TBR 2Q11 Dell Inc. Report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


COMPUTER BUSINESS QUARTERLYSM

Dell Inc.Second Calendar Quarter 2011Second Fiscal Quarter 2012 Ended July 31, 2011

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

5.19

Publish Date: September 7, 2011Author: Greg Richardson ([email protected]), Computing Practice Analyst; Krista Macomber, Computing Practice Research Analyst

Content Editor: John Spooner, Computing Practice Director

mailto:[email protected]

TBR

Dell Inc. 2Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis

3 TBR Position4 Executive Summary 6 Strategic Overview 8 Corporate SWOT Analysis9 Scenario Discussion 12 Financial Model Strategy

15 Go-to-Market & Product Strategies

18 Alliance & Acquisition Strategy 20 Geographic Analysis 21 Resource Management Strategy 23 Organization Breakdown

Company Data Models

24 Income Statement25 Balance Sheet26 Segment Revenue Model27 Revenue Unit & ASP Model28 Geographic Model29 Operating Expense Model30 Future Outlook Graph

31 Acquisition Table33 Retail Partners

34 Alliances Tables37 Product Portfolio Table40 About TBR

Contents

TBR


TBR Assessment Corporate Strategic ObjectivesTBR believes Dell is positioning for long-term revenue and margin growth by leveraging an aggressive cadence of strategic, technology-focused acquisitions coupled with its partner ecosystem to further its solutions offerings, shedding its reputation as a PC and x86 server vendor to position itself as a “trusted adviser” to customers.

Leverage acquisitions to become a provider of enterprise-focused solutions, spearheaded by services

Dell has inorganically positioned itself to address large-scale buildouts of integrated hardware, software and services, going up against companies with similar strategies, such as IBM and HP, as evidenced by purchases including Compellent, Boomi, SecureWorks and, most recently, Force10 Networks.

Increase profitability as a result of solutions sales and supply chain efficiency

Dell’s gross profit expanded 36.3% year-to-year in 2Q11, despite revenue increasing only 0.8% over the same period. TBR believes Dell is improving profitability by leveraging integrated solutions to drive high-margin attached revenue, while reducing costs within its business segments by targeting supply chain efficiency.

Leverage an enterprise solutions strategy to drive horizontal growth and expand scale

Dell is leveraging its high-volume server business to penetrate the enterprise while leaning on partners to develop a portfolio of adjacent technologies, such as security, storage, appliances and cloud.

Dell will sustain profit expansion while accelerating revenue growth by leveraging acquisitions to deliver solutions

TBR Position

DELL 2Q11 PERFORMANCE VS. EXPECTATIONS(In $ Millions) Consensus Guidance Range Actual

Revenue 16,040$ $15,500 - $16,480 15,658$

Operating Income N/A N/A 1,146$

Non-GAAP EPS 0.44$ $0.35 - $0.51 0.48$ DELL 3Q11 GUIDANCE AND EXPECTATIONS

(In $ Millions) TBR Estimate Consensus Guidance Range

Revenue 15,702$ 16,190$ $15,530 - $16,670

Operating Income 1,329$ N/A N/A

Non-GAAP EPS N/A 0.45$ $0.34 - $0.56

TBR


TBR assessment of Dell’s two-year strategic outlook

Key takeawaysFinancial: Sustain margin expansion while accelerating revenue growth by shifting the product mix away from high-volume hardware and toward enterprise solutions.Go to market: Realign tactics to capitalize on growth industries, such as healthcare, and product areas, such as mobile computing.Resource: Boost cost structure efficiency in existing businesses, namely PCs, while investing in R&D, sales and marketing, and new facilities to capitalize on growth opportunities.

Strategic outlook• TBR believes Dell will capitalize on HP customer

uncertainty to drive commercial PC unit shipment growth.

• Dell will derive another gateway to enterprise datacenters by altering its mobile strategy, expanding its mobile device management capabilities while targeting crossover business and consumer tablet device functionality to differentiate in the space.

• Dell will fuel its solutions approach by leveraging acquisitions to augment its core portfolio with cloud and vertical-industry capabilities, targeting storage and networking technologies through 2H11.

• Dell will capitalize on virtualized, cloud and mobile IT infrastructure buildouts by expanding its network of datacenter, R&D and proof-of-concept facilities globally.

• Dell will ramp investment into sales and marketing and R&D to drive sales, boost its enterprise business and meet increased demand while streamlining its core businesses, such as consumer PCs, for margin growth.

Executive Summary

Dell will fuel its enterprise solutions strategy by augmenting its x86 server portfolio with storage and networking acquisitions

21.7%

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DELL'S NET REVENUE, GROWTH AND PROJECTIONS

Revenue Revenue Growth Year-to-Year

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

TBR

TBR


Dell will continue to outperform its peers in terms of TBR scored metrics as growth investments come to fruition

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

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

Investment in sales and marketing and R&D initiatives for growth drove up Dell’s operating expenses in 2Q11, weighing down its TBR scored financial metrics. TBR believes continued outperformance of peers in scored resource management metrics, led by supply chain efficiency, coupled with an improving product mix resulting from sales of enterprise solutions, will drive an improved overall TBR score for Dell in 3Q11.

Executive Summary

FINANCIAL METRICS TBR ScoreCompany

FigureAverage in

ClassStandard

Deviation/2Revenue (in $ Thousands) 5.40 15,658,000$ 13,611,774$ 5,087,163$

Gross Margin 3.33 22.5% 37.0% 8.7%

SG&A (% of revenue) 5.86 13.9% 17.9% 4.6%

Sales & Marketing (% of revenue) 5.69 11.1% 14.1% 4.3%

General & Admin (% of revenue) 6.12 2.7% 3.8% 1.0%

R&D (% of revenue) 6.85 1.3% 6.9% 3.1%

Total operating expenses (% of revenue) 6.66 15.2% 26.3% 6.7%

Operating Margin 4.84 7.3% 8.2% 5.4%

Net Margin 4.96 5.7% 5.9% 5.2%

Revenue Growth YTY 3.96 0.8% 12.1% 10.8%

Gross Profit YTY change 8.72 36.3% -5.8% 11.3%

SG&A YTY change 3.21 29.5% 9.8% 11.0%

Sales & Marketing YTY change 2.89 34.3% 10.3% 11.4%

General & Admin YTY change 4.33 13.2% 3.0% 15.1%

R&D YTY change 3.55 26.5% 13.1% 9.2%

Total operating expenses YTY change 2.94 29.2% 11.3% 8.7%

Operating income YTY change 5.01 53.8% 43.5% 718.5%

Net Income YTY change 4.74 63.3% 570.7% 1974.5%

TOTAL AVERAGE TBR SCORE 5.08

RESOURCE MANAGEMENT METRICSTBR Score

Company Figure

Average in Class

Standard Deviation/2

Days sales outstanding 3.47 58.3 46.1 8.0

Turns on inventory 7.29 36.1 18.5 7.7

Days inventory outstanding 7.18 10.1 35.9 11.8

Fixed asset turnover 6.08 30.3 16.7 12.7

Days cash outstanding 5.05 87.0 89.2 41.1

Total asset turnover 6.72 1.5 1.1 0.2

Debt/asset ratio 4.60 0.6 0.6 0.1

Current ratio 4.82 1.5 1.5 0.3

Return on assets 5.33 9.1% 7.9% 3.5%

Return on equity 5.91 45.8% 25.4% 22.3%

Headcount growth YTY 4.80 7.6% 6.1% 7.3%

Annual revenue per employee* 4.78 609,083$ 684,894$ 341,235$

Annual G&A expense* 5.67 202,410$ 282,280$ 119,244$

Annual R&D expense per developer* 6.72 154,921$ 329,156$ 101,229$

TOTAL AVERAGE TBR SCORE 5.75

GO-TO-MARKET METRICSTBR Score

Company Figure

Average in Class

Standard Deviation/2

Annual revenue per salesperson* 4.43 3,529,200$ 6,012,826$ 4,370,752$

Cost per revenue dollar 5.05 0.08$ 0.08$ 0.03$

Cost per margin dollar 2.87 0.37$ 0.23$ 0.06$

Channel expense as a % of S&M expense 6.71 5.4% 20.4% 8.8%

Marketing expense as a % of S&M expense 5.76 19.5% 26.1% 8.6%Annual sales expense per sales employee* 5.09 262,686$ 272,514$ 110,656$

Annual marketing expense per marketing employee* 4.86 294,953$ 284,247$ 74,126$

TOTAL AVERAGE TBR SCORE

*in $ thousands

4.84

2Q10 3Q10 4Q10 1Q11 2Q11

Financial Model Strategy: 5.09 4.88 4.75 4.89 5.08

Go-to-Market & Services Strategies: 5.10 5.20 5.02 4.96 4.84

Resource Management Strategy: 5.73 5.63 5.83 5.79 5.75

TOTAL AVERAGE TBR SCORE: 5.25 5.15 5.09 5.13 5.19

TBR SCORING SUMMARY: CALENDAR QUARTER RESULTS

TBR


Dell will grow revenue and margins through 2H11 by restructuring, selling bundled solutions, and revamping its approach to the tablet space

Strategy Overview

Function Key Strategies TBR Assessment

Overall

Grow margins while positioning for long-term revenue expansion by increasing sales of bundled, enterprise-level servers, storage and services

►

Dell is sustaining growth in its expansive midmarket customer base while increasing traction in growth verticals by leveraging its enterprise solutions strategy.

Dell is leveraging acquisitions, partners and R&D spend to enhance its solutions capabilities.

Financial

Increase revenue and profitability by augmenting restructuring initiatives with a product mix shifting toward high-margin solutions

►

Dell accelerated its margin growth in 2Q11, as the company drove sales of higher-value, higher-margin products and services and continued restructuring to increase the efficiency of its manufacturing processes.

Despite significant acquisition spend as well as investments in sales and marketing and R&D, Dell’s revenue grew only 0.8% year-to-year in 2Q11.

Go to Market

Position as a provider of comprehensive, customer-centric enterprise solutionsIncrease presence in emerging markets globally by leaning on retailers and VARs

►

Dell is driving cross-segment revenue growth by selling cloud-related products and solutions to high-end commercial and midsized enterprise customers.

Dell is spurring adoption of its hardware and service offerings in emerging markets by leveraging its retail presence and VAR channel.

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

TBR


Dell is expanding its portfolio to capitalize on growth opportunities while realigning operations to boost efficiency

Function Key Strategies TBR Assessment

Alliances, Acquisitions & Resource Management

Leverage alliances as well as R&D and acquisition spend to expand service, computing appliance and cloud offerings and capitalize on demand, particularly in growing geographies

►

Dell is expanding its cloud footprint globally by investing in R&D and by constructing new datacenters as well as by building new Solutions Centers to deliver proof-of-concept testing of its cloud, virtualization and other interconnected technologies abroad.

Dell is leveraging alliances and acquisitions to enhance its core capabilities and increase presence in private clouds.

Operations & Global Delivery Model

Cut costs and offset declining unit shipments by re-architecting PC designs and manufacturing operationsImprove labor costs while increasing unit sales in China’s fast-growing economy by leveraging expanded manufacturing operations in the country

►

Dell’s total cost of goods sold fell 590 basis points year-to-year to 77.5% in 2Q11 as a result of stabilizing hardware component costs, a more efficient component supply chain and a product mix shifting toward solutions.

Dell is supporting corporate profit expansion by outsourcing PC manufacturing and by redesigning its PCs to remove unnecessary costs.

Dell is investing $100 billion in China through 2021 to sustain growth in the country while reducing labor cost via increased manufacturing capabilities.

Strategy Overview

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

TBR


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

and server installed base create opportunities to upsell professional services.

• Leverage traction in servers, coupled with improving service and software portfolios, to meet growing demand for datacenter infrastructure buildouts and boost corporate top-line growth.

• Scale enables significant investment in acquisitions to foster growth.

• Double-digit Dell-owned storage revenue growth in 2Q11 provides momentum for Dell to build on.

Opportunities• Target China’s fast-growing market by investing $100 billion to

expand presence and capabilities.• Fuel profit expansion by leveraging acquisitions to shift the

product mix from PCs to enterprise solutions.• Capitalize on HP PC customer uncertainty.• Increase storage revenue while positioning for segment profit

expansion by investing in R&D and acquisitions.

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

on its PC gross margin.• Dell’s presence in the retail space is weak compared to

high-end brands with competitive pricing.• Customers perceive Dell as a compute-only brand.• Historically, Dell has relied on EMC for a significant

portion of the storage revenue base.

Threats• Despite sinking shipments, desktop PCs represent more than

20% of Dell’s quarterly revenue• HP and IBM also are also seeking inorganic revenue and margin

growth by leveraging acquisitions to develop solutions, resulting in market consolidation.

• Rival IBM will challenge Dell’s solutions strategy in future quarters as the company begins to expand into larger-scale datacenters.

• Multiplatform rivals, namely EMC and IBM, are increasing competition in the storage market.

Corporate SWOT Analysis

Dell will invest in acquisitions, R&D and growing geographies to expand internationally and bolster its solutions capabilities

TBR


Scenario Discussion: Dell’s acquisition investments resulting in increased profitabilityScenario SWOT AssessmentStrength: Scale enables significant investment in acquisitions to foster growth.Weakness: Reputation as high-volume PC and x86 server manufacturer.Opportunity: Fuel profit expansion by leveraging acquisitions to shift the product mix from PCs to enterprise solutions.Threat: Market consolidation as HP and IBM also seek inorganic revenue and margin growth by leveraging acquisitions to develop solutions.

• Dell is steadily increasing its profitability by leveraging acquisitions to shift from a vendor of high-volume compute products to a provider of enterprise-focused solutions, spearheaded by services.

• TBR expects Dell to round out its solutions portfolio by targeting cloud and vertical-market capabilities through an aggressive acquisition cadence. Dell will use these technology-focused buys to complement its core portfolio with storage and networking capabilities – evidenced by the recent purchases of Force10 Networks and Compellent.

• Dell’s aggressive pursuit of inorganic growth is supporting profit growth. Dell’s corporatewide gross profit increased 36.3% year-to-year in 2Q11, despite revenue increasing by only 0.8% over the same time frame.

• Multiplatform rivals, namely IBM and HP, are also ramping up efforts to leverage acquisitions to deliver enterprise solutions. We believe Dell will continue working proactively to take aim at its core customer base while other competitors, namely IBM, tackle the high end of the market.

Scenario Discussion

Dell will continue to acquire to round out its portfolio and shift the product mix toward solutions

Dell Acquisitions

Compellent

SecureWorksForce10

KACE

Boomi

TBR


Scenario Discussion: Dell will open doors to higher-value enterprise solutions sales by capitalizing on HP’s rethinking of its consumer hardware business.

Scenario SWOT AssessmentStrength: Traction in the PC space opens doors to migration to enterprise solutions.Weakness: Customer perception as a compute-only brand.Opportunity: Capitalize on HP PC customer uncertainty.Threat: Rival IBM will present challenges in future quarters as Dell begins to expand into larger-scale datacenters.

• TBR believes Dell will leverage its large PC customer base as a lead library, working its way through that customer base to drive more enterprise deals. As HP creates confusion in the PC arena, we anticipate Dell will firm up its PC base, which will lay the foundation for cross-selling opportunities in future quarters.

• Dell is moving into the corporate IT space at a time when HP is stepping away from PCs – a core Dell area that is integral to the client side of IT datacenters. TBR believes the reformulation of HP’s consumer hardware business will shake confidence across HP’s PC customer base, opening doors for Dell to secure its existing PC customer base while winning share from HP. Dell will leverage its position in PCs to spur customer adoption of higher-value, higher-margin solutions.

• Although reorganization at HP is creating new opportunities for Dell, IBM's traction and expansive services business will emerge as major hurdles for the successful deployment and execution of Dell's solutions strategy in higher-end datacenters.

Scenario Discussion

Dell will capitalize on HP’s shifting portfolio commitments, leveraging its PC customer base to drive higher-value cross-selling opportunities

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DELL'S SERVER, STORAGE AND SERVICES BUSINESSES AS A PERCENTAGE OF TOTAL REVENUE

Servers External Storage Services

TBR

SOURCE: TBR AND DELL

Bundled enterprise-level solutions will continue to grow as a percentage of Dell’s revenue

TBR


Dell will grow its storage business following the termination of its partnership with EMC by leveraging R&D and acquisition spendScenario Discussion: Dell is sacrificing short-term storage revenue for long-term profit growth

Scenario SWOT AssessmentStrength: Double-digit Dell-owned storage revenue growth in 2Q11 provides momentum for Dell to build on.Weakness: Historical reliance on EMC for a significant portion of the storage revenue base.Opportunity: Increase storage revenue while setting a course to segment profit expansion by investing in R&D and acquisitions.Threat: Increasing competition in the market from multiplatform rivals, namely EMC and IBM.

• TBR believes Dell will leverage its heightened control over the storage technology development roadmap to foster integration between its storage and compute portfolios, leading to cross-selling opportunities.

• We expect Dell to generate near-term storage revenue momentum by remaining true to its roots, supporting midmarket deployments in industries such as the public sector, in which it has strong traction, while providing for growth by establishing proof points of its capabilities to penetrate new verticals, such as financial services and telecommunications.

• Dell will overcome headwinds created by the dissolution of its relationship with EMC, which led to an overall storage revenue decline of 19.6% year-to-year in 2Q11, by pursuing long-term profitability through an expanded portfolio of owned storage solutions, which generated a reported 15% revenue increase.

• TBR anticipates Dell will face headwinds in the storage market as EMC expands its hardware and software offerings to maintain its existing high-end customer base while expanding into the midmarket via the cloud and as IBM expands its analytics capabilities to increase share via solutions sales.

Scenario Discussion

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DELL STORAGE REVENUE AND GROWTH

Storage Revenue Storage YTY Growth


TBR

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Revenue Performance and Strategies2Q11 Revenue: $15.7 billion, 0.8% YTY

Dell’s revenue increased 0.8% year-to-year to $15.7 billion in 2Q11, driven by its Enterprise Solutions and Services group.• Dell’s server business led its segments in growth.

Revenue was up 8.7% year-to-year, an increase of 90 basis points, to 13.1% of total revenue, driven by SMB infrastructure buildouts.

• Services revenue grew 6.3% year-to-year, climbing 70 basis points to 13.0% of revenue as a result of Dell’s focus on providing more robust, higher-value offerings.

Revenue and Growth Outlook

TBR estimates Dell’s corporate revenue will increase by 2.0% annually to $15.7 billion in 3Q11.• We believe Dell will accelerate revenue growth

through 2H11 and into 2012, as investments in acquisitions, sales and marketing, and R&D for growth come to fruition, fueling Dell’s shift from a high-volume PC and server manufacturer to an enterprise services and solutions provider.

$8,570 $8,504 $8,434 $8,012 $8,497 $8,190

$2,535 $2,579 $2,651 $2,567 $2,569 $2,661 $1,890 $1,844 $2,090 $1,973 $2,054 $2,104 $1,915 $1,924 $1,943 $1,984 $2,036 $2,150

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DELL SEGMENT CONTRIBUTIONS

Storage Services Server SW & Peripherals PCSOURCE: TBR AND DELL

TBR

Financial Model Strategy

Dell is driving cross-segment revenue expansion by leveraging acquisitions, R&D and sales and marketing spend

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DELL REVENUE AND PROFITABILITY

Total Revenue Gross Margin Operating Margin


TBR

TBR


Cost & Margin Performance and Strategies2Q11 Total OPEX: $2.4 billion

Cost of Services, Gross Profit

• COGS fell 590 basis points to 77.5% of revenue, or $12.1 billion, as component costs leveled and Dell drove sales of integrated service, server and network offerings and strengthened its component supply chain.

• Declining COGS contributed to a 640-basis-point year-to-year increase to Dell’s gross margin, which reached 22.5% in 2Q10.

SG&ASG&A expense increased 40 basis points annually to 13.9% of revenue in 2Q11, as Dell invested to expand its sales force targeted at enterprise customers.

Operating Margin and Outlook

• Dell’s operating margin of 7.3% declined from 8.1% in 1Q11 but was up from 4.8% in the year-ago quarter, driven by an improved product mix and more efficient supply chain.

• TBR estimates Dell’s operating margin will continue to grow year-to-year and sequentially, reaching 8.5% in 3Q11 as the company increases sales of higher-margin, higher-value services and solutions.


Dell will increase supply chain and manufacturing efficiencies while improving the product mix

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DELL PERCENT EXPENSE BY FUNCTION

S&M G&A R&D

TBR


16.6%19.5% 21.0% 22.9% 22.5% 23.5%

18.5% 19.5% 18.0%

4.8% 6.7% 7.3% 8.1% 7.3% 8.5%5.6%

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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 1.3% year-to-year, excluding workstations. Units shipped were up 4.0%, but ASP dipped by $20 to $792.

• Dell’s desktop revenue was down 3.3% year-to-year, excluding workstations, as a 5.2% decline to unit shipments offset a $13 uptick to ASP.

Servers & Storage

• Dell posted a 19.6% year-to-year decline to storage revenue due to the loss of EMC products.

• TBR believes Dell will continue to lean on its x86 server and Compellent businesses, while investing to expand its portfolio of Dell-owned storage, for revenue expansion.

Services

• Services revenue grew 6.3% year-to-year, driven by demand for SecureWorks offerings.

• TBR believes Dell will fuel services growth by establishing a consultative service delivery framework to capitalize on demand for cloud.

Software & Peripherals

Software & Peripherals grew 1.3% year-to-year, a slight uptick of 10 basis points to 16.4% of revenue, as Dell eliminated low-value proprietary and third-party products from its portfolio, such as consumer electronics offerings.

Dell will eliminate lower-value offerings to boost margins in its PC and software businesses while investing in R&D to capitalize on new demand

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PC Server Storage SW & Peripherals Services

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GTM Discussion: Dell will drive long-term revenue and margin expansion in its tablet business by leveraging the burgeoning market in China as a test bed

Key Takeaways• Dell will increase tablet unit shipments as well

as profitability by delivering crossover personal and business functionality.

• Dell’s growing brand presence and sales and marketing capabilities in China will lay the foundation for adoption.

• Burgeoning demand and early adopter use patterns make China an ideal test bed for tablets.

• Dell will capitalize on market uncertainty around business application treatment on a tablet device, awaiting either Windows 8 or an Android-based productivity application that suits customer requirements to introduce the BlackBerry of the tablet space.

• TBR’s tablet study research indicates China is an early adopter of client device (such as tablets) use patterns as compared to the U.S. and Germany. Dell will leverage the market in China to establish proof points of its technologies and begin to win tablet share from rivals, namely Apple.

• TBR believes business acceptance will provide Dell with tablet margin protection. Business device subsidies will become a purchasing consideration for consumers seeking to utilize their device for both personal and business computing applications.

• Dell will differentiate in the space while positioning for high-margin attach revenue by leveraging its brand reputation and reliability as well as its mobile device management offerings.

o Dell will spur adoption by leveraging its growing presence in Western China, resulting from its ongoing investment in sales, marketing and customer service.

Dell will target margin protection in the tablet space by focusing on business functionality

Dell Streak 10 Pro

SOURCE: ITECHWORLDINFO.COM

Go to Market & Product Strategies

TBR


Large Enterprise Public SMB Consumer

Key Changes & Drivers

Dell’s Large Enterprise revenue grew 0.8% annually, driven by demand for servers and services.

Public Sector revenue dipped 2.7% year-to-year but grew 18.3% from 1Q11, with client revenue up a reported 34% sequentially.

SMB revenue increased 4.9% year-to-year, driven by server and networking refresh cycles as well as demand for virtualization.

Consumer revenue was up 1.3% year-to-year, with strength in EMEA and APAC overcoming declines in the Americas, primarily in the U.S.

Trends to monitor: • TBR believes Dell’s enterprise solutions strategy will drive Large

Enterprise revenue up 9.8% year-to-year in 3Q11, to lead Dell’s customer segments in growth.

• We anticipate demand for IT infrastructure buildouts in growth markets, such as India and China, will drive SMB growth into 2H11 – up 2.3% annually in 3Q11, according to TBR estimates.

• We estimate Dell will grow Public Sector revenue 3.6% year-to-year in 3Q11, despite macroeconomic concerns among federal customers in Europe and the U.S., by leveraging demand for servers, storage and services.

• Dell will work to combat declining consumer revenue, which TBR estimates will fall 19.9% annually in 3Q11, by actively realigning its portfolio, driving sales of higher-value products while shifting lower-margin products to its retail business.


Dell will deliver end-to-end solutions to SMB and Enterprise customers, while improving the Consumer product mix

$2,870 $2,908

$3,535 $3,709

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$4,549 $4,584

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Large Enterprise Public SMB Consumer

TBR


TBR


Dell leverages a growing portfolio of need-based solutions and global VAR partners to support core revenue and international expansion


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• Sell consumer and business

systems on a worldwide basis by leveraging retail and VAR partners.

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

• Support VAR partners with geography-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 and development synergiesDell will leverage alliances and acquisitions to augment its core capabilities, targeting networking and storage capabilities in 2H11, and develop industry-specific datacenter solutions.

Alliances and acquisitions position Dell as a leading provider of cloud computing storage solutions for large-scale analytics and innovative technology.

In 2Q11, Dell positioned itself to capitalize on demand for cloud and Big Data management and analytics in growth verticals such as healthcare by leveraging partner and acquired technologies.• In August, Dell closed its acquisition of Force10

Networks, provider of Open Cloud Networking high-performance datacenter solutions, to augment its expansive x86 server portfolio and further its solutions capabilities. Dell has extended its global services reach and capabilities with Force10’s direct sales force and base of channel and SI partners.

• In August, Dell partnered with software vendor Cloudera to enable simplified deployment, management and scaling of Hadoop Big Data solutions, targeting industries including financial services and telecommunications.

Alliance & Acquisition Strategy

Internal DevelopmentInvest in new markets 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.

• Diversify and expand Dell’s product portfolio.

Dell will leverage alliances and acquisitions to round out its vertical-centric solutions portfolio with networking and storage capabilities

TBR


Dell diversifies its revenue by leaning on acquired technologies to shed its status as strictly a PC vendor and break into growth markets

Alliance & Acquisition Strategy

Dell’s Acquisition Roadmap

2H09 1H10 2H10 1H11 2H11

Professional Services Emerging Markets Dynamic

DatacenterEnterprise Solutions Networking Layer

Perot Solutions • Extranet• Kace Networks

• Boomi• Ocarina

Networks• Scalent

• SecureWorks• Compellent

Force10 Networks

TBR


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

Key Strategies

Americas revenue declined for the second consecutive quarter, down 3.0% year-to-year due to weak consumer demand.

EMEA revenue was up 1.0% year-to-year, which TBR attributes to strength in growing countries in Eastern Europe.

APJ revenue increased 14.2% annually, driven by demand for enterprise solutions.

Growth markets revenue increased a reported 14% year-to-year, to 28% of Dell’s revenue, led by India and China, where revenues increased 20% and 21%, respectively.

Geographic Overview

TBR Conclusions and Outlook• TBR believes constricted Public Sector budgets will mute revenue

expansion in Western Europe and in the U.S. in 3Q11. To drive growth in 2H11, we expect Dell to aggressively pursue global expansion, with a focus on sustaining momentum in BRIC countries.

• We believe success in China and India will drive APAC revenue growth of 11.1% year-to-year, while demand for infrastructure buildouts in Eastern European countries will drive EMEA revenue up 6.5%.

• We project soft consumer and Public Sector demand will drive a 2.1% year-to-year decline in Americas revenue in 3Q11.

Dell will capitalize on demand in growing geographies to overcome weak Public Sector and consumer spend in 2H11

$15,667$287

$33

$387

$15,534

$15,000

$15,100

$15,200

$15,300

$15,400

$15,500

$15,600

$15,700

2Q10 Americas EMEA APAC 2Q11

Reve

nue

(in $M

illion

s)

DELL REVENUE CONTRIBUTIONS BY REGION TBR


TBR


Resource Management Strategy Dell Capital Investments

Dell will capitalize on new opportunities for revenue and profit growth by investing in research and development to bolster its service, computing appliance and cloud offerings.

• Dell will capitalize on demand for cloud computing in emerging geographies by investing in R&D and datacenter facilities.o In June, Dell opened its first Cloud Research and

Development Center in Dublin, following its plans announced in April to spend $1.0 billion on cloud computing R&D, including opening 22 new datacenters over the next two years.

• Dell will drive adoption of cloud, virtualization and other interconnected technologies globally by delivering demonstrations and proof-of-concept testing at 12 new Solutions Centers slated to be built in 2011.o Dell has opened centers in Virginia and Texas in the

U.S., as well as Limerick, Ireland, Shanghai, China and Singapore.

Dell will drive adoption of cloud-based solutions globally by investing in R&D, datacenter and testing facilities

Resource Management Strategy

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2Q10 3Q10 4Q10 1Q11 2Q11

DELL PROFITABILITY METRICS

Return on Assets Return on Equity

TBR


2Q10 2Q11

Revenue per Employee 634,376$ 609,083$

S&M Employee Expense (per head) 264,263$ 294,953$

R&D Employee Expense (per head) 154,401$ 154,921$

G&A Employee Expense (per head) 185,258$ 202,410$

Revenue per Salesperson 3,609,774$ 3,529,200$

Dell Efficiency Metrics

TBR


Headcount Strategies

Headcount drivers and changes

• Sales and Marketing: Dell increased its sales and marketing headcount by 975 FTEs annually, as the company built its sales force to drive sales of its enterprise solutions.

• General and Administrative: Dell’s G&A headcount increased slightly, by 64 FTEs year-to-year in 2Q11, as the company worked to streamline its operations.

• Research and Development: Dell added 500 FTEs to its R&D headcount to support the development of service and solutions offerings for growth.

Keep on the radar

• Expanded cloud and datacenter footprint: With plans to open new cloud R&D, Solutions Center and datacenter facilities worldwide, TBR believes Dell will increase headcount across the board in future quarters.

• Low-Cost Regions: As Dell works to control its operating expenses throughout 2H11, TBR expects the company will increase headcount in low-cost regions .


Dell is aligning its headcount to reduce costs and capitalize on growth opportunities

70,000

80,000

90,000

100,000

110,000

$100,000

$200,000

$300,000

$400,000

$500,000

2Q10 3Q10 4Q10 1Q11 2Q11

Reve

nue

per E

mpl

oyee

DELL REVENUE AND HEADCOUNT

Revenue per Employee Employee HeadcountSOURCE: TBR AND DELL

Hea

dcou

nt

TBR

46,010 47,000

20,425 21,400

17,029 21,8008,236

8,3004,300

4,800

0

20,000

40,000

60,000

80,000

100,000

120,000

2Q10 2Q11

Tota

l Hea

dcou

nt

Calendar Quarter

DELL HEADCOUNT

Research & Development General & AdministrativeManufacturing Sales & MarketingServices & Support

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


Brian T. GladdenSenior Vice President

Chief Financial Officer

TBR


Income Statement

DELL INC.

In thousands except earnings per share dataCALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.FISCAL QUARTER F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12Net Sales 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 15,658,000$ 15,702,000$ Cost of Sales 12,948,000 12,391,000 12,401,000 11,585,000 12,133,000 12,012,000 Gross Profit 2,586,000 3,003,000 3,291,000 3,432,000 3,525,000 3,690,000

SG&A 1,679,000 1,816,000 1,977,000 2,025,000 2,174,000 2,151,000 R&D 162,000 163,000 169,000 195,000 205,000 210,000 Operating Income 745,000 1,024,000 1,145,000 1,212,000 1,146,000 1,329,000

Financing and Other (49,000) 52,000 (18,000) (42,000) (55,000) (16,000) Pre-Tax Income 696,000 1,076,000 1,127,000 1,170,000 1,091,000 1,313,000

Income Taxes 151,000 254,000 200,000 225,000 201,000 202,000 Net Income 545,000$ 822,000$ 927,000$ 945,000$ 890,000$ 1,111,000$

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

Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%Cost of Sales 83.4% 80.5% 79.0% 77.1% 77.5% 76.5%Gross Margin 16.6% 19.5% 21.0% 22.9% 22.5% 23.5%SG&A 10.8% 11.8% 12.6% 13.5% 13.9% 13.7%R&D 1.0% 1.1% 1.1% 1.3% 1.3% 1.3%Operating Expenses 11.9% 12.9% 13.7% 14.8% 15.2% 15.0%Operating Margin 4.8% 6.7% 7.3% 8.1% 7.3% 8.5%Net Margin 3.5% 5.3% 5.9% 6.3% 5.7% 7.1%YEAR-TO-YEAR CHANGENet Sales 21.7% 19.4% 5.3% 1.0% 0.8% 2.0%Cost of Sales 24.8% 16.2% -0.2% -6.3% -6.3% -3.1%Gross Profit 8.2% 34.5% 33.3% 36.4% 36.3% 22.9%SG&A 6.9% 21.0% 11.1% 10.7% 29.5% 18.4%R&D 8.7% 5.2% -5.6% 16.8% 26.5% 28.8%Operating Expenses 7.0% 19.5% 9.5% 11.2% 29.2% 19.3%Operating Income 11.0% 77.5% 124.5% 133.5% 53.8% 29.8%F/O 16.7% -182.5% -56.1% -38.2% 12.2% -130.8%Ebitda 10.7% 109.3% 140.3% 159.4% 56.8% 22.0%Income Taxes -3.8% 43.5% 48.1% 104.5% 33.1% -20.5%Net Income 15.5% 143.9% 177.5% 177.1% 63.3% 35.2%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 2Q10 3Q10 4Q10 1Q11 2Q11FISCAL QUARTER F2Q11 F3Q11 F4Q11 F1Q12 F2Q12ASSETSCurrent AssetsCash and Cash equivalents 11,694,000$ 12,889,000$ 13,913,000$ 14,061,000$ 14,623,000$ Short-term Investments 744,000 492,000 452,000 418,000 509,000 Accounts Receivable 6,565,000 6,407,000 6,493,000 6,196,000 6,752,000 Financing Receivables 3,272,000 3,588,000 3,643,000 3,205,000 3,385,000 Inventory 1,372,000 1,294,000 1,301,000 1,276,000 1,346,000 Other (Deferred Income Taxes, etc.) 3,562,000 3,118,000 3,219,000 3,217,000 3,043,000 Total Current Assets 27,209,000 27,788,000 29,021,000 28,373,000 29,658,000Property, Plant, & Equipment 1,980,000 1,948,000 1,953,000 1,987,000 2,064,000 Equity Securities and Other Invest. 633,000 662,000 704,000 762,000 1,048,000 Long-term Financing Receivables 622,000 709,000 799,000 1,123,000 1,252,000 Other Non-current Assets 294,000 235,000 262,000 196,000 285,000 Total Assets 36,640,000$ 37,154,000$ 38,599,000$ 39,788,000$ 41,604,000$ LIABILITIES AND EQUITYCurrent LiabilitiesShort-term Borrowings 1,627,000 826,000 851,000 816,000 1,316,000 Accounts Payable 12,465,000 11,278,000 11,293,000 10,442,000 11,628,000 Accrued Liabilities 3,812,000 3,898,000 4,181,000 3,590,000 3,823,000 Total Current Liabilities 20,913,000 19,095,000 19,483,000 18,130,000 20,194,000 Long-Term Debt 3,623,000 5,168,000 5,146,000 6,794,000 6,424,000 Other Non-current Liabilities 5,943,000 6,078,000 6,204,000 6,494,000 6,650,000 Total Liabilities 30,479,000 30,341,000 30,833,000 31,418,000 33,268,000 Total Stockholders' Equity 6,161,000 6,813,000 7,766,000 8,370,000 8,336,000

Total Liabilities & Equity 36,640,000$ 37,154,000$ 38,599,000$ 39,788,000$ 41,604,000$ SOURCE: DELL INC.

TBR

TBR


Appendix – Financial Models

CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.REVENUE (IN $ THOUSANDS) F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Est.Total 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 15,658,000$ 15,702,000$ System 11,084,000$ 10,891,000$ 11,098,000$ 10,466,000$ 11,053,000$ 10,891,000$ Peripheral Products 2,535,000$ 2,579,000$ 2,651,000$ 2,567,000$ 2,569,000$ 2,661,000$ Enhanced Services 1,915,000$ 1,924,000$ 1,943,000$ 1,984,000$ 2,036,000$ 2,150,000$ Gross Profit 2,586,000$ 3,003,000$ 3,291,000$ 3,432,000$ 3,525,000$ 3,690,000$ Gross Margin 16.6% 19.5% 21.0% 22.9% 22.5% 23.5%REVENUE MODELDesktops 3,460,000$ 3,226,000$ 3,174,000$ 2,896,000$ 3,346,000$ 2,983,000$ Portables 4,540,000$ 4,693,000$ 4,690,000$ 4,556,000$ 4,601,000$ 4,632,000$ Workstations 570,000$ 585,000$ 570,000$ 560,000$ 550,000$ 575,000$ DT Workstation 410,000$ 420,000$ 410,000$ 400,000$ 390,000$ 410,000$ NB Workstations 160,000$ 165,000$ 160,000$ 160,000$ 160,000$ 165,000$ Servers 1,890,000$ 1,844,000$ 2,090,000$ 1,973,000$ 2,054,000$ 2,104,000$ External Storage 624,000$ 543,000$ 574,000$ 481,000$ 502,000$ 597,000$ Peripheral Products 2,535,000$ 2,579,000$ 2,651,000$ 2,567,000$ 2,569,000$ 2,661,000$ Enhanced Services 1,915,000$ 1,924,000$ 1,943,000$ 1,984,000$ 2,036,000$ 2,150,000$ Total 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 15,658,000$ 15,702,000$ PERCENTAGE OF TOTAL REVENUEDesktops 22.3% 21.0% 20.2% 19.3% 21.4% 19.0%Workstations 3.7% 3.8% 3.6% 3.7% 3.5% 3.7%Portables 29.2% 30.5% 29.9% 30.3% 29.4% 29.5%Servers 12.2% 12.0% 13.3% 13.1% 13.1% 13.4%External Storage 4.0% 3.5% 3.7% 3.2% 3.2% 3.8%Peripheral Products 16.3% 16.8% 16.9% 17.1% 16.4% 16.9%Services 12.3% 12.5% 12.4% 13.2% 13.0% 13.7%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%YEAR-TO-YEAR REVENUE GROWTHDesktops 17.1% 21.5% 3.7% -9.1% -3.3% -13.8%Workstations 15.2% 18.2% 6.5% 0.9% -3.5% 0.9%Portables 20.7% 15.6% 4.2% 3.4% 1.3% 2.0%Servers 34.7% 19.8% 15.9% 10.5% 8.7% 11.3%External Storage 13.2% 6.9% -4.2% -13.2% -19.6% -4.3%Peripheral Products 6.4% 7.7% 7.0% 2.8% 1.3% 5.0%Services 57.2% 54.7% 1.1% 4.9% 6.3% 12.3%Total 21.7% 19.4% 5.3% 1.0% 0.8% 1.1%SOURCE: TBR ESTIMATES AND DELL FINANCIALS

DELL REVENUE MODEL TBR

TBR



CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.REVENUE (IN $ THOUSANDS) F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12 Est.REVENUE MODEL 54.8% 57.1% 57.5% 58.9% 56.0% 58.6%Total Desktop 3,870,000$ 3,646,000$ 3,584,000$ 3,296,000$ 3,736,000$ 3,393,000$ Total Portable 4,700,000$ 4,858,000$ 4,850,000$ 4,716,000$ 4,761,000$ 4,797,000$ Desktops 3,460,000$ 3,226,000$ 3,174,000$ 2,896,000$ 3,346,000$ 2,983,000$ Portables 4,540,000$ 4,693,000$ 4,690,000$ 4,556,000$ 4,601,000$ 4,632,000$ Workstations 570,000$ 585,000$ 570,000$ 560,000$ 550,000$ 575,000$ DT Workstations 410,000$ 420,000$ 410,000$ 400,000$ 390,000$ 410,000$ NB Workstations 160,000$ 165,000$ 160,000$ 160,000$ 160,000$ 165,000$ Servers 1,894,050$ 2,077,650$ 2,090,000$ 1,973,000$ 2,054,000$ 2,104,000$ Total 10,464,050$ 10,581,650$ 10,524,000$ 9,985,000$ 10,551,000$ 10,294,000$ UNIT SHIPMENTS (IN THOUSANDS)Total Desktop 5,271 4,651 4,913 4,530 4,997 4,511Total Portable 5,822 6,024 6,096 5,903 6,051 6,257Desktops 5,045 4,419 4,688 4,310 4,782 4,301Portables 5,731 5,931 6,006 5,818 5,961 6,169Workstations 317 324 315 305 305 298 DT Workstations 226 231 225 220 215 210 NB Workstations 91 93 90 85 90 88Servers 511 459 498 485 525 491Total 11,604 10,768 11,507 10,918 11,573 10,856UNIT SHIPMENT GROWTH YEAR-TO-YEAR Total Desktop 12.0% 13.0% 5.1% -4.2% -5.2% -3.0%Total Portable 20.6% 10.4% 2.0% 3.2% 3.9% 3.9%Desktops 11.8% 12.7% 5.0% -4.5% -5.2% -2.7%Portables 20.3% 10.0% 1.7% 3.0% 4.0% 4.0%Workstations 21.0% 23.8% 13.3% 6.6% -3.8% -8.1% DT Workstations 15.9% 18.7% 7.1% 1.4% -4.9% -9.3% NB Workstations 35.8% 38.7% 32.4% 23.2% -1.1% -5.3%Servers 15.0% 4.0% 6.0% -0.4% 2.7% 7.0%Total 16.3% 7.5% 3.5% -0.1% -0.3% 0.8%

Total Desktop 734$ 784$ 729$ 728$ 748$ 752$ Total Notebook 807$ 806$ 796$ 799$ 787$ 767$ Desktops 686$ 730$ 677$ 672$ 700$ 694$ Portables 792$ 791$ 781$ 783$ 772$ 751$ Workstations 1,798$ 1,804$ 1,810$ 1,836$ 1,803$ 1,930$ DT Workstations 1,814$ 1,815$ 1,822$ 1,818$ 1,814$ 1,952$ NB Workstations 1,758$ 1,775$ 1,778$ 1,882$ 1,778$ 1,875$ Servers 3,706$ 4,529$ 4,200$ 4,068$ 3,912$ 4,287$ Dell AUP (w Peripherals/Services) 1,339$ 1,430$ 1,364$ 1,375$ 1,353$ 1,446$

Dell Hardware AUP 902$ 983$ 915$ 915$ 912$ 948$

DELL PC & SERVER REVENUE, UNIT, AND ASP MODEL

PC HARDWARE AVERAGE SALES PRICE

SOURCE: TBR ESTIMATES AND DELL FINANCIALS

TBR

TBR



CALENDAR 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.IN $ MILLIONS F2Q11 F3Q11 F4Q11 F1Q12 F2Q12 F3Q12Total Revenue 15,534$ 15,394$ 15,692$ 15,017$ 15,658$ 15,702$ REVENUE BY REGIONAmericas 9,575$ 9,464$ 9,227$ 8,804$ 9,288$ 9,264$ EMEA 3,300$ 3,245$ 3,483$ 3,288$ 3,333$ 3,454$ APJ 2,658$ 2,686$ 2,982$ 2,926$ 3,037$ 2,983$ AS A PERCENTAGE OF REVENUEAmericas 61.6% 61.5% 58.8% 58.6% 59.3% 59.0%EMEA 21.2% 21.1% 22.2% 21.9% 21.3% 22.0%APJ 17.1% 17.4% 19.0% 19.5% 19.4% 19.0%YEAR-TO-YEAR CHANGEAmericas 17.0% 18.0% 3.0% -3.0% -3.0% -2.1%EMEA 24.0% 15.0% 3.0% 1.0% 1.0% 6.5%APJ 38.6% 30.7% 16.5% 15.1% 14.2% 11.1%SEQUENTIAL CHANGEAmericas 5.5% -1.2% -2.5% -4.6% 5.5% -0.3%EMEA 1.4% -1.7% 7.3% -5.6% 1.4% 3.6%APJ 4.5% 1.0% 11.0% -1.9% 3.8% -1.8%SOURCE: TBR ESTIMATES AND DELL CORP.

DELL REVENUE BREAKDOWN BY GEOGRAPHY TBR

TBR



CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est.Total Revenue 15,534,000$ 15,394,000$ 15,692,000$ 15,017,000$ 15,658,000$ 15,702,000$ SG&A Expense 1,679,000$ 1,816,000$ 1,977,000$ 2,025,000$ 2,174,000$ 2,151,000$ Sales & Marketing Expense 1,299,000$ 1,416,000$ 1,547,000$ 1,605,000$ 1,744,000$ 1,731,000$ General and Administrative Expense 380,000$ 400,000$ 430,000$ 420,000$ 430,000$ 420,000$ R&D Expense 162,000$ 163,000$ 169,000$ 195,000$ 205,000$ 210,000$ Total Operating Expense 1,841,000$ 1,979,000$ 2,146,000$ 2,220,000$ 2,379,000$ 2,361,000$ SALES AND MARKETING EXPENSE BREAKOUT (IN $ THOUSANDS)Sales Expense 889,000$ 996,000$ 1,117,000$ 1,175,000$ 1,309,000$ 1,282,000$ Partner and Channel Spending 85,000$ 90,000$ 95,000$ 95,000$ 95,000$ 97,000$ Marketing Spending 325,000$ 330,000$ 335,000$ 335,000$ 340,000$ 352,000$ Total Sales and Marketing Expense 1,299,000$ 1,416,000$ 1,547,000$ 1,605,000$ 1,744,000$ 1,731,000$ SPENDING AS A PERCENTAGE OF REVENUE Total Operating Expense 11.9% 12.9% 13.7% 14.8% 15.2% 15.0%Total SG&A Expense 10.8% 11.8% 12.6% 13.5% 13.9% 13.7% Sales and Marketing Expense 8.4% 9.2% 9.9% 10.7% 11.1% 11.0%Sales Expense 5.7% 6.5% 7.1% 7.8% 8.4% 8.2%Partner and Channel Spending 0.5% 0.6% 0.6% 0.6% 0.6% 0.6%Marketing Spending 2.1% 2.1% 2.1% 2.2% 2.2% 2.2% General and Administrative 2.4% 2.6% 2.7% 2.8% 2.7% 2.7%CORPORATEWIDE HEADCOUNTSales 16,525 17,500 17,500 17,500 17,500 17,500

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

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

Manufacturing/Assembly and Other 17,029 18,800 18,800 21,800 21,800 21,800Total Employees 96,000 98,000 100,300 103,300 103,300 103,300SOURCE: TBR ESTIMATES AND DELL FINANCIALS

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

TBR


Appendix – Future Outlook Graph

0.001.002.003.004.005.006.007.008.009.00

10.00

0% 5% 10% 15%

CBQ

Cor

pora

te S

core

Quarterly Revenue Growth Year-to-year

2Q11 CBQ VENDOR POSITION AND PROJECTION: DELL INC.

3Q11 Est

Trailing 12-Month Average Growth for RISC/Multi-platform Vendors = 12.1%

TBR


2Q11

1Q11

TBR


Dell Acquisitions

Company Scope of Acquisition Deal Size

Force10 NetworksAugust 2011

In August, Dell closed its acquisition of Force10 Networks, provider of Open Cloud Networking high-performance datacenter solutions, to augment its expansive x86 server portfolio and further its solutions capabilities. Dell has additionally extended its global services reach and capabilities with Force10’s direct sales force and base of channel and SI partners.

Undisclosed

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

Appendix – Dell Acquisitions

TBR


Dell Acquisitions

Company Scope of Acquisition Deal Size

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

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

Appendix – 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 Walmart 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 the fall of 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.

Appendix – Dell Retail Partners

TBR


Key Dell PartnersCompany 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.

Citrix

Server-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


Key Dell PartnersCompany Partnership Impact on Dell

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.

NVIDIAPC and workstation graphics hardware

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


TBR


Key Dell Partners

Company Partnership Impact on Dell

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 also has 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 $799

Dell XPS, Alienware and Adamo desktops and notebooks

Starting price range for notebooks: $999 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 $4,832

Precision desktops and notebook workstations

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

Starting price range for notebooks: $1,738 to $3,076

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: $900 to $7,400

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

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

PowerEdge M Series:Two-way blade serversStarting price range:

$2,100 to $5,300

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

mount serversStarting price range:

$1,800 to $26,300

Appendix – Dell Product Lineup

TBR


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TBR 2Q11 Dell Inc. Report

Technology

growth dell

enterprise business

scale dell

2q11 computer business

existingcrossover business

business segments

enterprise solutions

net revenue growth year