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Financial Analysis of Dell

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Financial Analysis of Dell - February 7th, 2011

Dell Inc. (NASDAQ: Dell, HKEX: 4331) is an American multinational information technology corporation based in Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 96,000 people worldwide. Dell had 46,000 employees as of Jan. 30. About 22,200 of those, or 48.3 percent, were in the United States, while 23,800 people, or 51.7 percent, worked in other countries, according to a filing with the Securities and Exchange Commission.[citation needed] Dell is the third largest PC maker in the world.[citation needed] Dell is listed at #38 on the Fortune 500 (2010). Fortune also lists Dell as the #5 most admired company in its industry.
Dell has grown by both organic and inorganic means since its inception—notable mergers and acquisitions including Alienware (2006) and Perot Systems (2009). As of 2009, the company sold personal computers, servers, data storage devices, network switches, software, and computer peripherals. Dell also sells HDTVs, cameras, printers, MP3 players and other electronics built by other manufacturers. The company is well known for its innovations in supply chain management and electronic commerce.
On May 3, 2010, Fortune Magazine listed Dell as the 38th largest company in the United States and the 5th largest company in Texas by total revenue. It is the 2nd largest non-oil company in Texas (behind AT&T) and the largest company in the Austin area

SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with “Part II —Item 7— Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Part II— Item 8— Financial
Statements and Supplementary Data.”
The Audit Committee of our Board of Directors completed an independent investigation into certain accounting and
financial reporting matters during Fiscal 2008. As a result of issues identified during the investigation, and during
additional reviews and procedures conducted by management, the Audit Committee, in consultation with management
and PricewaterhouseCoopers LLP, our independent registered public accounting firm, concluded on
August 13, 2007 that our previously issued financial statements for Fiscal 2003, 2004, 2005, and 2006 (including
the interim periods within those years), and the first quarter of Fiscal 2007, should no longer be relied upon because
of certain accounting errors and irregularities in those financial statements. Accordingly, we restated our previously
issued financial statements for those periods. Restated financial information is presented in our Annual Report on
Form 10-K for Fiscal 2007 and is reflected in this report. That document also contains a discussion of the
investigation, the accounting errors and irregularities identified, and the adjustments made as a result of the
restatement.
The following balance sheet data as of February 1, 2008, February 2, 2007, and February 3, 2006, and results of
operations for Fiscal 2008, 2007, 2006, and 2005 are derived from our audited financial statements included in
“Part II —Item 8 —Financial Statements and Supplementary Data” and from our previously filed Annual Report
on Form 10-K for Fiscal 2007. The data for the remaining periods are derived from our unaudited financial
statements for the respective periods.
February 1,
2008(c)
February 2,
2007(c)
February 3,
2006(a)
January 28,
2005(b)
January 30,
2004
Fiscal Year Ended
unaudited
(in millions, except per share data)
Results of Operations:
Net revenue . . . . . . . . . . . . . . $ 61,133 $ 57,420 $ 55,788 $ 49,121 $ 41,327
Gross margin . . . . . . . . . . . . . $ 11,671 $ 9,516 $ 9,891 $ 9,018 $ 7,563
Operating income. . . . . . . . . . $ 3,440 $ 3,070 $ 4,382 $ 4,206 $ 3,525
Income before income taxes . . $ 3,827 $ 3,345 $ 4,608 $ 4,403 $ 3,711
Net income . . . . . . . . . . . . . . $ 2,947 $ 2,583 $ 3,602 $ 3,018 $ 2,625
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . $ 1.33 $ 1.15 $ 1.50 $ 1.20 $ 1.02
Diluted. . . . . . . . . . . . . . . . $ 1.31 $ 1.14 $ 1.47 $ 1.18 $ 1.00
Number of weighted-average
shares outstanding:
Basic . . . . . . . . . . . . . . . . . 2,223 2,255 2,403 2,509 2,565
Diluted. . . . . . . . . . . . . . . . 2,247 2,271 2,449 2,568 2,619
Cash Flow & Balance Sheet
Data:
Net cash provided by
operating activities . . . . . . . $ 3,949 $ 3,969 $ 4,751 $ 5,821 $ 4,064
Cash, cash equivalents and
investments . . . . . . . . . . . . $ 9,532 $ 12,445 $ 11,756 $ 14,101 $ 11,921
Total assets . . . . . . . . . . . . . . $ 27,561 $ 25,635 $ 23,252 $ 23,318 $ 19,340
Short-term borrowings . . . . . . $ 225 $ 188 $ 65 $ 74 $ 157
Long-term debt . . . . . . . . . . . $ 362 $ 569 $ 625 $ 662 $ 645
Total stockholders’ equity . . . . $ 3,735 $ 4,328 $ 4,047 $ 6,412 $ 6,238
(a) Results for Fiscal 2006 include charges aggregating $421 million ($338 million of other product charges and $83 million in selling, general
and administrative expenses) related to the cost of servicing or replacing certain OptiPlexTM systems that included a vendor part that failed
to perform to our specifications, workforce realignment, product rationalizations, excess facilities, and a write-off of goodwill recognized
in the third quarter. The related tax effect of these items was $96 million. Fiscal 2006 also includes an $85 million income tax benefit related
to a revised estimate of taxes on the repatriation of earnings under the American Jobs Creation Act of 2004 recognized in the second quarter.
(b) Results for Fiscal 2005 include an income tax charge of $280 million related to the repatriation of earnings under the American Jobs
Creation Act of 2004 recorded in the fourth quarter.
(c) Results for Fiscal 2008 and Fiscal 2007 include stock-based compensation expense pursuant to Statement of Financial Accounting
Standards No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”). See Note 5 of Notes to Consolidated Financial Statements
included in “Part II—Item 8— Financial Statements and Supplementary Data.”


We continue to grow our business organically and through strategic acquisitions. During Fiscal 2008, we acquired
five companies, among which the two largest were EqualLogic, Inc. (“EqualLogic”) and ASAP Software Express,
Inc. (“ASAP”), and we purchased CIT Group Inc.’s (“CIT”) 30% interest in Dell Financial Services, L.P. (“DFS”).
We expect to continue to periodically make strategic acquisitions in the future.
Fiscal 2008 Performance
Share position • We shipped 40 million units for calendar year 2007 according to IDC, resulting in a
worldwide PC share position of 14.9%. After leading the worldwide PC market for
the past six years, we fell to the second position for calendar year 2007. We lost
share, both in the U.S. and internationally, as our growth did not meet the overall PC
growth. Our U.S. Consumer segment continued to underperform, which slowed our
overall growth in unit shipments, revenue, and profitability. This was mainly due to
intense competitive pressure, particularly in the lower priced desktops and notebooks
where competitors offered aggressively priced products with better product recognition
and more relevant feature sets. A slight decline in our worldwide desktop
shipments also was a factor in our losing worldwide PC share position; worldwide
desktop shipments grew 5% during calendar year 2007.
Net revenue • Fiscal 2008 net revenue increased 6% year-over-year to $61.1 billion, with unit
shipments up 5% year-over-year, as compared to Fiscal 2007 net revenue which
increased 3% year-over-year to $57.4 billion on unit growth of 2% over Fiscal
2006 net revenue of $55.8 billion.
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Operating income • Operating income was $3.4 billion for Fiscal 2008, or 5.6% of net revenue compared
to $3.1 billion for Fiscal 2007, or 5.4% of net revenue, and $4.4 billion or 7.9% of net
revenue in Fiscal 2006.
Net income • Net income was $2.9 billion for Fiscal 2008, or 4.8% of net revenue compared to
$2.6 billion for Fiscal 2007, or 4.5% of net revenue, and $3.6 billion or 6.5% of net
revenue in Fiscal 2006.
Earnings per share • Earnings per share increased 15% to $1.31 for Fiscal 2008, compared to $1.14 for
Fiscal 2007 and $1.47 for Fiscal 2006.
Results of Operations
The following table summarizes our consolidated results of operations for each of the past three fiscal years:
Dollars
% of
Revenue Dollars
% of
Revenue Dollars
% of
Revenue
February 1, 2008(a) February 2, 2007(a) February 3, 2006(b)
Fiscal Year Ended
(in millions, except per share amounts and percentages)
Net revenue . . . . . . . . . . . . . . . . . . . $ 61,133 100.0% $ 57,420 100.0% $ 55,788 100.0%
Gross margin . . . . . . . . . . . . . . . . . . $ 11,671 19.1% $ 9,516 16.6% $ 9,891 17.7%
Operating expenses . . . . . . . . . . . . . . $ 8,231 13.5% $ 6,446 11.2% $ 5,509 9.8%
Operating income . . . . . . . . . . . . . . . $ 3,440 5.6% $ 3,070 5.4% $ 4,382 7.9%
Income tax provision . . . . . . . . . . . . . $ 880 1.4% $ 762 1.3% $ 1,006 1.8%
Net income. . . . . . . . . . . . . . . . . . . . $ 2,947 4.8% $ 2,583 4.5% $ 3,602 6.5%
Earnings per share — diluted . . . . . . . $ 1.31 N/A $ 1.14 N/A $ 1.47 N/A
(a) Results for Fiscal 2008 include stock-based compensation expense of $436 million, or $309 million ($0.14 per share) net of tax, and results
for Fiscal 2007 include stock-based compensation expense of $368 million, or $258 million ($0.11 per share) net of tax, due to the
implementation of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”). We
implemented SFAS 123(R) using the modified prospective method effective February 4, 2006. For additional information, see Note 5 of
Notes to Consolidated Financial Statements included in “Part II —Item 8 — Financial Statements and Supplementary Data”.
(b) Results for Fiscal 2006 include charges aggregating $421 million ($338 million of other product charges and $83 million in selling, general,
and administrative expenses) related to the cost of servicing or replacing certain OptiPlexTM systems that include a vendor part that failed to
perform to our specifications, workforce realignment, product rationalizations, excess facilities, and a write-off of goodwill recognized in
the third quarter. The related tax effect of these items was $96 million. Fiscal 2006 also includes an $85 million income tax benefit related to
a revised estimate of taxes on the repatriation of earnings under the American Jobs Creation Act of 2004 recognized in the second quarter.
Consolidated Operations
Fiscal 2008 revenue increased 6% year-over-year to $61.1 billion, with unit shipments up 5% year-over-year.
Revenue grew across all regions: Asia Pacific-Japan (“APJ”) grew 15%; Europe, Middle East, and Africa
(“EMEA”) increased 12%; and the Americas grew 3%. Revenue outside the U.S. represented approximately
47% of Fiscal 2008 net revenue, compared to approximately 44% in the prior year. Outside the U.S., we produced
14% year-over-year revenue growth for Fiscal 2008; however, our unit growth was below the overall unit growth
rate of the international PC market. During Fiscal 2008, the U.S. dollar weakened relative to the other principal
currencies in which we transact business; however, as a result of our hedging activities, foreign currency
fluctuations did not have a significant impact on our consolidated results of operations. Combined Brazil, Russia,
India, and China (“BRIC”) revenue growth during Fiscal 2008 was 27%. To continue to capitalize on and increase
international growth, we are tailoring solutions to meet specific regional needs, enhancing relationships to provide
customer choice and flexibility, and expanding into these and other emerging countries that represent 85% of the
world’s population. Within the Americas, Americas Business revenue grew by 6% and U.S. Consumer revenue
declined by 12% during Fiscal 2008.Worldwide, all product categories grew revenue over the prior year other than
desktop PCs, which declined 1% as consumers continue to migrate to mobility products. Desktop PC revenue in the
Americas and EMEA regions declined 4% and 3% year-over-year, respectively, as opposed to desktop PC revenue
in APJ, which increased 12%.
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Fiscal 2007 revenue increased 3% year-over-year to $57.4 billion, with unit shipments up 2% year-over-year.
Revenue grew across the EMEA and APJ regions by 6% and 12%, respectively, while the Americas region revenue
remained flat year-over-year. Revenue outside the U.S. represented approximately 44% of Fiscal 2007 net revenue,
compared to approximately 41% in the prior year. Outside the U.S., we produced 10% year-over-year revenue
growth for Fiscal 2007. During Fiscal 2007, Americas Business revenue grew by 3% and U.S. Consumer revenue
declined by 11%. All product categories grew revenue over the prior year periods, other than desktop PCs. Desktop
PC revenue in the Americas and EMEA regions declined 12% and 6% year-over-year, respectively.We believe that
this decline in desktop PC revenue reflected an industry-wide shift to mobility products. Our growth underperformed
the industry’s growth in Fiscal 2007, particularly in our U.S. Consumer segment, as we were out of
product feature set and price position.
Operating income and net income increased 12% and 14% year-over-year to $3.4 billion and $2.9 billion,
respectively, for Fiscal 2008. The increased profitability was mainly a result of strength in mobility, solid demand
for enterprise products, and a favorable component-cost environment. In Fiscal 2007 and Fiscal 2006, operating and
net income were $3.1 billion and $2.6 billion, and $4.4 billion and $3.6 billion, respectively. Net income for Fiscal
2006 includes an income tax repatriation benefit of $85 million pursuant to a favorable tax incentive provided by the
American Jobs Creation Act of 2004. This tax benefit is related to the Fiscal 2006 repatriation of $4.1 billion in
foreign earnings.
Our average selling price (total revenue per unit sold) in Fiscal 2008 increased 2% year-over-year, which primarily
resulted from our pricing strategy, compared to a 1% year-over-year increase for Fiscal 2007. Our recent pricing
strategy has been to concentrate on solutions sales, realign pricing, and drive a better mix of products and services,
while aggressively pricing our products to remain competitive in the marketplace. In Fiscal 2008, we continued to
see intense competitive pressure, particularly for lower priced desktops and notebooks, as competitors offered
aggressively priced products with better product recognition and more relevant feature sets. As a result, particularly
in the U.S., we lost share in the U.S. consumer segment in notebooks and desktops, which slowed our overall growth
in unit shipments, revenue, and profitability.We expect that this competitive pricing environment will continue for
the foreseeable future.
Revenues by Segment
We conduct operations worldwide and manage our business in three geographic regions: the Americas, EMEA, and
APJ. The Americas region covers the U.S., Canada, and Latin America. Within the Americas, we are further
segmented into Business and U.S. Consumer. The Americas Business (“Business”) segment includes sales to
corporate, government, healthcare, small and medium business, and education customers, while the U.S. Consumer
segment includes sales primarily to individual consumers and selected retailers within the U.S.We have developed
and started implementing a plan to combine the consumer business of both EMEA and APJ with the U.S. Consumer
business and re-align our management and financial reporting structure. We will begin reporting worldwide
Consumer once we complete the global consolidation of this business, which we expect to be the first quarter of
Fiscal 2009. The changes have had no impact on our operating segment structure to date. The EMEA region covers
Europe, the Middle East, and Africa. The APJ region covers the Asian countries of the Pacific Rim as well as
Australia, New Zealand, and India.
During the second half of Fiscal 2008, we began selling desktop and notebook computers, printers, ink, and toner
through retail channels in the Americas, EMEA, and APJ in order to expand our customer base. Our goal is to have
strategic relationships with a number of major retailers in our larger geographic regions. In the U.S., we currently
have relationships with retailers such as Staples, Wal-Mart, and Best Buy; and in Latin America, we have
relationships with retailers, including Wal-Mart and Pontofrio. Additionally, some of our relationships include
Carphone Warehouse, Carrefour, Tesco, and DSGi in EMEA; and in APJ, we are working with retailers such as
Gome, HiMart, Courts, and Bic Camera.
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The following table summarizes our net revenue by reportable segment for each of the past three fiscal years:
Dollars
% of
Revenue Dollars
% of
Revenue Dollars
% of
Revenue
February 1, 2008 February 2, 2007 February 3, 2006
Fiscal Year Ended
(in millions, except percentages)
Net revenue
Americas:
Business . . . . . . . . . . $ 31,144 50.9% $ 29,311 51.1% $ 28,365 50.8%
U.S. Consumer . . . . . 6,224 10.2% 7,069 12.3% 7,960 14.3%
Americas . . . . . . . . . . . 37,368 61.1% 36,380 63.4% 36,325 65.1%
EMEA. . . . . . . . . . . . . 15,267 25.0% 13,682 23.8% 12,887 23.1%
APJ . . . . . . . . . . . . . . . 8,498 13.9% 7,358 12.8% 6,576 11.8%
Net revenue . . . . . . . $ 61,133 100.0% $ 57,420 100.0% $ 55,788 100.0%
• Americas — Americas Business represented the majority of our absolute dollar revenue growth in both Fiscal
2008 and Fiscal 2007. During Fiscal 2008, Americas revenues increased 3% year-over-year representing 61.1%
of our total net sales as compared to 63.4% in Fiscal 2007. Revenue from sales of software and peripherals and
mobility products led the region’s growth during Fiscal 2008. The overall increase in net sales was partially
offset by a decline in net sales of desktops. Revenue from the sale of mobility products led the region’s growth
and grew by single digits in both Americas Business and U.S. Consumer in Fiscal 2007. However, this growth
was also offset by the continuing trend of declines in desktop PC sales as wireless capabilities, falling prices, and
a growing need for mobility have increased the preference and demand for notebooks.
– Business — Americas Business grew revenue as well as units by 6% in Fiscal 2008, compared to 3%
revenue growth on flat unit growth in Fiscal 2007. The increase in revenue in Fiscal 2008 resulted primarily
from the sale of mobility products, which grew 11% in Fiscal 2008 compared to Fiscal 2007. The unit
volume increases resulted from strong growth in laptops. Americas International, which includes countries
in North America and Latin America other than the U.S., drove the majority of the increase in revenue in the
Americas in both years. Americas International produced revenue growth of 17% year-over-year for Fiscal
2008 as compared to 19% revenue growth year-over-year in Fiscal 2007. In Fiscal 2007, the slow down of
net revenue growth was due to desktop weakness, lower demand, and a significant decline in our Public
business.
– U.S. Consumer — U.S. Consumer revenue and unit volume decreased 12% and 20%, respectively, in Fiscal
2008, compared to revenue and unit decreases of 11% and 14%, respectively, in Fiscal 2007. U.S. Consumer
revenue declined as compared to Fiscal 2007 primarily due to a 19% and 29% decline in desktop revenue and
unit volume, respectively. In Fiscal 2008, this segment’s average selling price increased 10% year-over-year
compared to a 3%year-over-year increase from a year ago, mainly due to realigning prices and selling a more
profitable product mix. We continue to see a shift to mobility products in U.S. Consumer and our other
segments as notebooks become more affordable. In response to this environment, we have updated our
business model for U.S. Consumer and have entered into a limited number of retail distribution arrangements
to complement and extend the existing direct business. In the fourth quarter of Fiscal 2008, the U.S. Consumer
business began to improve and posted revenue growth of 12% over the fourth quarter of Fiscal 2007, which
reflects changes we have made to the business to reignite growth, including introducing four notebook
families for consumers in six months. In Fiscal 2009, we expect to continue to expand our product offerings
by launching 50% more new notebooks than in Fiscal 2008. U.S. Consumer revenue and unit volume
decreased 11% and 14%, respectively, in Fiscal 2007 compared to revenue growth of 5% on unit growth of
9% in Fiscal 2006. U.S. Consumer revenue growth slowed as compared to Fiscal 2006 primarily due to a 25%
decline in both desktop revenue and unit volume.
• EMEA — During Fiscal 2008, EMEA represented 25% of our total consolidated net revenue as compared to
24% in Fiscal 2007. EMEA had 12% year-over-year net revenue growth as a result of unit shipment growth of
25
7%. Average price per unit increased 4%, which reflects the mix of products sold and a benefit from the
strengthening of the Euro and British Pound against the U.S. dollar during Fiscal 2008, offset by our pricing
strategy. The revenue growth was primarily a result of higher demand for mobility products, represented by a
20% increase in revenue on a unit shipment increase of 24%. Growth in services revenue also contributed to
EMEA’s strong Fiscal 2008 performance as EMEA’s services revenue grew 30% year-over-year. These
increases were partially offset by a 3% decrease in desktop sales. At a country level, Poland, Austria, Greece,
France, and Germany experienced strong growth in Fiscal 2008.We recently reorganized our EMEA operations
to focus our sales teams on specific customer types, as opposed to our previous country focus, to reignite growth
and provide more consistent offerings to our customers.
In Fiscal 2007, the segment’s performance was largely attributed to growth in mobility products, where yearover-
year unit volumes and revenue grew 29% and 15%, respectively, compared to 49% and 23%, respectively,
in Fiscal 2006. This growth occurred primarily in France and Germany in Fiscal 2007, with Germany leading
the region’s progress. The United Kingdom experienced weak demand in its consumer business, resulting in a
2% year-over-year decline in revenue for Fiscal 2007.With the exception of desktop PCs, all product categories
in this region experienced growth for Fiscal 2007 compared to Fiscal 2006, with mobility, storage, and services
revenues posting strong gains.
• Asia Pacific-Japan — During Fiscal 2008, APJ’s revenue continued to improve, with 15% revenue growth yearover-
year. Consistent with the EMEA segment, these increases were mainly a result of strong growth in mobility.
Sales of mobility products increased 33% year-over-year and unit volume increased 32% in Fiscal 2008. Sales of
mobility products grew due to a shift in customer preference from desktops to notebooks as well as the strong
reception of our InspironTM and VostroTM notebooks. APJ also reported 20% growth in servers and networking
revenue on unit growth of 5% primarily due to our focus on delivering greater value within customer data centers
with our rack optimized server platforms, whose average selling prices are higher than our tower servers. These
increases were partially offset by a 10% decrease in services revenue. From a country perspective, India,
Thailand, Taiwan, Malaysia, and China experienced significant revenue growth during Fiscal 2008. Significant
growth in India and China during Fiscal 2008 contributed to a revenue growth rate of approximately 27% for our
targeted BRIC countries.
In Fiscal 2007, APJ reported 12% revenue growth on 20% unit growth. The region was led by 26% year-overyear
revenue growth in China during Fiscal 2007. Fiscal 2007’s improved performance was partially offset by
Japan’s results, which saw revenue decline of 5% year-over-year. In Fiscal 2007, India, South Korea, Singapore,
and Malaysia produced significant year-over-year revenue growth at a higher rate than the overall region. All
product categories in this region experienced revenue growth during Fiscal 2007 with mobility leading the
growth with a revenue increase of 12% on unit growth of 31% during Fiscal 2007. Also driving this growth were
increases in services, software and peripherals, and storage.

Revenue by Product and Services Categories
The following table summarizes our net revenue by product category:
Dollars
% of
Revenue Dollars
% of
Revenue Dollars
% of
Revenue
February 1, 2008 February 2, 2007 February 3, 2006
Fiscal Year Ended
(in millions, except percentage)
Net revenue:
Desktop PCs . . . . . . . . . . . . . $ 19,573 32% $ 19,815 34% $ 21,568 39%
Mobility . . . . . . . . . . . . . . . . 17,423 28% 15,480 27% 14,372 25%
Software and peripherals . . . . 9,908 16% 9,001 16% 8,329 15%
Servers and networking . . . . . 6,474 11% 5,805 10% 5,449 10%
Services. . . . . . . . . . . . . . . . . 5,320 9% 5,063 9% 4,207 8%
Storage . . . . . . . . . . . . . . . . . 2,435 4% 2,256 4% 1,863 3%
Net revenue. . . . . . . . . . . . . . . . $ 61,133 100% $ 57,420 100% $ 55,788 100%
• Desktop PCs — During Fiscal 2008, revenue from desktop PCs (which includes desktop computer systems and
workstations) decreased slightly from Fiscal 2007 revenue on a unit decline of 2% even though worldwide
industry unit sales grew 5% during calendar 2007. The decline was primarily due to us being out of product
feature and price position and consumers’ migration to mobility products. Our U.S. Consumer segment
continued to perform below expectation in Fiscal 2008 with a 19% decrease in desktop revenue year-overyear;
however, in the fourth quarter of Fiscal 2008, desktop revenues for U.S. Consumers grew 5% over the
fourth quarter of Fiscal 2007. U.S. Consumer was the primary contributor to our worldwide full year decline in
desktop revenue with EMEA also contributing to the decline with a 3% decrease in revenue during Fiscal 2008
as compared to Fiscal 2007. The decline in revenue in our U.S. Consumer and EMEA segments was offset by a
strong performance in APJ, where desktop sales increased 12% during Fiscal 2008 over prior year, while
desktop sales in our Americas Business segment remained relatively flat during the same time period. We will
likely see rising user demand for mobility products in the foreseeable future that will contribute to a slowing
demand for desktop PCs as mobility growth is expected to outpace desktop growth at a rate of approximately sixto-
one. In Fiscal 2008, we introduced VostroTM desktops specifically designed to meet the needs of small
business customers.
In Fiscal 2007, revenue from desktop PCs decreased 8% year-over-year on unit decline of 5%. Desktop PCs in
the Americas declined year-over-year during Fiscal 2007, but was offset by single-digit growth in the APJ
region during the same period. Desktop PCs, as compared to mobility products, led Fiscal 2007 in volume;
however, our desktop PC average selling price decreased 3% from Fiscal 2006 to Fiscal 2007, which contributed
to the overall revenue decline.
• Mobility — In Fiscal 2008, revenue from mobility products (which includes notebook computers and mobile
workstations) grew 13% year-over-year on unit growth of 16%. All segments experienced strong growth except
U.S. Consumer, whose revenue and units declined 10% during Fiscal 2008 as compared to Fiscal 2007. During
the same period mobility revenue in APJ grew 33% on unit growth of 32%; EMEA revenue grew 20% on unit
growth of 24%; and Americas Business revenue grew 11% on 17% unit growth. Even though we posted doubledigit
mobility growth during Fiscal 2008, according to IDC, industry mobility shipments grew 34% during
calendar 2007. To capitalize on the industry growth in mobility, we have separated our consumer and
commercial design functions — focusing our consumer team on innovation and shorter design cycles. As a
result, we have launched four consumer notebook families in the past six months, including InspironTM color
laptops and XPSTM laptops, for which the demand has been better than expected. As a result, the fourth quarter of
Fiscal 2008 mobility revenues for U.S. Consumer grew 25% over the fourth quarter of Fiscal 2007. We also
introduced VostroTM laptops, specifically designed to meet the needs of small business customers. During the
fourth quarter of Fiscal 2008, we launched our first tablet —the LatitudeTM XT, the industry’s only sub-four
pound convertible tablet with pen and touch capability. As notebooks become more affordable and wireless
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products become standardized, demand for our mobility products continues to be strong, producing robust yearover-
year revenue and unit growth. We are likely to see sustained growth in our mobility products in the
foreseeable future due to the continued industry-wide migration from desktop PCs to mobility products.
In Fiscal 2007, revenue from mobility products grew by 8% year-over-year as compared to 20% in the previous
year. The impact of the diminished growth was particularly acute in the U.S. and led to a loss of share as
compared to Fiscal 2006. The slow growth resulted from both our product feature set and related value offering,
particularly in the consumer business, as well as our inability to reach certain customer sets. Our EMEA region
led the growth in our mobility product category with a 15% increase in Fiscal 2007.
• Software and Peripherals — In Fiscal 2008, revenue from software and peripherals (“S&P”) (which includes
Dell-branded printers, monitors not sold with systems, plasma and LCD televisions, projectors, and a multitude
of competitively priced third-party printers, televisions, software, digital cameras, and other products) increased
10% year-over-year. EMEA lead S&P revenue growth with a year-over-year increase of 14%, and Americas
Business and APJ revenue growth was 11% and 10%, respectively, during Fiscal 2008 as compared to Fiscal
2007. The increase in S&P revenue is primarily attributable to strength in imaging and printing, digital displays,
and software licensing. With the acquisition of ASAP, a leading software solutions and licensing services
provider, in the fourth quarter of Fiscal 2008, we now offer products from over 2,000 software publishers.
In Fiscal 2007, revenue from software and peripherals increased 8% year-over-year. The overall increase in
Fiscal 2007 S&P revenue was led by the APJ region with growth of 38%, while U.S. consumer sales declined
8%. This increase was primarily attributable to a 12% year-over-year increase in software revenue that was
offset by declines in our imaging product revenue.
• Servers and Networking — In Fiscal 2008, servers and networking revenue grew 12% on unit growth of 6%
year-over-year as compared to industry unit growth of 8%. Our unit growth was slightly behind the growth in the
overall industry, while we improved our product feature sets by transitioning to new platforms, and as we
managed through the realignment of certain portions of our sales force to address sales execution deficiencies. A
significant portion of the revenue growth is due to higher average selling prices, which increased 5% during
Fiscal 2008 as compared to the prior year. Fourth quarter year-over-year revenue growth of 2% was below
industry growth and our expectations as conservatism in the U.S. commercial sectors affected sales of our server
products. All regions experienced strong year-over-year revenue growth with APJ leading the way with 20%
growth on unit growth of 5%; additionally, server and networking revenue increased 16% and 8% in EMEA and
the Americas, respectively. For Fiscal 2008, we were again ranked number one in the United States with a 34%
share in server units shipped; worldwide we were second with a 25% share. Servers and networking remains a
strategic focus area. Late in the fourth quarter, we launched our 10G blade servers —the most energy efficient
blade server solution on the market. Our PowerEdge servers are ranked number one in server benchmark testing
for overall performance, energy efficiency, and price.
In Fiscal 2007, servers and networking revenue grew 7% on unit growth of 6% year-over-year. During Fiscal
2007 we introduced our new ninth generation (9G) PowerEdge servers with Intel’s Xeon 5100 series processors,
and we began shipping two new PowerEdge servers featuring AMD OpteronTM processors, providing our
customers with an additional choice for high-performance two-socket and four-socket systems. We also
launched the industry’s first standards-based Quad-Core processors for two-socket blade, rack, and tower
servers. These additions contributed to the 6% year-over-year revenue increase in Fiscal 2007 in the Americas
Business segment.
• Services — In Fiscal 2008, revenue from services (which includes the sale and servicing of our extended product
warranties) increased 5% year-over-year compared to a 20% increase in Fiscal 2007. EMEA drove services
revenue growth with a 30% increase in Fiscal 2008 as compared to Fiscal 2007, and Americas Business
contributed with 3% revenue growth. This growth was offset by revenue declines in U.S. Consumer and APJ of
16% and 10%, respectively. Strong Fiscal 2008 services sales increased our deferred service revenue balance by
approximately $1.0 billion in Fiscal 2008, a 25% increase to approximately $5.3 billion. In Fiscal 2007, our
deferred service revenue increased $514 million or 14% to approximately $4.2 billion. During Fiscal 2008, we
acquired a number of service technologies and capabilities through strategic acquisitions of certain companies.
These capabilities are being used to build-out our mix of service offerings. In the first quarter of Fiscal 2009, we
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introduced ProSupport, which distilled ten service offerings down to two customizable packages spanning our
commercial product and solutions portfolios with flexible options for service level and proactive management.
In Fiscal 2007, revenue from services increased 20% year-over-year including a 26% year-over-year growth in
revenues outside the Americas. We introduced our new Platinum Plus offering during Fiscal 2007, which
contributed to an increase in our premium service contracts.
• Storage — In Fiscal 2008, storage revenue increased 8% as compared to a 21% increase in Fiscal 2007. All
regions contributed to the revenue growth, led by EMEA, which experienced strong growth of 18%; additionally,
APJ and the Americas increased 10% and 5%, respectively. In Fiscal 2008, we expanded both our
PowerVault and Dell  EMC solutions that drove both additional increases in performance and customer value.
During the fourth quarter of Fiscal 2008, we completed the acquisition of EqualLogic, Inc., an industry leader in
iSCSI SANs. With this acquisition, we now provide much broader product offerings for small and medium
business consumers. Industry analysts believe that the iSCSI SAN space is expected to growover 125% annually
over the next five years.
In Fiscal 2007, storage revenue sustained double-digit growth with a 21% year-over-year increase. The
Americas led the revenue growth in Fiscal 2007 with a year-over-year increase of 21%. In Fiscal 2007, we also
announced a five-year extension to our partnership with EMC. These portfolio enhancements continue to
deliver lower cost solutions for our customers.
Gross Margin
The following table presents information regarding our gross margin during each of the past three fiscal years:
Dollars
% of
Revenue Dollars
% of
Revenue Dollars
% of
Revenue
February 1, 2008 February 2, 2007 February 3, 2006
Fiscal Year Ended
(in millions, except percentages)
Net revenue. . . . . . . . . . . . . . . . $ 61,133 100.0% $ 57,420 100.0% $ 55,788 100.0%
Gross margin. . . . . . . . . . . . . . . $ 11,671 19.1% $ 9,516 16.6% $ 9,891 17.7%
During Fiscal 2008, our gross margin increased in absolute dollars and as a percentage of revenue from Fiscal 2007,
driven by greater cost declines. The cost environment was more favorable in the first half of Fiscal 2008 than the
second half. Our gross margin percentage was 18.8% in the fourth quarter of Fiscal 2008 as compared to 19.3% in
the first quarter of Fiscal 2008. The fourth quarter was positively impacted by a $58 million reduction in accrued
liabilities for a one-time adjustment related to a favorable ruling by the German Federal Supreme Court on a
copyright levy case. We continue to evolve our inventory and manufacturing business model to capitalize on
component cost declines, and we continuously negotiate with our suppliers in a variety of areas including
availability of supply, quality, and cost. We continue to expand our utilization of original design manufacturers,
manufacturing outsourcing relationships, and new distribution strategies to better meet customer needs and reduce
product cycle times. Our goal is to introduce the latest relevant technology more quickly and to rapidly pass on
component cost savings to a broader set of our customers worldwide. As we continue to evolve our inventory and
manufacturing business model to capitalize on component cost declines, we continuously negotiate with our
suppliers in a variety of areas including availability of supply, quality, and cost. These real-time continuous supplier
negotiations support our business model, which is able to respond quickly to changing market conditions due to our
direct customer model and real-time manufacturing. Because of the fluid nature of these ongoing negotiations, the
timing and amount of supplier discounts and rebates vary from time to time. In addition, a focus on more richly
configured customer solutions and a better mix of products and services yielded a better balance of profitability and
revenue growth. In general, gross margin and margins on individual products will remain under downward pressure
due to a variety of factors, including continued industry wide global pricing pressures, increased competition,
compressed product life cycles, potential increases in the cost and availability of raw materials, and outside
manufacturing services. In response to these competitive pricing pressures, we expect to continue to take pricing
actions with respect to our products. We are continuing to identify opportunities to improve our competitiveness,
including lowering costs and improving productivity. One example of these opportunities is our announcement on
March 31, 2008, that we will close our desktop manufacturing facility in Austin, Texas. In addition, we will take
29
further actions to reduce total costs in design, materials, and operating expenses. Initial benefits of these
opportunities are expected in the second half of Fiscal 2009.
In Fiscal 2007, our gross margin declined as compared to Fiscal 2006, while revenue increased year-over-year.
Throughout Fiscal 2007, industry-wide competition put pressure on average selling prices while our pricing and
product strategy evolved. In Fiscal 2007, we added a second source of micro processors (“chip sets”) ending a longstanding
practice of sourcing from only one manufacturer.We believe that moving to more than one supplier of chip
sets is beneficial for customers long-term, as it adds choice and ensures access to the most current technologies.
During the transition from sole to dual sourcing of chip sets, gross margin was negatively impacted as we rebalanced
our product and category mix. In addition, commodity price declines stalled during Fiscal 2007.
Operating Expenses
The following table presents information regarding our operating expenses during each of the past three fiscal years:
Dollars
% of
Revenue Dollars
% of
Revenue Dollars
% of
Revenue
February 1, 2008 February 2, 2007 February 3, 2006
Fiscal Year Ended
(in millions, except percentages)
Operating expenses:
Selling, general, and administrative . . . . . . $ 7,538 12.4% $ 5,948 10.3% $ 5,051 9.0%
Research, development, and engineering . . . 610 1.0% 498 0.9% 458 0.8%
In-process research and development . . . . . 83 0.1% - - - -
Operating expenses . . . . . . . . . . . . . . . . . . . $ 8,231 13.5% $ 6,446 11.2% $ 5,509 9.8%
• Selling, General, and Administrative — During Fiscal 2008, selling, general, and administrative expenses
increased 27% to $7.5 billion. The increase was primarily due to investigation costs, higher compensation and
benefits expense, and increased outside consulting fees. Expenses related to the United States Securities and
Exchange Commission (“SEC”) and Audit Committee investigations were $160 million and $100 million for
Fiscal 2008 and Fiscal 2007, respectively. Fiscal 2008 results also include $76 million (of the total of
$107 million) of additional expense for cash payments for expiring stock options, and selling, general, and
administrative expenses related to headcount and infrastructure reductions were $92 million. In addition,
compensation related expenses, which includes the aforementioned expiring stock options expense and
headcount reductions, increased in Fiscal 2008 compared to Fiscal 2007. Employee bonus expense also
increased substantially in Fiscal 2008 compared to Fiscal 2007 when bonuses were paid at a reduced amount.
During Fiscal 2007, selling, general, and administrative expenses increased 18% to $5.9 billion, compared to
$5.1 billion for Fiscal 2006. The increase in Fiscal 2007 as compared to Fiscal 2006 was primarily attributed to
increased compensation costs and outside consulting services. The compensation increase was largely due to
increased stock-based compensation expense due to the adoption of SFAS 123(R) ($272 million), and the higher
outside consulting services costs were mainly due to the SEC and Audit Committee investigations ($100 million).
In addition, during Fiscal 2007, we made incremental customer experience investments of $150 million to
improve customer satisfaction, repurchase preferences, as well as technical support. As a result, we increased
our headcount through direct hiring and replacing of temporary staff with regular employees.
• Research, Development, and Engineering — Research, development, and engineering expenses increased 22%
to $610 million compared to $498 million in Fiscal 2007. The increase in research, development, and
engineering was primarily driven by significantly higher compensation costs. The higher compensation costs
are partially attributed to increased focused investments in research and development (“R&D”), which are
critical to our future growth and competitive position in the marketplace. During Fiscal 2008, we implemented
our “Simplify IT” initiative for our customers. R&D is the foundation for this initiative, which is aimed at
allowing customers to deploy IT faster, run IT at a lower total cost, and grow IT smarter. In Fiscal 2007, research,
development, and engineering expense increased in absolute dollars compared to Fiscal 2006 due to increased
staffing levels, product development costs, and stock-based compensation expense resulting from the adoption
of SFAS 123(R).
30
We manage our research, development, and engineering spending by targeting those innovations and products
most valuable to our customers, and by relying upon the capabilities of our strategic partners. We will continue
to invest in research, development, and engineering activities to support our growth and to provide for new,
competitive products. We obtained 1,954 worldwide patents and have applied for 2,196 additional worldwide
patents at February 1, 2008.
• In-Process Research and Development — We recognized in-process research and development (“IPR&D”)
charges in connection with acquisitions accounted for as business combinations, as more fully described in
Note 7 of Notes to Consolidated Financial Statements included in “Part II —Item 8 —Financial Statements
and Supplementary Data.” During Fiscal 2008, we recorded IPR&D charges of $83 million. Prior to Fiscal 2008,
there were no IPR&D charges related to acquisitions.
On May 31, 2007, we announced that we had initiated a comprehensive review of costs across all processes and
organizations with the goal to simplify structure, eliminate redundancies, and better align operating expenses with
the current business environment and strategic growth opportunities. These efforts are continuing. Since this
announcement and through the end of Fiscal 2008, we have reduced headcount by 3,200, excluding acquisitions,
and strategically closed some of our facilities. As noted above, we expect to take further action to continue to reduce
our cost structure in Fiscal 2009 to improve our competitiveness and increase productivity.
Stock-Based Compensation
We use the 2002 Long-Term Incentive Plan, amended in December 2007, for stock-based incentive awards. These
awards can be in the form of stock options, stock appreciation rights, stock bonuses, restricted stock, restricted stock
units, performance units, or performance shares.
Stock-based compensation expense totaled $436 million for Fiscal 2008, compared to $368 million and $17 million
for Fiscal 2007 and Fiscal 2006, respectively. The increase in Fiscal 2008 and Fiscal 2007 as compared to Fiscal
2006 is due to the implementation of SFAS 123(R) and cash payments of $107 million made for expired in-themoney
stock options discussed below. We adopted SFAS 123(R) using the modified prospective transition method
under SFAS 123(R) effective the first quarter of Fiscal 2007. Included in stock-based compensation for Fiscal 2008
and Fiscal 2007 is the fair value of stock-based awards earned during the year, including restricted stock, restricted
stock units, and stock options, as well as the discount associated with stock purchased under our employee stock
purchase plan (“ESPP”). The ESPP was discontinued effective February 2008 as part of an overall assessment of our
benefits strategy. Prior to the adoption of SFAS 123(R), we accounted for our equity incentive plans under the
intrinsic value recognition and measurement principles of Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, (“APB 25”) and its related interpretations. Accordingly, stock-based
compensation for the fair value of employee stock options with no intrinsic value at the grant date and the discount
associated with the stock purchase under our ESPP was not recognized in net income prior to Fiscal 2007. For
further discussion on stock-based compensation, see Note 5 of Notes to Consolidated Financial Statements included
in “Part II —Item 8— Financial Statements and Supplementary Data.”
At February 1, 2008 there was $93 million and $600 million of total unrecognized stock-based compensation
expense related to stock options and non-vested restricted stock, respectively, with the unrecognized stock-based
compensation expense expected to be recognized over a weighted-average period of 2.0 years and 1.9 years,
respectively. At February 2, 2007 there was $139 million and $356 million of total unrecognized stock-based
compensation expense related to stock options and non-vested restricted stock, respectively, with the unrecognized
stock-based compensation expense expected to be recognized over a weighted-average period of 1.7 years and
2.4 years, respectively.
Due to our inability to timely file our Annual Report on Form 10-K for Fiscal 2007, we suspended the exercise of
employee stock options, the vesting of restricted stock units, and the purchase of shares under the ESPP on April 4,
2007. As a result, we agreed to pay cash to current and former employees who held in-the-money stock options
(options that had an exercise price less than the then current market price of the stock) that expired during the period
of unexercisability. We made payments of approximately $107 million in Fiscal 2008 relating to expired in-themoney
stock options.We are now current in our periodic reporting obligations and, accordingly, are permitting the
31
exercise of employee stock options by employees and the vesting of restricted stock units. As options have again
become exercisable, we do not expect to pay cash for expired in-the-money stock options in the future.
Investment and Other Income, net
The table below provides a detailed presentation of investment and other income, net for Fiscal 2008, 2007,
and 2006.
February 1,
2008
February 2,
2007
February 3,
2006
Fiscal Year Ended
(in millions)
Investment and other income, net:
Investment income, primarily interest . . . . . . . . . . . . . . . . $ 496 $ 368 $ 308
Gains (losses) on investments, net . . . . . . . . . . . . . . . . . . . 14 (5) (2)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) (45) (29)
CIT minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (23) (27)
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30) (37) 3
Gain on sale of building . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19) (19) (27)
Investment and other income, net . . . . . . . . . . . . . . . . . . . . . $ 387 $ 275 $ 226
The increase in investment income from Fiscal 2007 to Fiscal 2008 is primarily due to earnings on higher average
balances of cash equivalents and investments, partially offset by lower interest rates. In Fiscal 2007, investment
income increased from the prior year primarily due to rising interest rates, partially offset by a decrease in interest
income earned on lower average balances of cash equivalents and investments. The gains in Fiscal 2008 as
compared to losses in Fiscal 2007 and Fiscal 2006 are mainly the result of sales of securities. The increase from
Fiscal 2006 to Fiscal 2007 in interest expense is due to an increase in the effective rate on the debt swap agreements
and the start of the commercial paper program in Fiscal 2007. The increase in foreign exchange loss in Fiscal 2008
and Fiscal 2007 relative to Fiscal 2006 is mainly due to higher net losses on derivative instruments. The gain on sale
of building relates to the sale of a building in EMEA.
Income Taxes
Our effective tax rate was 23.0%, 22.8%, and 21.8% for Fiscal 2008, 2007, and 2006, respectively. The differences
between our effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical
distribution of taxable income and permanent differences between the book and tax treatment of certain items. We
reported an effective tax rate of approximately 23.0% for Fiscal 2008, as compared to 22.8% for Fiscal 2007. In the
fourth quarter of Fiscal 2008, we were able to access $5.3 billion in cash from a subsidiary outside of the U.S. to
fund share repurchases, acquisitions, and the continued growth of DFS. Accessing the cash slightly increased our
effective tax rate. The taxes related to accessing the foreign cash and nondeductibility of the in-process research and
development acquisition charges were offset primarily by the increase of our consolidated profitability in lower tax
rate jurisdictions during Fiscal 2008. For Fiscal 2007, we reported an effective tax rate of approximately 22.8%, as
compared to 21.8% for Fiscal 2006. The increase in our Fiscal 2007 effective tax rate compared to Fiscal 2006 is due
to the $85 million tax reduction in the second quarter of Fiscal 2006 discussed below, offset by a higher proportion
of our operating profits being generated in lower foreign tax jurisdictions during Fiscal 2007. Our foreign earnings
are generally taxed at lower rates than in the United States. As a result, sales growth and related profit earned outside
of the U.S. in lower tax jurisdictions is expected to lower our operational effective tax rate in future periods.
We adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”) effective February 3, 2007. FIN 48
clarifies the accounting and reporting for uncertainties in income taxes recognized in our financial statements in
accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). FIN 48 prescribes a comprehensive
model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions
32
taken or expected to be taken in income tax returns. The adoption of FIN 48 resulted in a decrease to stockholders’
equity of approximately $62 million in the first quarter of Fiscal 2008. For a further discussion of the impact of
FIN 48, see Note 3 of Notes to Consolidated Financial Statements included in “Part II —Item 8 —Financial
Statements and Supplementary Data.”
On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law. Among other items, that act
created a temporary incentive for U.S. multinationals to repatriate accumulated income earned outside the U.S. at an
effective tax rate of 5.25%, versus the U.S. federal statutory rate of 35%. In the fourth quarter of Fiscal 2005, we
recorded an initial estimated income tax charge of $280 million based on the decision to repatriate $4.1 billion of
foreign earnings. This tax charge included an amount relating to a drafting oversight that Congressional leaders
expected to correct in calendar year 2005. On May 10, 2005, the Department of Treasury issued further guidance
that addressed the drafting oversight. In the second quarter of Fiscal 2006, we reduced our original estimate of the
tax charge by $85 million as a result of the guidance issued by the Treasury Department. At February 3, 2006, we
had completed the repatriation of the $4.1 billion in foreign earnings
Financing Receivables and Off-Balance Sheet Arrangements
Financing Receivables —At February 1, 2008, our financing receivables balance was $2.1 billion of which
$1.6 billion represents customer receivables. Customer receivables increased 16% from our balance at February 2,
2007. This increase primarily reflects our contractual right to fund a greater percentage of customer receivables as
CIT’s funding rights decrease. As our funding rights increase, we expect continued growth in customer financing
receivables, subject to the outcome of the strategic review noted below. To manage this growth, we will continue to
balance the use of our own working capital and other sources of liquidity. The key decision factors in the analysis
are the cost of funds, required credit enhancements, and the ability to access the capital markets. Of the customer
receivables balance, $444 million represented balances which were due from CIT in connection with specified
promotional programs. Given the recent volatility in the credit markets, we are closely monitoring all of our
financing receivables and are actively pursuing alternative strategies to mitigate any potential balance sheet risk.
Based on our assessment of these customer financing receivables and the associated risks, we believe that we are
adequately reserved. See Note 6 of Notes to Consolidated Financial Statements included in “Part II — Item 8
— Financial Statements and Supplementary Data” for additional information about our financing receivables and
our promotional programs.
We closely monitor credit risk of our entire portfolio. Our investment in credit risk management resources and tools
allowus to constantly evaluate our portfolio credit risk. During Fiscal 2008, we took underwriting actions, including
reducing our credit approval rate of subprime customers, in order to protect our portfolio from the deteriorating
credit environment. We will continue to assess our portfolio risk and take additional underwriting actions, as we
deem necessary. Subprime consumer receivables comprise less than 20% of the net customer financing receivables
balance at February 1, 2008.
We maintain an allowance for losses to cover probable financing receivable credit losses. The allowance for losses is
determined based on various factors, including historical experience, past due receivables, receivable type, and
customer risk profile. Substantial changes in the economic environment or any of the factors mentioned above could
change the expectation of anticipated credit losses. As of February 1, 2008 and February 2, 2007, the allowance for
financing receivable losses was $96 million and $39 million, respectively. A 10% change in this allowance would
not be material to our consolidated results. See Note 6 of Notes to Consolidated Financial Statements included in
“Part II —Item 8— Financial Statements and Supplementary Data” for additional information.
We announced on March 31, 2008, that we are undertaking a strategic assessment of ownership alternatives for DFS
financing activities. The assessment will primarily focus on the consumer and small-and-medium business
revolving credit financing receivables and operations in the U.S., but may also include commercial leasing.
The outcome of the assessment will depend on the customer, capital, and economic impact of alternative ownership
structures. It is possible the assessment will result in no change to the ownership and/or operating structure. We
expect to complete our assessment in the third quarter of Fiscal 2009.
Asset Securitization — During Fiscal 2008, we continued to sell customer financing receivables to unconsolidated
qualifying special purpose entities. The qualifying special purpose entities are bankruptcy remote legal entities with
33
assets and liabilities separate from ours. The sole purpose of the qualifying special purpose entities is to facilitate the
funding of customer receivables in the capital markets. Once sold, these receivables are off-balance sheet. We
determined the amount of receivables to securitize based on our funding requirements in conjunction with specific
selection criteria designed for the transaction.
Off-balance sheet securitizations involve the transfer of customer financing receivables to unconsolidated qualifying
special purpose entities that are accounted for as a sale in accordance with SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, (“SFAS 140”). Upon the sale of the
customer receivables, we recognize a gain on the sale and retain an interest in the assets sold. The gain on sale ranges
from 1% to 3% of the customer receivables sold. The unconsolidated qualifying special purpose entities have
entered into financing arrangements with various multi-seller conduits that, in turn, issue asset-backed debt
securities in the capital markets. During Fiscal 2008 and Fiscal 2007, we sold $1.2 billion and $1.1 billion,
respectively, of customer receivables to unconsolidated qualifying special purpose entities. The principal balance of
the securitized receivables at the end of Fiscal 2008 and Fiscal 2007 was $1.2 billion and $1.0 billion, respectively.
We provide credit enhancement to the securitization in the form of over-collateralization. Receivables transferred to
the qualified special purpose entities exceed the level of debt issued. We retain the right to receive collections for
assets securitized exceeding the amount required to pay interest, principal, and other fees and expenses (referred to
as retained interest). Our retained interest in the securitizations is determined by calculating the present value of
these excess cash flows over the expected duration of the transactions. Our risk of loss related to securitized
receivables is limited to the amount of our retained interest. We service securitized contracts and earn a servicing
fee. Our securitization transactions generally do not result in servicing assets and liabilities, as the contractual fees
are adequate compensation in relation to the associated servicing cost.
In estimating the value of the retained interest, we make a variety of financial assumptions, including pool credit
losses, payment rates, and discount rates. These assumptions are supported by both our historical experience and
anticipated trends relative to the particular receivable pool. We review our investments in retained interests
periodically for impairment, based on their estimated fair value. All gains and losses are recognized in income
immediately. Retained interest balances and assumptions are disclosed in Note 6 of Notes to Consolidated Financial
Statements included in “Part II — Item 8 —Financial Statements and Supplementary Data.”
Our securitization programs contain standard structural features related to the performance of the securitized
receivables. These structural features include defined credit losses, delinquencies, average credit scores, and excess
collections above or below specified levels. In the event one or more of these features are met and we are unable to
restructure the program, no further funding of receivables will be permitted and the timing of expected retained
interest cash flows will be delayed which would impact the valuation of our retained interest. Should these events
occur, we do not expect a material adverse affect on the valuation of the retained interest or on our ability to
securitize financing receivables.
Current capital markets are experiencing an unusual period of volatility and reduced liquidity that we expect will
result in higher costs and increasing credit enhancements for funding of financial assets. Our exposure to the capital
markets will increase as we continue to fund additional financing receivables. We do not expect current capital
market conditions to limit our ability to access liquidity for funding financing receivables in the future, as we
continue to find funding sources in the capital markets.
Liquidity, Capital Commitments, and Contractual Cash Obligations
Liquidity
Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside
of the U.S.; however, the majority of our cash and investments that are located outside of the U.S. are denominated
in the U.S. dollar. Most of the amounts held outside of the U.S. could be repatriated to the U.S., but, under current
law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. Repatriation of some foreign
balances is restricted by local laws.We have provided for the U.S. federal tax liability on these amounts for financial
statement purposes except for foreign earnings that are considered indefinitely reinvested outside of the U.S. Repatriation
could result in additional U.S. federal income tax payments in future years. We utilize a variety of tax
34
planning and financing strategies with the objective of having our worldwide cash available in the locations in
which it is needed. In the fourth quarter of Fiscal 2008, we were able to access $5.3 billion in cash from a subsidiary
outside of the U.S. The cash was used to fund shares repurchases, acquisitions, and the growth of DFS.
We use cash generated by operations as our primary source of liquidity and believe that internally generated cash
flows are sufficient to support business operations. However, to further supplement domestic liquidity, we anticipate
that we will access the capital markets in the first half of Fiscal 2009. This action is contingent upon appropriate
market conditions. We intend to establish the appropriate debt levels based upon cash flow expectations, cash
requirements for operations, discretionary spending—including items such as share repurchases and acquisitions—
and the overall cost of capital. We do not believe that the overall credit concerns in the markets would impede our
ability to access the capital markets because of the overall strength of our financial position.
We ended Fiscal 2008 with $9.5 billion in cash and investments compared to $12.4 billion at the end of Fiscal 2007.
The decrease in cash and investments from Fiscal 2007 was a result of spending $4.0 billion on share repurchases
and a net $2.2 billion on acquisitions, partially offset by internally generated cash flows. See “Market Risk” for
discussion related to exposure to changes in the market value of our investment portfolio. In Fiscal 2008, we
continued to maintain strong liquidity with cash flows from operations of $3.9 billion, compared to $4.0 billion in
Fiscal 2007. The following table summarizes our ending cash, cash equivalents, and investments balances and
contains a summary of our Consolidated Statements of Cash Flows for the past three fiscal years:
February 1,
2008
February 2,
2007
Fiscal Year Ended
(in millions)
Cash, cash equivalents, and investments:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,764 $ 9,546
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,657 2,784
Equity and other securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 115
Cash, cash equivalents and investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,532 $ 12,445
February 1,
2008
February 2,
2007
February 3,
2006
Fiscal Year Ended
(in millions)
Net cash flow provided by (used in):
Operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,949 $ 3,969 $ 4,751
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,763) 1,003 4,149
Financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,120) (2,551) (6,252)
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 71 (73)
Net (decrease) increase in cash and cash equivalents . . . . . . . $ (1,782) $ 2,492 $ 2,575
• Operating Activities — Cash flows from operating activities during Fiscal 2008, 2007, and 2006 resulted
primarily from net income, which represents our principal source of cash. In Fiscal 2008, the slight decrease in
operating cash flows was primarily due to changes in working capital slightly offset by the increase in net
income. In Fiscal 2007, the decrease in operating cash flows was primarily led by a decrease in net income,
slightly offset by changes in working capital. See discussion of our cash conversion cycle in “Key Performance
Metrics” below.
Upon adopting SFAS 123(R) in the first quarter of Fiscal 2007, the excess tax benefits associated with employee
stock compensation are classified as a financing activity; however, the offset reduces cash flows from
operations. In Fiscal 2008 and 2007, the excess tax benefit was $12 million and $80 million, respectively.
Prior to adopting SFAS 123(R), operating cash flows were impacted by income tax benefits that resulted from
the exercise of employee stock options. These tax benefits totaled $224 million in Fiscal 2006. These benefits
35
are the tax effects of corporate income tax deductions (that are considered taxable income to the employee) that
represent the amount by which the fair value of our stock exceeds the option strike price on the day the employee
exercises a stock option. The decline in tax benefits in Fiscal 2008 and Fiscal 2007 from Fiscal 2006 is due to
fewer stock option exercises.
Key Performance Metrics — Our direct business model allows us to maintain an efficient asset management
system in comparison to our major competitors. We are capable of minimizing inventory risk while collecting
amounts due from customers before paying vendors, thus allowing us to generate annual cash flows from
operating activities that typically exceed net income. The following table presents the components of our cash
conversion cycle for the fourth quarter of each of the past three fiscal years:
February 1,
2008
February 2,
2007
February 3,
2006
Days of sales outstanding(a). . . . . . . . . . . . . . . . . . . . . . 36 31 29
Days of supply in inventory(b) . . . . . . . . . . . . . . . . . . . . 8 5 5
Days in accounts payable(c). . . . . . . . . . . . . . . . . . . . . . (80) (78) (77)
Cash conversion cycle . . . . . . . . . . . . . . . . . . . . . . . . (36) (42) (43)
(a) Days of sales outstanding (“DSO”) calculates the average collection period of our receivables. DSO is based on the ending net trade
receivables and the most recent quarterly revenue for each period. DSO also includes the effect of product costs related to customer
shipments not yet recognized as revenue that are classified in other current assets. DSO is calculated by adding accounts receivable,
net of allowance for doubtful accounts, and customer shipments in transit and dividing that sum by average net revenue per day for the
current quarter (90 days). At February 1, 2008, February 2, 2007, and February 3, 2006, DSO and days of customer shipments not yet
recognized were 33 and 3 days, 28 and 3 days, and 26 and 3 days, respectively.
(b) Days of supply in inventory (“DSI”) measures the average number of days from procurement to sale of our product. DSI is based on
ending inventory and most recent quarterly cost of sales for each period. DSI is calculated by dividing inventory by average cost of
goods sold per day for the current quarter (90 days).
(c) Days in accounts payable (“DPO”) calculates the average number of days our payables remain outstanding before payment. DPO is
based on ending accounts payable and most recent quarterly cost of sales for each period. DPO is calculated by dividing accounts
payable by average cost of goods sold per day for the current quarter (90 days).
Our cash conversion cycle worsened by six days at February 1, 2008 as compared to February 2, 2007. This
deterioration was driven by a five day increase in DSO largely attributed to timing of payments from customers,
a continued shift in sales mix from domestic to international, and an increased presence in the retail channel. In
addition, DSI increased by three days, which was primarily due to strategic materials purchases. The DSO and
DSI declines were offset by a two-day increase in DPO largely attributed to an increase in the amount of
strategic material purchases in inventory at the end of Fiscal 2008 and the number of suppliers with extended
payment terms as compared to Fiscal 2007.
Our cash conversion cycle deteriorated one day at February 2, 2007 from February 3, 2006. This decline was
driven by a two-day increase in DSO largely attributed to higher percentage of our revenue coming from outside
the U.S., where payment terms are customarily longer and a higher percentage of revenue occurring at the end of
the period. This decline was offset by a one-day increase in DPO largely attributed to an increase in the number
of suppliers with extended payment terms as compared to Fiscal 2006.
We defer the cost of revenue associated with customer shipments not yet recognized as revenue until they are
delivered. These deferred costs are included in our reported DSO because we believe it presents a more accurate
presentation of our DSO and cash conversion cycle. These deferred costs are recorded in other current assets in
our Consolidated Statements of Financial Position and totaled $519 million, $424 million, and $417 million at
February 1, 2008, February 2, 2007, and February 3, 2006, respectively.
• Investing Activities — Cash used in investing activities during Fiscal 2008 was $1.8 billion, as compared to
$1.0 billion cash provided by investing activities during Fiscal 2007 and $4.1 billion provided in Fiscal 2006.
Cash generated or used in investing activities principally consists of net maturities and sales or purchases of
investments; net capital expenditures for property, plant, and equipment; and cash used to fund strategic
acquisitions, which was approximately $2.2 billion during Fiscal 2008. In Fiscal 2008 as compared to Fiscal
2007, we re-invested a lower amount of our proceeds from the maturity or sales of investments to build liquidity
36
for share repurchases and for cash payments made in connection with acquisitions. In Fiscal 2007 compared to
Fiscal 2006, we had a lower amount of proceeds from maturities and sales of investments, and this was partially
offset by an increase in capital expenditures as we continued to focus on investing in our global infrastructure in
order to support our rapid global growth.
• Financing Activities — Cash used in financing activities during Fiscal 2008 was $4.1 billion, as compared to
$2.6 billion in Fiscal 2007 and $6.3 billion in Fiscal 2006. Financing activities primarily consist of the
repurchase of our common stock, partially offset by proceeds from the issuance of common stock under
employee stock plans and other items. In Fiscal 2008, the year-over-year increase in cash used in financing
activities was due primarily to the repurchase of our common stock as the temporary suspension of our share
repurchase program ended in the fourth quarter of Fiscal 2008. In Fiscal 2008, we repurchased approximately
179 million shares at an aggregate cost of $4.0 billion. In Fiscal 2007, the year-over-year decrease in cash used in
financing activities was due primarily to the suspension of our share repurchase program in September 2006.
During Fiscal 2007, we repurchased approximately 118 million shares at an aggregate cost of $3.0 billion
compared to 204 million shares at an aggregate cost of $7.2 billion in Fiscal 2006.
We believe our ability to generate cash flows from operations on an annual basis will continue to be strong, driven
mainly by our profitability, efficient cash conversion cycle, and the growth in our deferred service offerings. In order
to augment our liquidity and provide us with additional flexibility, we implemented a commercial paper program
with a supporting credit facility on June 1, 2006. Under the commercial paper program, we issue, from time-to-time,
short-term unsecured notes in an aggregate amount not to exceed $1.0 billion. We use the proceeds for general
corporate purposes. At February 1, 2008, there were no outstanding amounts or advances under the commercial
paper program or supporting credit facility.
We are increasingly relying upon access to the capital markets to fund financing for our customers and to provide
sources of liquidity in the U.S. for general corporate purposes, including share repurchases. We believe we will be
able to access the capital markets to increase the size of our existing commercial paper program and to meet our
liquidity needs. Although we believe that we will be able to maintain sufficient access to the capital markets, even in
light of the current market conditions, changes in our credit ratings, deterioration in our business performance, or
adverse changes in the economy could limit our access to these markets.We intend to establish the appropriate debt
levels based upon cash flow expectations, cash requirements for operations, discretionary spending, including items
such as share repurchases and acquisitions, and the overall cost of capital. We do not believe that the overall credit
concerns in the markets would impede our ability to access the capital markets because of the overall strength of our
financial position. See Note 2 of Notes to Consolidated Financial Statements included in “Part II— Item 8—
Financial Statements and Supplementary Data” for further discussion of our commercial paper program.


Dell offers a variety of products and services. Among its offerings are a wide array of desktop and notebook computers, peripherals and software, technical support services, and corporate servers and storage systems. In addition, Dell’s subsidiary Alienware offers desktops, notebooks, and peripherals specialized for high-end video and audio editing and gaming.

Business and Financial Metrics
On July 27, Dell announced it would pay $100 million to settle with the SEC. Senior executives were accused by the SEC of using fradulent accounting methods to boost earnings. The SEC alleges that, from 2002 to 2006, Dell recieved payments from Intel for using Intel chips in in Dell computers. Dell did not disclose to investors that it was recieving these psayments, which were in the form of rebates which allowed Dell to reduce its cost of goods sold. Dell attributed the rising profit margin instead to "cost cutting measures" and "declining component cost."[5]

In 2009, revenue decreased 13% year-over-year to $52.9 billion, with net income falling 42% from $2.5 billion to $1.4 billion. Revenue grew across all regions: Asia Pacific-Japan (“APJ”) grew 15%; Europe, Middle East, and Africa (“EMEA”) increased 12%; and the Americas grew 3%.[6] Revenue outside the U.S. represented approximately 47% of Fiscal 2008 net revenue, compared to approximately 44% in the prior year. Outside the U.S., Dell produced 14% year-over-year revenue growth for Fiscal 2008, though unit growth was below the overall unit growth rate of the international PC market.[7]

In the third quarter of 2011, Dell's revenue increased 19% to $15.4 billion. Business spending fueled Dell's growth, with the commercial business' revenue increasing 24% to$12.4 billion. Enterprise solutions and services increased 31%.Small and Medium Business revenue increased 24% to $3.7 billion. Consumer revenue only had a 4% increase to $3 billion. Dell's gross margins, a measure of profitability, increased from 17.3% to 20%. Dell has been using M&A to try to diversify its portfolio and is trying to move away from its low-margin PCs. Dell's net profit nearly doubled, from $449 million in 3Q10 to $875 million this quarter.[8]


Business Segments

PCs (60% of revenue)
Dell produces several lines of consumer and commercial PC systems, including both desktop and notebook models. Overall, Dell holds about 14% of the worldwide PC market. Within the PC segment, desktops contributed 32% of Dell’s Fiscal 2008 revenue, and notebooks accounted for 28%.[9]

Software, Peripherals, and Accessories (16% of revenue)
Dell sells various software programs with its PC systems, such as productivity software, security programs, and games. Dell also sells a number of computer-related peripherals, including LCD monitors, printers, input and storage devices, etc. Aside from PC-related items, Dell sells various accessories and electronic devices, such as LCD televisions, digital cameras, and MP3 players. These software and peripherals accounted for 16% of Dell’s Fiscal 2008 revenue.[10]

Servers and Storage (15% of revenue)
For its corporate customers, Dell provides both servers and storage systems. Dell continues to aggressively pursue this market, bringing 9 new enterprise servers to corporate consumers in January of 2008. Dell also sells customized servers and enterprise systems designed to meet the specific needs of certain customers. Servers and storage accounted for 15% of Dell's Fiscal 2008 revenue.[11]

Technical Support and Services (9% of revenue)
Dell also sells technical support services for its products, providing customers with assistance after they purchase their systems. Typically, services such as these provide high margins relative to Dell’s other business segments. Typically, services such as these provide high margins relative to Dell's other business segments. Though services accounted for only 9% of total sales, they contributed around 35% to Dell's 2006 gross profits Services accounted for 9% of total revenue for the Fiscal year 2008.[12]

Trends and Forces

Upgrade Cycles force companies to replace their computer systems
As technology evolves, companies often upgrade or replace their computer systems to take advantage of new technologies, an occurrence known as the upgrade cycle. Technological innovations can trigger the upgrade cycle and increase demand for Dell’s products, while a lack of new developments can discourage companies from upgrading their computer systems. This cycle occurs primarily in the commercial market, where companies tend to replace all their computers at once. This can significantly impact Dell’s revenues, as 49% of Dell's revenue is to business in the Americas (not including businesses in Europe and Asia).[13]

The release of a product like Microsoft’s Windows Seven operating system could trigger an upgrade cycle in Dell’s commercial segment. As seen with Vista, compatibility issues will occur, encouraging companies to upgrade their systems to take advantage of Seven's new features. This potentially increased demand in the higher-margin commercial segments could positively impact Dell’s total sales.

Dell is expanding its global presence through deals with various retailers
Established in 1984, Dell is a relative newcomer in the computer industry, especially when compared to long-established companies like IBM and HP. As such, Dell still has a lot of room for expansion in certain areas, especially the non-PC segment and international markets. These segments have been showing higher growth potential than the domestic PC market in which Dell has historically been concentrated.

On that note, Dell has shown a major interest in expanding their global exposure. Dell has signed a deal with WalMart Stores (WMT) to sell Dell desktops and notebooks in Brazil and Mexico.[14] Dell has also signed a deal with Gome Group, which is the largest electronics retailer in China.[15] Currently Dell has 24,000 retail stores around the world, with a much bigger reach thanks to its partnerships and collaborations.

Developing countries boost computer sales
Dell continues to pursue international sales through a variety of means. In addition to distribution agreements with large retailers, Dell has developed a number of products specifically targeted at emerging markets. The best example of this is the Dell 500 notebook, a low cost laptop designed to be affordable for a large phase of the population of developing countries. Such initiatives have proven successful for Dell; unit sales for emerging markets grew 62% during the first quarter of 2008. With revenue in India and China growing 52% and 30%, respectively, for the same period. Despite this stellar performance there is still much room for growth, since only 5.1% of Indians and 9% of Chinese have computers, compared to 75% of Americans.[16] Furthermore, 85% of the world's population lives in developing markets.[17]

In 2010, Dell expects that revenues in China, which is its second largest market, to be $5 billion. Dell will spend $25 billion in deals with Chinese suppliers and partners. Dell supplies 60% of the servers used by China's internet companies. In 4Q10, Dell sales in China increased 81% due to government incentives to boost spending.[18]

Dell has a variety of non-PC products with room for growth
Within Dell’s portfolio of offerings, non-PC products and services are showing larger growth potential than the company’s PC segment, which currently accounts for 60% of sales. Dell is responding to this increased demand in the non-PC segment, expanding its line of servers, peripherals and accessories, and customer support services. These account for a smaller percentage of Dell’s revenue, leaving room for continued growth. In addition, margins on these goods and services are generally higher, especially for technical support services. The higher profitability and increased demand in the non-PC segment could bolster Dell’s earnings significantly if the company continues to improve its offerings in the segment.

Dell has agreed to acquire EqualLogic, a data networking systems company, for $1.4 billion.[19] This acquisition is an attempt to enhance Dell's offering in data storage, which only accounted for 4% of sales in Fiscal 2008.[20] The main customer demographic is expected to be medium sized companies that cannot afford the more expensive data storage systems.

Outsourcing to increase profit takes power from Dell
The PC market has become intensely competitive, especially in the United States. Dell must keep its prices competitive or risk losing business to competitors, putting pressure on Dell to cut production costs wherever possible. Following industry trends, Dell has begun outsourcing more components to third parties in order to lower its costs of production. Unlike other leading PC manufacturers, such as Hewlett-Packard Company (HPQ) or Apple (AAPL), Dell still assembles its own final products.[21] In order to try and close the resultant gap in production costs, especially for highly demanded notebooks, Dell announced plans in September 2008 to sell its factories worldwide to various contract producers.[22]

The purpose of this outsourcing is to minimize production costs, increasing profit margins and allowing the company to reduce prices. On the other hand, Dell’s increasing reliance on its technology partners can decrease its control over the supply chain as a whole. As more components are outsourced to third parties, Dell loses some of its control over both prices and the overall production process.

A suffering economy results in declining PC sales and a rise in Netbook sales
PC sales and prices are declining. As it stands, IDC already expects PC sales to be down 5.3 pct in 2009 as consumers search for cheaper units in a bad economy.[23] Netbooks are a new type of portable computer, that are cheap, light weight, and easy to use. In Q3 2008, shipments of netbooks grew 160%, overtaking iPhone sales by 900,000 units.[24] [25] Consequently, the sales of netbooks are driving notebook prices down. The average selling price for a portable computer is $1,106, and IDC predicts that this will drop 8% to $1,018 in 2008, and an additional 12% next year, partly because of netbooks.[26] A shift to netbooks would be detrimental to Dell, who only has a 2.8% market share in the shipments of netbooks, as compared to a 32% market share in the combined shipment of netbooks and notebooks.[27]

U.S. Government spending on digitizing health records may secure revenue for Dell
In an effort to counter the fall of personal computers and server sales, Dell will make a strategic acquisition that will allow it to obtain a piece of the U.S. government’s stimulus. As part of the U.S. stimulus, the government is spending $19 billion over the next five years into technology that will digitize medical records.[28] To get a piece of this, Dell will purchase Perot Systems, a provider of technology services with specialty in electronic health records, for $3.9 billion; Perot services 1,000 hospitals and automates patient records for 200,000 doctors.[29] This will secure revenue for Dell which has had difficulty during the downturn.

Competition

Dell’s competition varies in its different segments. However, its largest competitors overall are Hewlett-Packard, International Business Machines, and Lenovo Group (LNVGY). Hewlett-Packard's recent acquisition of Electronic Data Systems (EDS) will create difficulties for Dell, as previously Dell had an agreement to sell its PCs and other hardware through EDS. Since HPQ will likely be unwilling to market Dell's products through its subsidiary this buyout will cause a loss of sales for Dell.

PCs
Dell is the second-largest vendor of PCs worldwide (barely ahead of Acer) with 8,789 PCs shipped (estimated) in the first quarter of 2009, coming second to Hewlett-Packard who commands an 19.8% market share and shipped 13,305 PCs.[30] Dell’s other significant competitors in the PC market include Lenovo Group (LNVGY), Acer, Toshiba, and Apple.

Dell and Acer finished within 0.1 % points of each other, this close finish is explained by the different business practices followed by the two companies. The weak world economy has hurt Dell's heavy reliance on the professional market for its sales while Acer has increased its numbers because of higher sales numbers for its low priced mobile PCs in Middle East and Africa (EMEA) and the U.S.



Worldwide PC Vendor Unit Shipments for 2009 and US PC Vendor Shipments for 4Q09[31]

Notebooks
In notebooks, the top nine companies hold about 85.5% of the global market, and the segment has shown strong growth, attributable to sales in developed countries and the proliferation of wireless access.[32] To compete with Apple's many small computing products, in August 2008 Dell began selling a series of Ultra-portable laptops that weigh about 2 pounds and have 19 hours of battery life.[33] Dell also has a major initiative to tackle the designer 13-inch notebook market, specifically through its Adamo notebook, which is an ultraportable and will be marketed as the "world's thinnest laptop" in order to compete with Apple's MacBook Air.[34]

Servers
Dell is a relative newcomer to the server market. In the server market, Dell is behind HP, IBM, and Sun Microsystems, accounting for just 12.3% of revenues in the server market in the first quarter of 2008.[35]Dell’s server offerings are aimed at the low-end market segment, which includes servers that cost less than $25,000. This segment has shown strong growth as quality in the segment increases, resulting in declining demand for high-end servers.

Tablet
In May 2010, Dell announced that it will be releasing a 5-inch touchscreen device known as the Streak in June. The Dell Streak uses a customized version of Google's Android mobile operating system. Dell's streak will compete with Apple's iPad.
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