tbr 1q11 dell inc. report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


COMPUTER BUSINESS QUARTERLYSM

Dell Inc.First Calendar Quarter 2011First Fiscal Quarter 2012 Ended April 29, 2011

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

5.05

Publish Date: June 9, 2011

Authors: Krista Macomber, CBQ Research Analyst ([email protected]) and Cassandra Mooshian, CBQ Research Analyst ([email protected])

Content Editor: Greg Richardson, CBQ Analyst

mailto:[email protected]


TBR

Dell Inc. 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis

3 TBR Position4 Executive Summary 7 Strategic Overview 9 Scenario Discussion12 Corporate SWOT Analysis

13 Financial Model Strategy

16 Go-to-Market & Product Strategies

19 Alliance & Acquisition Strategies 21 Geographic Analysis 22 Resource Management Strategy 24 Organization Breakdown

Company Data Models

25 Income Statement26 Balance Sheet27 Segment Revenue Model28 Revenue Unit & ASP Model29 Geographic Model30 Operating Expense Model31 Financial Strategy Graphs32 Resource Management Graphs33 Future Outlook Graph34 Acquisition Table39 Alliances Tables41 Product Portfolio Table44 About TBR

Contents

TBR


TBR Position

DELL 1Q11 PERFORMANCE VS. EXPECTATIONS(In $ Millions) Consensus Guidance Range Actual

Revenue 15,400$ $14,850 - $15,650 15,017$

Operating Income N/A N/A 1,212$

Non-GAAP EPS 0.43$ $0.38 - $0.48 0.49$

DELL 2Q11 GUIDANCE AND EXPECTATIONS(In $ Millions) TBR Estimate Consensus Guidance Range

Revenue 16,000$ 16,040$ $15,500 - $16,480

Operating Income 1,408$ N/A N/A

Non-GAAP EPS N/A 0.44$ $0.35 - $0.51

TBR Assessment Corporate Strategic ObjectivesTBR believes Dell’s push to become an “IT adviser” will drive profitability and revenue growth going forward as the company leverages strategic acquisitions and its partner ecosystem to further its solutions offerings.

Dell remains focused on its enterprise strategy to drive profitability and growth

As Dell focuses on horizontal growth and expanding its scale, the company is leveraging the revenue engine of its server business to expand wider across the enterprise by leaning on partners to push into adjacent technology areas, including security, storage, appliances and cloud.

A corporatewide shift in focus to sales of higher-margin products and services drove profitability improvements

Operating profit increased 133.5% from the year-ago quarter as a result of a changing product mix to enterprise products and solutions and a more efficient supply chain.

Dell boosts its solutions portfolio by acquiring companies with technologies complementary to its own

Through the purchases of Compellent, SecureWorks, Boomi and KACE, Dell has inorganically positioned itself to take on competitors, such as IBM and HP, that can address large-scale buildouts of integrated hardware, software and services.

Dell’s continued investment in partnerships and acquisitions will augment profitability throughout 2011

TBR


TBR assessment of Dell’s two-year strategic outlookKey TakeawaysFinancial: Dell is shifting its focus toward enterprise solutions, services, and high-end servers and storage to drive profit growth.Go to Market: Dell will continue realigning its tactics to capitalize on emerging markets, such as China, and product areas, such as cloud.Resource: Maintain an efficient cost structure while honing the supply chain and reducing SKUs to boost profitability

Strategic Outlook• Dell will ramp investment into sales and marketing and

research and development business processes to drive sales, boost its enterprise business and meet increased demand, while streamlining its core businesses, such as consumer PCs, for margin growth.

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

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

• We believe Dell will maintain significant investment in building out datacenter infrastructure to support customers’ virtualized, cloud and mobile environments while developing comprehensive solutions of hardware, software and services to drive migration to the emerging technologies.

Executive Summary

Dell will continue honing its cost structure to cost-effectively support its customer base while breaking into higher-margin growth markets

20.5%21.7% 19.4%

5.3% 1.0% 3.0%16.2%

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DELL'S NET REVENUE, GROWTH AND PROJECTIONS

Revenue Revenue Growth Year-to-Year Net

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

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TBR


Executive Summary

Tablets and smartphones

TBR assessment of Dell’s key strategies

Current customer adoption will provide the necessary proof points to enter new markets

TBR believes Dell is taking the path of least resistance to solutions adoption by targeting an immediate impact in its core markets, such as the public sector, healthcare and the midmarket. The company is leveraging its strong midmarket customer installed base to begin positioning itself as a “trusted IT adviser,” not just a product supplier, by aligning its go-to-market approaches with the long-term missions of its customers. At the Dell Annual Analyst Conference in May, Brad Anderson, SVP of Dell’s Enterprise Business, highlighted the midmarket as Dell’s primary target market for its solutions strategy. Anderson stated midmarket customers demand enterprise-level, scalable solutions, and the company will lean on its strong midmarket reputation with its longstanding PC and x86 server businesses as entry points to conversations around value-add solutions. In addition to leveraging midmarket strength, Dell is reinforcing its position in key verticals, including healthcare and education, by tailoring solutions to accommodate industry-specific needs. Although Dell’s efforts to expand in key verticals are not unique – competitors, such as IBM, leverage vertical expertise to cultivate demand for solutions in multiple industries – TBR believes Dell is able to differentiate by leveraging its end-to-end portfolio of client and enterprise offerings. This effort is exemplified in Dell’s healthcare approach, in which the company utilizes its services capabilities and direct customer interface to build solutions for mobile clients, compute capacity, storage and healthcare-specific software, which Dell gained through acquisition.

Dell will capitalize on midmarket demand to drive revenue and growthin coming quarters

TBR


Dell will deliver improved metrics in 2H11 as a result of its efforts to increase profitability

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

Dell posted its lowest average TBR score in four consecutive quarters, as dipping resource management and go-to-market metrics offset improved financial model metrics resulting from operating margin growth. An inefficient supply chain is causing Dell’s resource management metric score to deteriorate; however, Dell still outperforms peers in this area because of its strong inventory strategy.

Executive Summary

TBR SCORING SUMMARY: 1Q10 2Q10 3Q10 4Q10 1Q11Financial Model Strategy: 5.34 5.09 4.88 4.75 4.80Go-to-Market & Product Strategy: 5.09 5.10 5.20 5.02 4.86Resource Management Strategy: 6.01 5.73 5.73 5.83 5.71TOTAL AVERAGE TBR SCORE: 5.45 5.25 5.15 5.09 5.05

FINANCIAL METRICSTBR

ScoreCompany

FigureAverage in Class

Standard Deviation/2

Revenue (in $ Mill ions) 5.35 15,017$ $13,217 $5,146Gross Margin 3.48 22.9% 36.6% 9.0%SG&A (% of revenue) 5.84 13.5% 18.1% 4.5%Sales & Marketing (% of revenue) 5.72 10.7% 13.7% 4.2%General & Admin (% of revenue) 5.90 2.8% 3.6% 0.9%R&D (% of revenue) 6.86 1.3% 7.0% 3.1%Operating Margin 4.34 8.1% 11.6% 5.3%Net Margin 4.62 6.3% 8.0% 4.5%Revenue Growth YTY 3.63 1.0% 16.9% 11.7%Gross Profit YTY change 6.12 36.4% 23.0% 12.0%SG&A YTY change 4.94 10.7% 10.1% 9.7%Sales & Marketing YTY change 4.71 15.5% 8.4% 10.5%General & Admin YTY change 5.57 -4.5% 3.3% 13.7%R&D YTY change 4.62 16.8% 13.0% 9.9%Operating income YTY change 4.78 133.5% 312.7% 800.0%Net Income YTY change 4.78 177.1% 669.3% 2210.1%TOTAL AVERAGE TBR SCORE 4.80

GO-TO-MARKET & PRODUCT METRICSTBR

ScoreCompany



Annual revenue per salesperson* 4.38 $3,572 $6,550 $4,788Cost per revenue dollar 5.02 0.08$ 0.08$ 0.03$ Cost per margin dollar 2.98 0.34$ 0.23$ 0.06$ Channel expense as a % of S&M expense 6.74 5.9% 20.9% 8.6%Marketing expense as a % of S&M expense 5.67 20.9% 27.0% 9.1%Annual sales expense per sales employee* 5.30 $242 $279 $120Annual marketing expense per marketing employee* 5.22 $277 $294 $76TOTAL AVERAGE TBR SCORE*in $ thousands

4.86

RESOURCE MANAGEMENT METRICSTBR

ScoreCompany



Days sales outstanding 3.87 56.3 46.9 8.3Turns on inventory 7.13 36.3 18.6 8.3Days inventory outstanding 7.09 10.1 36.1 12.5Fixed asset turnover 5.94 30.2 18.2 12.9Days cash outstanding 5.02 86.8 87.6 40.2Total asset turnover 6.39 1.5 1.2 0.2Debt/asset ratio 4.88 0.6 0.6 0.1Current ratio 4.89 1.6 1.6 0.3Return on assets 5.11 8.5% 8.1% 3.6%Return on equity 5.57 44.5% 30.7% 24.3%Headcount growth YTY 5.22 4.5% 6.1% 7.5%Annual revenue per employee 4.69 $625 $739 $373Annual G&A expense 6.01 $197 $258 $60Annual R&D expense per developer 6.57 $150 $303 $97TOTAL AVERAGE TBR SCORE*in $ thousands

5.71

TBR


Dell will combat declining PC sales with bundled IT solutions and a focuson process efficiency improvements

Strategy Overview

Function Key Strategies TBR Assessment

OverallDell is steadily improving profitability via solutions sales of enterprise-level servers, storage and services.

►

Dell is driving solutions sales to its strong midmarket customer base while leveraging this solutions strategy to increase traction in growth verticals.

Leverage Perot Systems to boost services profit by driving server, service, storage and software sales

Financial

Couple restructuring initiatives and an improving product mix with a shift toward high-margin solutions sales to fuel revenue and margin growth

►

Dell’s server business is benefiting from the company’s solutions strategy, maintaining double-digit revenue growth in 1Q11.

Hardware component prices leveled, while improved restructuring efforts helped expand manufacturing efficiencies, driving strong margin growth in 1Q11.

Dell is cutting expenses within its PC business but is struggling to post unit shipment growth.

Go to Market

• Shed the MO of PC and x86 manufacturer to position as a provider of comprehensive solutions enabling growth for customers

• Expand global emerging markets presence by tapping retailers and VARs

►

Dell’s shifting focus toward cloud-related products and solutions will increasingly drive sales growth across Dell’s portfolio.

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 continue to target commercial and public segments with its bundled, needs-based solutions.

Key: Working: Short-term impact expected on bottom/top line Not working: No major impact or differentiation expected

TBR


Dell is using its PC and x86 businesses as entry points, forging strategic acquisitions to expand its capabilities and break into growth marketsFunction Key Strategies TBR Assessment

Alliances, Acquisitions & Resource Management

Dell is focusing R&D and acquisition activity on services, computing appliances and cloud to capitalize on new opportunities for revenue and profit growth.

►

Dell’s mobile devices have failed to attract attention in the consumer segment. Dell will reabsorb the segment back into the company and alter its strategy to cater to public sector and enterprise customers.

Dell is investing to enhance its core capabilities, targeting an increased presence in private clouds to drive improved financial performance in 2011.

Operations & Global Delivery Model

• Dell is rearchitecting its PC designs and manufacturing operations to cut costs and offset declining sales.

• 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 total costs of goods sold – down by 600 basis points to 77.1% in 1Q11.

Dell’s $100 billion investment in China over the next 10 years will solidify the company’s commitment to sustain growth in APAC while reducing labor cost by bringing manufacturing to the region.

Key: Working: Short-term impact expected on bottom/top line Not working: No major impact or differentiation expected

Strategy Overview

TBR


Scenario Discussion: Dell will leverage a full stack to get users “hooked” on virtualized environments – opening doors to cloud migration and resulting revenue gainsScenario SWOT AssessmentStrength: Dell’s overarching strategy of acquiring to expand on its core capabilitiesWeakness: Dell lacks a historical position and reputation in the cloud spaceOpportunity: Drive higher-margin solutions salesThreat: Competing IBM and HP prepackaged virtualization solutions

Armed with its enterprise solutions strategy, Dell is targeting the private cloud as the next growth frontier. Dell is competing with its multiplatform peers to deliver “virtualization in a box,” to gain comprehensive hold over evolving datacenters – and customers’ wallets.• In May, Dell rolled out its vStart preconfigured virtualization

solution to ease the process of infrastructure virtualization, touting increased efficiency to customers to spur adoption of both virtualized and cloud-based environments. The scalable, converged IT stack is built on standardized components and a single rack to enable deployment on existing infrastructure.

• vStart enters the growing, increasingly competitive market for prepackaged infrastructure, led by the likes of VCE and EMC’s FlexPod. TBR anticipates Dell will increasingly investigate services as a differentiator in the space to win share.

• Dell is utilizing new pieces of its portfolio to create prepackaged solutions for new use cases. vStart runs on EqualLogic arrays, but TBR anticipates Dell will launch Compellant-based vStart packages to deliver business continuity and disaster recovery – an additional value-add to drive sales.

• Dell has laid the foundation for high-margin services cross-selling opportunities with vStart, offering accompanying setup and deployment services as well as ProSupport.

Scenario Discussion

Source: Dell

Dell will leverage prepackaged virtualization to compete more effectively for leadership in the high-growth, next-generation datacenter frontier

Map of integrated solutions approach

TBR


Scenario Discussion: Leverage technology and channel partners to accelerate Dell’s solutions strategyScenario SWOT AssessmentStrength: Software agnosticism creates a more level playing ground for ISV partners.Weakness: Historical position as a primarily direct sales vendorOpportunity: Partners will help drive high-margin Dell solution sales.Threat: Consolidation in the IT space hinders potential services and ISV relationships.

TBR believes Dell will target partner ecosystem expansion to accelerate the delivery and execution of its vertical and datacenter solutions strategies• TBR believes Dell will make ecosystem expansion its next

solutions target. As part of its strategic transformation, the company is retooling the way it goes to market; with a history steeped in direct sales, Dell is working to change its culture to support channel and services relationships.

• TBR expects Dell to tout its relative agnosticism to cultivate new partner opportunities. In a market with significant consolidation between hardware and software, as seen with IBM, Oracle and HP, Dell continues to rely on ISV relationships for software capabilities, opening new doors with companies, such as SAP. This also holds true in services, where Dell’s efforts to bundle its capabilities into solutions, such as vStart, enable it to approach partners with need-centric, easy-to-implement solutions.

• To continue driving momentum in vertical markets, Dell will augment vertical adoption in healthcare and education by aggressively pursuing new partner opportunities in high-growth verticals, including energy and financial services.

Scenario Discussion

The success of Dell’s solutions strategy is predicated on execution and augmentation by technology and delivery partners

Solutions

Dell CapabilitiesCompute Storage Services

Technology PartnersISVsIHVs

NetworkingDelivery Partners

VARsSIsSPs

Example of converged capabilities, Dell and its partners

TBR


Dell will drive accelerated revenue growth by leveraging acquisitions for inorganic entrance into key, high-margin marketsScenario Discussion: Dell has put its money where its mouth is by growing in new solution areas via acquisitions

Scenario SWOT AssessmentStrength: Dell has the scale to acquire smaller companies to drive growth. Weakness: Traditional position as a direct-market PC vendorOpportunity: Companies are re-evaluating their IT providers with the advent of cloud.Threat: Traction of equally established rivals, such as IBM, in growth markets, such as cloud

Dell will drive growth in the datacenter and new industries, such as telecommunications and financial services, by leveraging acquisitions to expand its portfolio into high-growth areas, including cloud, appliances and storage• Through acquisitions, Dell has inorganically positioned itself

to take on competitors, such as IBM and HP, that can address large-scale buildouts of integrated hardware with services and software. In offering hardware and software that enables the development of virtualized environments as well as design, implementation and support services, Dell positions itself as a solutions provider.

• Dell’s efforts to expand beyond its core stack were evidenced by its 1Q11 financial performance. For example, revenue from enterprise solutions and services increased 5% year-to-year, driven by 11% growth in servers and networking.

• Despite efforts to expand beyond its core business areas, Dell is not abandoning its large customer base, leveraging its established roster of midmarket customers as entry points for solutions engagements. Dell also is designing targeted solutions for verticals where it maintains a strong presence, including healthcare, education and the public sector.

Scenario Discussion

Source: Dell

Map of Dell’s expanded portfolio areas, based on acquisitions

TBR


Corporate SWOT AnalysisStrengths• Dell’s diverse product and services lineup and large PC

and server installed base create opportunities to upsell professional services.

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

• Couple traction in servers with improving services and software portfolios to meet growing demand for datacenter infrastructure buildouts and boost its top line

Opportunities• Introduce Streak tablet to gain share in the growing

tablet market• Leverage scale to forge acquisitions and create new

opportunities for revenue and profitability growth• Target China’s fast-growing market by investing

$100 billion to expand presence and capabilities within the region

• Leverage prepackaged virtualization to compete more effectively for leadership in the high-growth, next-generation datacenter frontier

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.

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.• Large, multiplatform rivals are upping the ante to

compete against Dell for datacenter share.

Corporate SWOT Analysis

Dell will continue to embrace a need-based enterprise solutions approach with a focus on cloud to boost its top line throughout 2011

TBR


Revenue Performance and Strategies1Q11 Revenue: $15.0 billion, 10.5% YTY

• Dell’s overall revenue increased 1.0% year-to-year to $15.0 billion in 1Q11, driven by strong performance within its Enterprise Solutions and Services group:o Server revenue led in segment revenue growth,

rising 10.5% year-to-year in 1Q11, climbing 110 basis points to 13.1% of total revenue.

o Notebook unit shipments grew 3.2% from the year-ago quarter to 5.9 million, while desktop unit shipments declined 4.2% to 4.5 million in 1Q11, both including workstations.

Revenue and Growth Outlook

• TBR estimates Dell’s corporate revenue will increase by 3.0% annually in 2Q11 as integrated acquisitions contribute revenue and enterprise sales rise.

• We anticipate 2Q11 sales will continue to be driven by cloud-related services and solutions, as Dell shifts from its purely hardware focus.

Financial Model Strategy

Dell will drive revenue and profitability throughout 2011 by leveraging integrated solutions and focusing on high-margin sales

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DELL TWO-YEAR QUARTERLY REVENUE AND GROWTH

Revenue Y/Y Growth RateSOURCE: TBR AND DELL

TBR

$8,148 $8,570 $8,504 $8,434 $8,012 $8,335

$2,496 $2,535 $2,579 $2,651 $2,567 $2,763 $1,785 $1,890 $1,844 $2,090 $1,973 $2,144 $1,891 $1,915 $1,924 $1,943 $1,984 $2,150

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Storage Services Server SW & Peripherals PC

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Cost & Margin Performance and Strategies1Q11 Total OPEX: $2.2 billion

Cost of Services, Gross Profit

• COGS fell to 77.1% of revenue, from 83.1% in 1Q10, as a result of supply chain optimization, leveling component costs and a shift in product mix to higher-value, higher-margin products and services.

• Dell’s gross margin increased to 22.9% in 1Q11 from 16.9% in 1Q10 and 21.0% in 4Q10.

SG&A

• SG&A expense increased 120 basis points annually to 13.5% of revenue in 1Q11.

• Expenses were driven by efforts to strengthen Dell’s enterprise sales force; general & administrative expenses remained flat.

Operating Margin and Outlook

• Dell’s operating margin increased 460 basis points from 1Q10, and 80 basis points from 4Q10, to 8.1% in 1Q11, driven by adoption of new service, server and network offerings.

• TBR estimates Dell’s operating margin will continue to grow on year-to-year and sequential bases, reaching 8.8% in 2Q11 as the company improves product pricing.

• Dell will be challenged to maintain low operating expenses as it opens new datacenters globally.


Production efficiencies and an improving product mix will continue to drive profit growth for Dell

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16.9% 16.6%19.5% 21.0%

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DELL'S GROSS AND OPERATING PROFIT AND PROJECTIONS

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

TBR

TBR



Segment Performance and Strategies

PCs

• Dell’s notebook PC revenue increased 3.4% year-to-year (excluding workstations), as both ASP and unit shipments were up slightly from the year-ago quarter.

• Dell’s desktop revenue declined 9.1% year-to-year (excluding workstations), as units shipped and ASP fell 4.5% and 4.8%, respectively, from 1Q10.

Servers & Storage

• Server revenue grew 10.5% from the year-ago quarter in 1Q11, as SMB and public sector customers adopted high-end servers based on Intel’s latest Westmere architecture.

• Storage growth attributable to the acquisition of Compellent and sales of Dell-owned storage products was offset by revenue declines attributable to EMC storage products.

Services

• Services revenue grew 4.9% year-to-year in 1Q11, as Dell leveraged its acquisition of SecureWorks to deliver security capabilities for enterprise customers.

• TBR expects Dell’s Services segment to report double-digit growth in 2Q11 as unfavorable compares as a result of the Perot acquisition fade.

Software & Peripherals

Dell’s Software & Peripherals revenue grew 2.8% year-to-year in 1Q11; TBR expects Dell to continue to terminate unprofitable lines within the segment.

Acquisitions will augment Dell’s enterprise solutions and services business, driving growth and profitability

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Go-to-Market & Product Strategies

GTM Discussion: Dell announced new networking, server and storage offerings that will augment its enterprise and SMB product portfolios

Key Takeaways• Dell remains committed to its enterprise

customers by developing products and solutions that best meet their needs.

• Dell is expanding its server and storage offerings to improve datacenter environments by creating integrated solutions with improved capabilities compared to previous-generation models.

• The company continues to enhance its networking solutions to provide additional virtualization and connectivity capabilities.

• Dell announced additions to its networking, server and storage portfolios, targeted toward datacenter needs for mission-critical workloads. TBR believes these product announcements are part of the company’s corporatewide strategy of growing its solutions portfolio for enterprise and SMB customers as datacenters become increasingly complex.

• Server and storage announcements include Dell’s PowerEdge M915 server, available in two or four socket models, and an AMD-based blade server for mission-critical workloads, touting improved scalability, flexibility and efficiency over previous-generation models. Also part of the announcement was Dell’s DX Object Storage Platform, an integrated solution that leverages file-based networking to access, archive and protect stored data.

• Enhancements to Dell’s PowerConnect and PowerEdge networking solutions increase the flexibility, connectivity and virtualization capabilities of the solutions for enterprise and SMB datacenters. Dell DX Object Storage Platform

SOURCE: DELL

Dell’s recent product announcements will meet growing enterprise and SMB demand for datacenter solutions

TBR


Large Enterprise Public SMB Consumer

Key Changes & Drivers

The Large Enterprise segment grew 5.4% annually in 1Q11, as Dell expanded its product lines targeted at large enterprise customers and increased client revenue a reported 7%.

Public sector revenue suffered from slowed hardware demand during 1Q11, declining 2.3% year-to-year. TBR predicts an upward turn in 2Q11, albeit with slow, 0.4% year-to-year growth.

In 1Q11, SMB revenue was up 6.9% annually – the highest in two years. Growth was driven by success in the APAC region, namely in Japan. TBR expects steady, 6.1% year-to-year growth in 2Q11.

In 1Q11, Dell experienced a 7.5% year-to-year decrease in consumer revenue due to declining hardware demand.

Trends to monitor: • Dell will drive continued momentum in the Large Enterprise

market by developing vertical-specific and integrated solutions.• The public sector will make a slow comeback due in 2Q11, as Dell

employs its solutions strategy to drive growth within government and education customer accounts.

• Dell will continue working to expand into emerging markets, such as India and China, to accelerate SMB growth into 2H11.

• TBR estimates Dell’s consumer revenue will continue declining in 2Q11 at a rate of 18.5% annually, as the vendor struggles against lackluster demand.


Dell delivers bundled solutions to capitalize on growing commercial demand and combat headwinds in the consumer space

$3,248 $3,005

$3,524 $3,768

$3,856 $3,767

$4,246 $4,477

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TBR


Dell touts a growing portfolio of need-based solutions and leans on global VAR partners to drive new sales and accelerate growth


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

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

Sales Approach

TBR


Alliance & Acquisition Strategy

TBR believes Dell will maintain its aggressive acquisition cadence, dipping into its large cash pool to drive inorganic revenue and profit growth into 2H11. Dell leverages acquisitions to enhance its solutions and penetrate the enterprise – with a focus on private clouds.

• Dell finalized its acquisition of SecureWorks in 1Q11, enhancing its arsenal of enterprise cloud solutions. SecureWorks provides Information Technology as a Service (ITaaS ), with a specialization in Information Security services. The purchase will help make Dell a major player in network security in coming quarters, providing a significant value-add to hardware offerings to drive sales.

• Dell closed its acquisition of virtualized storage solutions vendor Compellent Technologies in 1Q11, to enhance its capabilities and spur customer migration to virtualized and cloud infrastructures. Additionally, Dell expanded its channel partner program and will leverage Compellent’s strong channel offerings to accelerate sales and revenue growth.

Internal DevelopmentOpen new facilities to drive innovation – with a focus on cloud computing

AlliancesAugment core capabilities to deliver bundled solutions for revenue and profit growth

Acquisitions• Quicken Dell’s foray

into cloud computing

• Diversfiy and expand product portfolio

Alliances and acquisitions serve to position Dell as a leading provider of cloud computing storage solutions for private enterprise.

Map of alliance, acquisition, and development synergies

Dell will deliver margin growth by leveraging acquisitions to round out its enterprise solutions portfolio

TBR


Dell’s Acquisition Timeline

Dell leans on acquired technologies to diversify its revenue, shedding its status as strictly a PC vendor to break into growth markets

Professional Services Emerging Markets Dynamic Datacenter Enterprise Solutions

Perot Solutions • Extranet• Kace Networks

• Boomi• Ocarina Networks• Scalent

• SecureWorks• Compellent

2H09 1H10 2H10 1H11

Alliance & Acquisition Strategies

TBR


U.S./Americas EMEA APAC and Japan Emerging Markets

Key Strategies

The Americas posted a 3.0% year-to-year decline in revenue but remained the largest contributor at 58.6% of revenue.

Revenue growth in EMEA was slow in 1Q11, rising 1.0% year-to-year.

APAC and Japan maintained double-digit growth of 15.1% year-to-year in 1Q11, with sales driven by a reported 22% increase in China.

In 1Q11, Dell reported revenue gains of 17% year-to-year in growth markets. BRIC countries were up 18% annually, while India increased 28% year-to-year.

Geographic Overview

TBR Conclusions: • Although TBR anticipates weakness in the consumer segment in

the Americas will result in a 1.4% drop in revenue, we expect favorable year-to-year compares will drive 6.7% growth in EMEA.

• TBR believes Dell will maintain strong revenue growth in APAC, at 14.4% year-to-year, driven by continued success in China.

• Emerging and BRIC markets will continue to grow in 2011, becoming a significant portion of global revenue.

$2,543 $2,926

$3,255 $3,288

$9,076 $8,804

$- $2,000 $4,000 $6,000 $8,000

$10,000 $12,000 $14,000 $16,000

1Q10 1Q11

In $

Mil

lions

DELL REVENUE BY REGION

Americas

EMEA

Asia Pacific

TBR


Dell will drive growth by leveraging strength in China and capitalizing on recovering economies in EMEA

TBR


Resource Management Strategy

Resource Management ChangesIn April, Dell Services appointed Suresh Vaswani executive VP of Applications and Business Outsourcing. TBR expects Vaswani to strengthen Dell’s presence in the Indian solutions market.

Investments• Dell remains committed to expanding its investment

in cloud computing.o Dell announced plans to open an R&D center in

Silicon Valley, Calif. By 2016, Dell expects the facility to employ approximately 1,500 workers. The company also plans to open 22 new global datacenters over the next two years.

o In early April, Dell announced plans to spend $1.0 billion on R&D specific to cloud computing.

• In late April, Dell announced its intent to acquire Dell Financial Services Canada Ltd., a partnership between Dell and CIT Vendor Finance, to expand its direct financing opportunities to customers in Canada and Europe. Dell also will acquire CIT Vendor Finance’s Dell-related European assets.

• Dell Services finalized its acquisition of SecureWorks in 1Q11, augmenting its security services offerings for enterprise customers.

1Q10 1Q11

Revenue per Employee 637,172$ 624,805$

S&M Employee Expense (per head) 265,456$ 277,318$

R&D Employee Expense (per head) 151,595$ 149,783$

G&A Employee Expense (per head) 181,070$ 196,763$

Revenue per Salesperson 3,510,592$ 3,571,865$

Dell Efficiency Metrics

Investments in cloud computing set the stage for growth in the emerging technology market

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

1Q10 2Q10 3Q10 4Q10 1Q11

DELL PROFITABILITY METRICS

Return on Assets Return on Equity

TBR


TBR


46,010 47,000

20,425 21,400

17,029 18,8008,236 8,3004,300 4,800

0

20,000

40,000

60,000

80,000

100,000

120,000

1Q10 1Q11

Tota

l Hea

dcou

nt

Calendar Quarter

DELL HEADCOUNT

Research & Development

General & Administrative

Manufacturing

Sales & Marketing

Services & Support

TBR


Headcount StrategiesHeadcount drivers and changes• Sales and Marketing: Sales and marketing headcount

increased 4.8% annually to 21,400 in 1Q11, as Dell develops a specialized, enterprise-focused sales force.

• General and Administrative: Dell continues to maintain flat G&A headcount and expenses to boost operating margin; in 1Q11, G&A headcount remained flat for the third consecutive quarter, increasing just 0.8% year-to-year.

• Research and Development: In 1Q11, R&D headcount rose 11.6%, as Dell ramped investment to improve its product line, targeting the enterprise sector and cloud segment.

Keep on the radar• With plans to invest $1 billion in datacenters worldwide, Dell

will increase headcount increases across the board in 2011.• Low-Cost Regions: TBR expects Dell to increase headcount in

low-cost regions in 2Q11 to accelerate 1Q11 growth while cutting costs.

Resource Management Strategy

Dell is increasing its headcount to develop sales forces and product lines targeted at growth markets

70,000

80,000

90,000

100,000

110,000

$100,000

$200,000

$300,000

$400,000

$500,000

1Q10 2Q10 3Q10 4Q10 1Q11

Reve

nue

per E

mpl

oyee

DELL REVENUE AND HEADCOUNT

Revenue per Employee Employee HeadcountSOURCE: TBR AND DELL

Hea

dcou

nt

TBR

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

Karen H. QuintosSenior 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

Ronald RoseSenior Vice President

Dell.com

Paul D. BellPresidentPublic and Large Enterprise

Steve H. PriceSenior Vice President

Human Resources

Jeffrey W. ClarkeVice Chairman

Operations & Technology

Organization Breakdown

Brian T. GladdenSenior Vice President

Chief Financial Officer

Management ChangesIn April, Dell Services appointed Suresh Vaswani executive VP of Applications and Business Outsourcing as well as

chairman of Dell India. TBR anticipates Vaswani will improve Dell Services’ delivery capabilities, expanding its presence in India to accelerate recent growth in the country’s strong services market. Additionally, Vaswani will help hone innovation to capitalize on growth verticals – with a push toward virtualization and cloud.

TBR


Income Statement

DELL INC.

In thousands except earnings per share dataCALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.FISCAL QUARTER F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 Est.Net Sales 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 16,000,000$ Cost of Sales 12,358,000 12,948,000 12,391,000 12,401,000 11,585,000 12,480,000 Gross Profit 2,516,000 2,586,000 3,003,000 3,291,000 3,432,000 3,520,000

SG&A 1,830,000 1,679,000 1,816,000 1,977,000 2,025,000 1,920,000 R&D 167,000 162,000 163,000 169,000 195,000 192,000 Operating Income 519,000 745,000 1,024,000 1,145,000 1,212,000 1,408,000

Financing and Other (68,000) (49,000) 52,000 (18,000) (42,000) (14,000) Pre-Tax Income 451,000 696,000 1,076,000 1,127,000 1,170,000 1,394,000

Income Taxes 110,000 151,000 254,000 200,000 225,000 240,000 Net Income 341,000$ 545,000$ 822,000$ 927,000$ 945,000$ 1,154,000$

Earnings Per Share 0.17$ 0.28$ 0.42$ 0.48$ 0.49$

Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Sales 83.1% 83.4% 80.5% 79.0% 77.1% 78.0%Gross Margin 16.9% 16.6% 19.5% 21.0% 22.9% 22.0%SG&A 12.3% 10.8% 11.8% 12.6% 13.5% 12.0%R&D 1.1% 1.0% 1.1% 1.1% 1.3% 1.2%Operating Expenses 13.4% 11.9% 12.9% 13.7% 14.8% 13.2%Operating Margin 3.5% 4.8% 6.7% 7.3% 8.1% 8.8%Net Margin 2.3% 3.5% 5.3% 5.9% 6.3% 7.2%YEAR-TO-YEAR CHANGENet Sales 20.5% 21.7% 19.4% 5.3% 1.0% 3.0%Cost of Sales 21.5% 24.8% 16.2% -0.2% -6.3% -3.6%Gross Profit 16.1% 8.2% 34.5% 33.3% 36.4% 36.1%SG&A 13.5% 6.9% 21.0% 11.1% 10.7% 14.4%R&D 18.4% 8.7% 5.2% -5.6% 16.8% 18.5%Operating Expenses 13.9% 7.0% 19.5% 9.5% 11.2% 14.7%Operating Income 25.4% 11.0% 77.5% 124.5% 133.5% 89.0%F/O 3300.0% 16.7% -182.5% -56.1% -38.2% -71.4%Ebitda 9.5% 10.7% 109.3% 140.3% 159.4% 100.3%Income Taxes -9.8% -3.8% 43.5% 48.1% 104.5% 58.9%Net Income 17.6% 15.5% 143.9% 177.5% 177.1% 111.7%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 1Q10 2Q10 3Q10 4Q10 1Q11FISCAL QUARTER F1Q11 F2Q11 F3Q11 F4Q11 F1Q12ASSETSCurrent AssetsCash and Cash equivalents 10,255,000$ 11,694,000$ 12,889,000$ 13,913,000$ 14,061,000$ Short-term Investments 627,000 744,000 492,000 452,000 418,000 Accounts Receivable 5,880,000 6,565,000 6,407,000 6,493,000 6,196,000 Financing Receivables 3,221,000 3,272,000 3,588,000 3,643,000 3,205,000 Inventory 1,182,000 1,372,000 1,294,000 1,301,000 1,276,000 Other (Deferred Income Taxes, etc.) 3,619,000 3,562,000 3,118,000 3,219,000 3,217,000 Total Current Assets 24,784,000 27,209,000 27,788,000 29,021,000 28,373,000Property, Plant, & Equipment 2,049,000 1,980,000 1,948,000 1,953,000 1,987,000 Equity Securities and Other Invest. 714,000 633,000 662,000 704,000 762,000 Long-term Financing Receivables 528,000 622,000 709,000 799,000 1,123,000 Other Non-current Assets 327,000 294,000 235,000 262,000 196,000 Total Assets 34,241,000$ 36,640,000$ 37,154,000$ 38,599,000$ 39,788,000$ LIABILITIES AND EQUITYCurrent LiabilitiesShort-term Borrowings 1,079,000 1,627,000 826,000 851,000 816,000 Accounts Payable 11,402,000 12,465,000 11,278,000 11,293,000 10,442,000 Accrued Liabilities 3,449,000 3,812,000 3,898,000 4,181,000 3,590,000 Total Current Liabilities 18,880,000 20,913,000 19,095,000 19,483,000 18,130,000 Long-Term Debt 3,582,000 3,623,000 5,168,000 5,146,000 6,794,000 Other Non-current Liabilities 5,801,000 5,943,000 6,078,000 6,204,000 6,494,000 Total Liabilities 28,263,000 30,479,000 30,341,000 30,833,000 31,418,000 Total Stockholders' Equity 5,978,000 6,161,000 6,813,000 7,766,000 8,370,000

Total Liabilities & Equity 34,241,000$ 36,640,000$ 37,154,000$ 38,599,000$ 39,788,000$ SOURCE: DELL INC.

TBR

TBR


Appendix – Financial Models

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.REVENUE (IN $ THOUSANDS) F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 Est.Total 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 16,000,000$ System 10,487,000$ 11,084,000$ 10,891,000$ 11,098,000$ 10,466,000$ 11,087,000$ Peripheral Products 2,496,000$ 2,535,000$ 2,579,000$ 2,651,000$ 2,567,000$ 2,763,000$ Enhanced Services 1,891,000$ 1,915,000$ 1,924,000$ 1,943,000$ 1,984,000$ 2,150,000$ Gross Profit 2,516,000$ 2,586,000$ 3,003,000$ 3,291,000$ 3,432,000$ 3,520,000$ Gross Margin 16.9% 16.6% 19.5% 21.0% 22.9% 22.0%REVENUE MODELDesktops 3,185,000$ 3,460,000$ 3,226,000$ 3,174,000$ 2,896,000$ 3,040,000$ Portables 4,408,000$ 4,540,000$ 4,693,000$ 4,690,000$ 4,556,000$ 4,720,000$ Workstations 555,000$ 570,000$ 585,000$ 570,000$ 560,000$ 575,000$ DT Workstation 400,000$ 410,000$ 420,000$ 410,000$ 400,000$ 410,000$ NB Workstations 155,000$ 160,000$ 165,000$ 160,000$ 160,000$ 165,000$ Servers 1,785,000$ 1,890,000$ 1,844,000$ 2,090,000$ 1,973,000$ 2,144,000$ External Storage 554,000$ 624,000$ 543,000$ 574,000$ 481,000$ 608,000$ Peripheral Products 2,496,000$ 2,535,000$ 2,579,000$ 2,651,000$ 2,567,000$ 2,763,000$ Enhanced Services 1,891,000$ 1,915,000$ 1,924,000$ 1,943,000$ 1,984,000$ 2,150,000$ Total 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 16,000,000$ PERCENTAGE OF TOTAL REVENUEDesktops 21.4% 22.3% 21.0% 20.2% 19.3% 19.0%Workstations 3.7% 3.7% 3.8% 3.6% 3.7% 3.6%Portables 29.6% 29.2% 30.5% 29.9% 30.3% 29.5%Servers 12.0% 12.2% 12.0% 13.3% 13.1% 13.4%External Storage 3.7% 4.0% 3.5% 3.7% 3.2% 3.8%Peripheral Products 16.8% 16.3% 16.8% 16.9% 17.1% 17.3%Services 12.7% 12.3% 12.5% 12.4% 13.2% 13.4%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%YEAR-TO-YEAR REVENUE GROWTHDesktops 13.2% 17.1% 21.5% 3.7% -9.1% -4.6%Workstations 16.8% 15.2% 18.2% 6.5% 0.9% 3.6%Portables 17.5% 20.7% 15.6% 4.2% 3.4% 7.1%Servers 38.8% 34.7% 19.8% 15.9% 10.5% 20.1%External Storage 3.7% 13.2% 6.9% -4.2% -13.2% 9.7%Peripheral Products 11.1% 6.4% 7.7% 7.0% 2.8% 10.7%Services 52.7% 57.2% 54.7% 1.1% 4.9% 13.7%Total 20.5% 21.7% 19.4% 5.3% 1.0% 7.6%SOURCE: TBR ESTIMATES AND DELL FINANCIALS

DELL REVENUE MODEL TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.REVENUE (IN $ THOUSANDS) F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 Est.REVENUE MODEL 56.0% 54.8% 57.1% 57.5% 58.9% 58.6%Total Desktop 3,585,000$ 3,870,000$ 3,646,000$ 3,584,000$ 3,296,000$ 3,450,000$ Total Portable 4,563,000$ 4,700,000$ 4,858,000$ 4,850,000$ 4,716,000$ 4,885,000$ Desktops 3,185,000$ 3,460,000$ 3,226,000$ 3,174,000$ 2,896,000$ 3,040,000$ Portables 4,408,000$ 4,540,000$ 4,693,000$ 4,690,000$ 4,556,000$ 4,720,000$ Workstations 555,000$ 570,000$ 585,000$ 570,000$ 560,000$ 575,000$ DT Workstations 400,000$ 410,000$ 420,000$ 410,000$ 400,000$ 410,000$ NB Workstations 155,000$ 160,000$ 165,000$ 160,000$ 160,000$ 165,000$ Servers 1,785,000$ 1,894,050$ 2,077,650$ 2,090,000$ 1,973,000$ 2,144,000$ Total 9,933,000$ 10,464,050$ 10,581,650$ 10,524,000$ 9,985,000$ 10,479,000$ UNIT SHIPMENTS (IN THOUSANDS)Total Desktop 4,728 5,271 4,651 4,913 4,530 5,113Total Portable 5,718 5,822 6,024 6,096 5,903 6,049Desktops 4,511 5,045 4,419 4,688 4,310 4,903Portables 5,649 5,731 5,931 6,006 5,818 5,961Workstations 286 317 324 315 305 298 DT Workstations 217 226 231 225 220 210 NB Workstations 69 91 93 90 85 88Servers 487 511 459 498 485 547Total 10,933 11,604 10,768 11,507 10,918 11,249UNIT SHIPMENT GROWTH YEAR-TO-YEAR Total Desktop 12.3% 12.0% 13.0% 5.1% -4.2% -3.0%Total Portable 26.7% 20.6% 10.4% 2.0% 3.2% 3.9%Desktops 12.0% 11.8% 12.7% 5.0% -4.5% -2.8%Portables 27.0% 20.3% 10.0% 1.7% 3.0% 4.0%Workstations 17.7% 21.0% 23.8% 13.3% 6.6% -6.0% DT Workstations 19.9% 15.9% 18.7% 7.1% 1.4% -7.1% NB Workstations 11.3% 35.8% 38.7% 32.4% 23.2% -3.3%Servers 30.0% 15.0% 4.0% 6.0% -0.4% 7.0%Total 20.2% 16.3% 7.5% 3.5% -0.1% -3.1%

Total Desktop 758$ 734$ 784$ 729$ 728$ 675$ Total Notebook 798$ 807$ 806$ 796$ 799$ 808$ Desktops 706$ 686$ 730$ 677$ 672$ 620$ Portables 780$ 792$ 791$ 781$ 783$ 792$ Workstations 1,941$ 1,798$ 1,804$ 1,810$ 1,836$ 1,930$ DT Workstations 1,843$ 1,814$ 1,815$ 1,822$ 1,818$ 1,952$ NB Workstations 2,246$ 1,758$ 1,775$ 1,778$ 1,882$ 1,875$ Servers 3,667$ 3,706$ 4,529$ 4,200$ 4,068$ 3,921$ Dell AUP (w Peripherals/Services) 1,360$ 1,339$ 1,430$ 1,364$ 1,375$ 1,422$

Dell Hardware AUP 909$ 902$ 983$ 915$ 915$ 932$

DELL PC & SERVER REVENUE, UNIT, AND ASP MODEL

PC HARDWARE AVERAGE SALES PRICE

SOURCE: TBR ESTIMATES AND DELL FINANCIALS

TBR

TBR



CALENDAR 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.IN $ MILLIONS F1Q11 F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 Est.Total Revenue 14,874$ 15,534$ 15,394$ 15,692$ 15,017$ 16,000$ REVENUE BY REGIONAmericas 9,076$ 9,575$ 9,464$ 9,227$ 8,804$ 9,440$ EMEA 3,255$ 3,300$ 3,245$ 3,483$ 3,288$ 3,520$ APJ 2,543$ 2,658$ 2,686$ 2,982$ 2,926$ 3,040$ AS A PERCENTAGE OF REVENUEAmericas 61.0% 61.6% 61.5% 58.8% 58.6% 59.0%EMEA 21.9% 21.2% 21.1% 22.2% 21.9% 22.0%APJ 17.1% 17.1% 17.4% 19.0% 19.5% 19.0%YEAR-TO-YEAR CHANGEAmericas 23.1% 17.0% 18.0% 3.0% -3.0% -1.4%EMEA 6.4% 24.0% 15.0% 3.0% 1.0% 6.7%APJ 33.1% 38.6% 30.7% 16.5% 15.1% 14.4%SEQUENTIAL CHANGEAmericas 1.3% 5.5% -1.2% -2.5% -4.6% 7.2%EMEA -3.7% 1.4% -1.7% 7.3% -5.6% 7.1%APJ -0.7% 4.5% 1.0% 11.0% -1.9% 3.9%SOURCE: TBR ESTIMATES AND DELL CORP.

DELL REVENUE BREAKDOWN BY GEOGRAPHY TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Total Revenue 14,874,000$ 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 16,000,000$ SG&A Expense 1,830,000$ 1,679,000$ 1,816,000$ 1,977,000$ 2,025,000$ 1,920,000$ Sales & Marketing Expense 1,390,000$ 1,299,000$ 1,416,000$ 1,547,000$ 1,605,000$ 1,498,000$ General and Administrative Expense 440,000$ 380,000$ 400,000$ 430,000$ 420,000$ 422,000$ R&D Expense 167,000$ 162,000$ 163,000$ 169,000$ 195,000$ 192,000$ Total Operating Expense 1,997,000$ 1,841,000$ 1,979,000$ 2,146,000$ 2,220,000$ 2,112,000$ SALES AND MARKETING EXPENSE BREAKOUT (IN $ THOUSANDS)Sales Expense 1,015,000$ 889,000$ 996,000$ 1,117,000$ 1,175,000$ 1,049,000$ Partner and Channel Spending 85,000$ 85,000$ 90,000$ 95,000$ 95,000$ 97,000$ Marketing Spending 290,000$ 325,000$ 330,000$ 335,000$ 335,000$ 352,000$ Total Sales and Marketing Expense 1,390,000$ 1,299,000$ 1,416,000$ 1,547,000$ 1,605,000$ 1,498,000$ SPENDING AS A PERCENTAGE OF REVENUE Total Operating Expense 13.4% 11.9% 12.9% 13.7% 14.8% 13.2%Total SG&A Expense 12.3% 10.8% 11.8% 12.6% 13.5% 12.0% Sales and Marketing Expense 9.3% 8.4% 9.2% 9.9% 10.7% 9.4%Sales Expense 6.8% 5.7% 6.5% 7.1% 7.8% 6.6%Partner and Channel Spending 0.6% 0.5% 0.6% 0.6% 0.6% 0.6%Marketing Spending 1.9% 2.1% 2.1% 2.1% 2.2% 2.2% General and Administrative 3.0% 2.4% 2.6% 2.7% 2.8% 2.6%CORPORATEWIDE HEADCOUNTSales 16,525 16,525 17,500 17,500 17,500 17,500

Direct Field Sales 4,025 4,025 4,500 4,500 4,500 4,500Tele-Sales & Sales Support 12,500 12,500 13,000 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 8,300 8,300 8,300 8,300Research and Development 4,300 4,300 4,500 4,800 4,800 4,800Services 46,010 46,010 45,000 47,000 47,000 47,000

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

Manufacturing/Assembly and Other 17,029 17,029 18,800 18,800 18,800 18,800Total Employees 96,000 96,000 98,000 100,300 100,300 100,300SOURCE: TBR ESTIMATES AND DELL FINANCIALS

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

TBR


Financial Strategy GraphsAppendix – Graphs

20.5% 21.7% 19.4%

5.3%1.0%

-20%

-10%

0%

10%

20%

30%

1Q10 2Q10 3Q10 4Q10 1Q11

YEAR-TO-YEAR REVENUE GROWTH

DELL CBQ AVERAGE

TBR


16.9% 16.6%19.5% 21.0%

22.9%

0%

10%

20%

30%

40%

1Q10 2Q10 3Q10 4Q10 1Q11

GROSS MARGIN

DELL CBQ AVERAGE

TBR


TBR

3.5%4.8%

6.7% 7.3% 8.1%

0%

2%

4%

6%

8%

10%

12%

1Q10 2Q10 3Q10 4Q10 1Q11

OPERATING MARGIN

DELL CBQ AVERAGE

TBR


TBR

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Resource Management Strategy GraphsAppendix – Graphs

$637 $634 $623 $627$625

$0

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In $

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ANNUAL REVENUE PER EMPLOYEE

DELL CBQ AVERAGE

TBR


TBR

$181 $185 $190 $200 $197

$0

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In $

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ANNUAL G&A EXPENSE PER G&A EMPLOYEE

DELL CBQ AVERAGE

TBR


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$152 $154 $154 $148 $150

$0

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ANNUAL R&D EXPENSE PER DEVELOPER

DELL CBQ AVERAGE

TBR


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Future Outlook GraphAppendix – Graphs

0.001.002.003.004.005.006.007.008.009.00

10.00

0% 5% 10% 15% 20%

CBQ

Cor

pora

te S

core

Quarterly Revenue Growth Year-to-year

1Q11 CBQ VENDOR POSITION AND PROJECTION: DELL INC.

2Q11 Est

Trailing 12-Month Average Growth for RISC/Multi-platform Vendors = 16.4%

TBR


4Q101Q11

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.

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 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 (cont.)

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.

Undisclosed; TBR estimates a deal below $200 million

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.

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

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.

Walmart Walmart 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 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 fall 2007.

Croma Croma, which 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 services

Key Dell Partners

Company Partnership Impact on Dell

Advanced Micro Devices

PC and server processors,PC graphics

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

• Ubuntu Enterprise Cloud runs on Dell servers.

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.

Appendix – Key Alliances

TBR


Dell AlliancesKey Dell Partners


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.• Compellent Storage solutions have become a part of Dell’s product portfolio.

Google Software 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.

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.


TBR


Dell AlliancesKey Dell Partners


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.


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: $279 to $429

Inspiron desktops and notebooksStarting price range for notebooks:

$449 to $549Starting price range for desktops:

$279 to $788

Dell XPS, Alienware and Adamo desktops and notebooks

Starting price range for notebooks: $799 to $1,999

Starting price range for desktops: $549 to $3,499

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:

$200 to $699Starting price range for notebooks:

$329 to $738

OptiPlex desktops Latitude E Family notebooksStarting price range for desktops:

$542 to $1,019Starting price range for notebooks:

$819 to $2,364

Latitude XFR notebook Fully rugged notebookStarting price range:

$3,704 to $4,379

Precision desktops and notebook workstations

Starting price range for desktops: $829 to $2,004

Starting price range for notebooks: $1,738 to $2,221

OptiPlex 160: Starting price: $650

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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