundled with Dell’s PowerEdge R410 and R610 rack servers.

EMC Storage hardware and software

• Dell and EMC have a close alliance spanning hardware and software.• EMC provides a suite of software tools to manage Dell-EMC CX storage products.• Dell also offers EMC’s Legato, VMware and Documentum software.

GoogleSoftware and search technology

• The PC maker pre-installs Google’s software on its systems and also sells Google’s search appliances, including the Google Mini.

• Dell also serves as the manufacturer of the Google Search Appliance (GSA) 6.0 for enterprise customers.

Appendix – Key Alliances

TBR


Dell AlliancesKey Dell Partners

Company Partnership Impact on Dell

McAfee Antivirus software • Dell partners with McAfee for its antivirus technology.• The companies’ partnership also spans anti-spyware and home firewall software.

Microsoft Software and services

• Microsoft provides Dell with a range of software – from Office to Microsoft SQL Server to Exchange, Visio, Project and SharePoint.

• Microsoft also provides Dell with PC, server and NAS storage operating systems.

NVIDIA PC and workstation graphics hardware

• NVIDIA provides Dell with a broad range of graphics processors for Dell desktops, notebooks and workstations.

OracleDatabase, development and support

• Dell and Oracle perform joint product development and collaborate on on-site support for customers, including software migration and tuning, under a partnership designed to promote Oracle’s 9i, 10g and RAC database solutions.

• Dell also pre-installs Oracle 10g on Dell PowerEdge servers.

Red Hat Linux operating system software

• Dell and Red Hat have been partners in a development and service and support alliance aimed at businesses since 2000.

• Dell pre-installs Red Hat Linux on its workstations and PowerEdge servers.

SAP ERP software • Dell and SAP jointly market SAP software for Dell PowerEdge servers.• Dell also collaborates with SAP to offer service and support for joint customers.

Symantec Antivirus software

• Dell and Symantec have a broad partnership under which Dell offers Symantec’s Norton antivirus and anti-spam software, backup and recovery, disk management and Veritas tape backup software with its hardware.

• Dell has also partnered with Symantec’s Altiris to co-develop the Dell Unified Manageability Architecture, a management console for Dell PCs and servers.

Appendix – Key Alliances

TBR


Dell’s Product Portfolio: Consumer PCs Appendix – Dell Product Lineup

Mod

el L

ine

Price and Functionality

Full

size

Entr

y-le

vel

Thin

-ligh

t

Inspiron Mini netbook

Starting price range: $300 to $583

Inspiron desktops and notebooksStarting price range for notebooks:

$400 to $1,075Starting price range for desktops:

$250 to $1,128

Dell XPS, Alienware and Adamo desktops and notebooks

Starting price range for notebooks: $950 to $1,799

Starting price range for desktops: $950 to $3,100

Dell Studio desktop and notebooks: Starting price range for notebooks:

$620 to $950Starting price range for desktops:

$500 to $950

TBR


Dell’s Product Portfolio: Business PCs M

odel

Lin

eup


Perf

orm

ance

Entr

yVa

lue/

Mai

nstr

eam

Vostro desktops and notebooks Starting price range for desktops:

$278 to $976Starting price range for notebooks:

$399 to $1,091

OptiPlex desktops Latitude E Family notebooksStarting price range for desktops:

$425 to $1,361Starting price range for notebooks:

$744 to $2,356

Latitude XFR notebook Fully rugged notebookStarting price range:

$3,704 to $4,379

Precision desktops and notebook workstations

Starting price range for desktops: $840 to $1,899

Starting price range for notebooks: $1,728 to $2,109

OptiPlex 160: Starting price: $568

Appendix – Dell Product Lineup

TBR


Dell’s Product Portfolio: Enterprise Servers M

odel

Lin

e


Blad

eTo

wer

Rack

-mou

nt

PowerEdge T SeriesFamily of tower servers

Starting price range: $1,300 to $7,400

PowerEdge 1950, 2900, 2950: Family of 2-way rack-mount servers

Starting price: $1,800 to $2,000

PowerEdge M Series:Two-way blade servers

Starting price: $4,300 to $5,300

PowerEdge R Series: Family of 1-way, 2-way and 4-way rack-

mount serversStarting price range:

$1,800 to $14,800

Appendix – Dell Product Lineup

TBR


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