Q2 2024 Dell Technologies Inc Earnings Call

Yes.

Speaker 1: Thank you for standing by. You are currently on hold for the fiscal year 2024. Second quarter financial results conference call for Delta.

Thank you for standing by you are currently on hold for the fiscal year 'twenty 'twenty four second quarter financial results Conference call for Dell Technologies, Inc. At this time, we are assembling today's audience and we plan to be underway. Shortly we appreciate your patience. Please remain on the line.

Speaker 1: At this time, we are assembling today's audience and we plan to be underway shortly. We appreciate your patience. Please remain on the...

[music].

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Operator: Thank you for standing by. You are currently on hold for the fiscal year 2024 second quarter financial results conference call for Dell Technologies Inc. At this time, we are assembling today's audience and we plan to be underway shortly.

Operator: We appreciate your patience. Please remain on the line. Please stand by.

Speaker 1: Please stand by.

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Speaker 1: Good afternoon and welcome to the fiscal year 2024 second quarter financial results conference call for Dell Technologies.

Good afternoon, and welcome to the fiscal year 'twenty 'twenty four second quarter financial results Conference call for Dell Technologies, Inc. I'd like to inform all participants. This call is being recorded at the request of Dell technologies. This broadcast is copyrighted property of Dell Technologies, Inc. Any rebroadcast of this information in whole.

Speaker 1: like to inform all participants this call is being recorded at the request of Dell Technology.

Speaker 1: This broadcast is a copyrighted property of Dell Technologies.

Speaker 1: Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct.

All or part without the prior written permission of Dell technologies is prohibited.

Following prepared remarks, we will conduct a question and answer session. If you have a question simply press Star then one on your telephone keypad at any time during the presentation I'd like to turn the call over to Rob Williams head of Investor Relations. Mr. Williams, you may begin.

Speaker 1: If you have a question, simply press star then one on your telephone keypad at any time during the presentation.

Speaker 1: I'd like to turn the call over to Rob Williams, head of investor relations. Mr. Williams, you may begin.

Thanks, everyone for joining us with me today are Jeff Clarke Yvonne Mcgill on Tyler Johnson, our earnings materials are available on our IR website and I encourage you to review our materials and presentation, which includes additional content to complement our discussion this afternoon.

Speaker 3: Thanks everyone for joining us with me today our Jeff Clark, Evonne McGill and Tyler Johnson. Our earnings materials are available on our IR website and I encourage you to review our materials and presentation which includes additional content to complement our discussion this afternoon.

Operator: Good afternoon and welcome to the fiscal year 2024 second quarter financial results conference call for Dell Technologies Inc. I'd like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is a copyrighted property of Dell Technologies Inc.

Speaker 3: Guidance will be covered on today's call. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures including non-GAAP gross margin, operating expenses, operating income, net income, and diluted earnings per share.

Guidance will be covered on today's call. During this call unless otherwise indicated all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin operating expenses operating income net income and diluted earnings per share.

Operator: Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question and answer session. If you have a question, simply press star then one on your telephone keypad at any time during the presentation.

Speaker 3: A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and our press release.

A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release.

Speaker 3: Growth percentages refer to year-over-year change unless otherwise specified.

Growth percentages refer to year over year change unless otherwise specified.

Rob Williams: I'd like to turn the call over to Rob Williams head of investor relations. Mr. Williams, you may begin. Thanks everyone for joining us. With me today are Jeff Clark, Yvonne McGill, and Tyler Johnson. Our earnings materials are available on our IR website and I encourage you to review our materials and presentation which includes additional content to complement our discussion this afternoon. Guidance will be covered on today's call. During this call, unless otherwise indicated, all references to financial measures refer to non-gap financial measures, including non-gap gross margin, operating expenses, operating income, net income, and diluted earnings for share.

Speaker 3: Given where we are in the macro cycle, we will be referencing sequential growth more frequently this quarter.

Given where we are in the macro cycle, we will be referencing sequential growth more frequently this quarter.

Speaker 3: Statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties which are discussed in our Web deck and our SEC filings. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff.

That's made during this call that relate to future results and events are forward looking statements based on current expectations actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and our SEC filings, we assume no obligation to update our forward looking statements now I will turn it over.

Jeff.

Thanks, Rob coming into the quarter, we were cautious given our Q1 results, but the demand environment improved at a faster rate than we anticipated, particularly as we moved into June and July APA.

Speaker 3: Thanks Rob. Coming into the quarter, we were cautious given our Q1 results, but the demand environment improved at a faster rate than we anticipated, particularly as we moved into June and July .

Rob Williams: A reconciliation of these measures to their most directly comparable gap measures can be found in our web deck and our press release. Growth percentages refer to year-over-year change unless otherwise specified. Given where we are in the macro cycle, we will be referencing sequential growth more frequently this quarter. Stavents made during this call relate to future results in events or forward-licking statements based on current expectations. Actual results in events could differ materially from those projected due to a number of risks and uncertainties which are discussed in our web deck and our SEC filings. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff. Thanks, Rob.

Speaker 3: Operationally, we executed well with expense controls, pricing discipline, and lower input costs. We sharpened our focus on pricing this quarter and we were selective on deals, particularly where shared benefits would have been temporary.

Operationally, we executed well with expense controls pricing discipline and lower input costs, we sharpened our focus on pricing this quarter and we were selective on deals, particularly where share benefits would have been temporary.

Speaker 3: While revenue is down year over year, a better demand environment and strong execution enabled extraordinary Q2 results. The revenue was $22.9 billion with operating income of $2 billion and diluted EPS of $1.74, well ahead of our initial expectation.

While revenue was down year over year, a better demand environment and strong execution enabled extraordinary Q2 results revenue was $22 9 billion.

With operating income of $2 billion and diluted EPS of $1 74, well ahead of our initial expectations were.

Speaker 3: We are encouraged with some of the signs we are seeing in the macro environment as we move into the second half.

We are encouraged with some of the signs we are seeing in the macro environment as we move into the second half.

We saw better underlying demand in the U S market in EMEA was better than anticipated. We also saw demand growth in government and SMB and our transactional demand improved through the quarter. However.

Speaker 3: We saw better underlying demand in the US market and amelios better than anticipated. We also saw demand growth in government and FNB and our transactional demand improved through the quarter. However, most of our largest global customers remain careful with their spending levels.

Jeff Clarke: Coming into the quarter, we were cautious given our Q1 results, but the demand environment improved at a faster rate than we anticipated, particularly as we moved into June and July. Operationally, we executed well with expense controls, pricing discipline, and lower input costs. We sharpened our focus on pricing this quarter and we were selective on deals, particularly where shared benefits would have been temporary.

However, most of our largest global customers remain careful with their spending levels.

Speaker 3: From a solutions perspective, we saw significant strength in AI-enabled services.

From a solutions perspective, we saw significant strength in AI enabled servers.

Speaker 3: Power Flex and PowerStore demand grew within our storage portfolio. Power Flex, our proprietary software-defined storage solution, has now grown eight consecutive quarters with demanding Q2 more than doubling year over year. Workstation demand grew and was another bright spot that will continue to benefit from the rise of AI. Developers and data scientists can now fine-tune Gen AI models locally before deploying them at scale.

Power Flex empower store demand grew within our storage portfolio power reflects our proprietary software defined storage solution has now grown eight consecutive quarters with demand in Q2 more than doubling year over year.

Jeff Clarke: While revenue was down year-over-year, a better demand environment and strong execution enabled extraordinary Q2 results. Revenue was $22.9 billion, with operating income of $2 billion, and diluted EPS of $1.74, well ahead of our initial expectations. We are encouraged with some of the signs we are seeing in the macro environment as we move into the second half. We saw better underlying demand in the U.S, market and immediately better than anticipated. We also saw demand growth in government and F&B and our transactional demand improved through the quarter.

Workstation demand grew and was another bright spot that will continue to benefit from the rise of AI developers and data scientists can now fine tuned Gen AI models locally before deploying in that scale.

Speaker 3: Commercial PC demand improved sequentially and as we moved through the quarter. And S&P attach rates were strong, particularly in soft.

<unk> PC demand improved sequentially in <unk> and as we move through the quarter and S&P attach rates were strong particularly in software.

Speaker 3: our ASPs continue to expand across AI servers, traditional servers, and commercial PCs.

Our asps continue to expand across AI servers traditional servers and commercial Pcs overall.

Speaker 3: Overall, we were pleased with the quarter given strong sequential growth of 10% and growing interest and orders in AI solutions.

Overall, we were pleased with the quarter, given strong sequential growth of 10% and growing interest in orders and AI solutions.

Jeff Clarke: However, most of our largest global customers remain careful with their spending levels. From a solutions perspective, we saw significant strength in AI enabled servers. Powerflex and PowerStore demand grew within our storage portfolio. Powerflex our proprietary software defined storage solution has now grown eight consecutive quarters with demanding Q2 more than doubling year-to-year. Workstation demand grew and was another bright spot that will continue to benefit from the rise of AI. Developers and data scientists can now fine-tune Gen-AI models locally before deploying them at scale. Commercial PC demand improved sequentially and as we move through the quarter, and S&P attachments were strong, particularly in software. Our ASPs continued to expand across AI servers, traditional servers, and commercial PCs.

Speaker 3: Artificial intelligence is a strong tailwind for all things data and compute, as well as CSG, when you think about the potential for workstations and eventually all PCs.

Artificial intelligence is a strong tailwind for all things data and compute as well as <unk>. When you think about the potential for workstations and eventually all Pcs.

Speaker 3: AI is expanding the town for total technology spending and is projected to grow at a 19% kegger for the next couple of years to approximately $90 billion, including hardware and services.

AI is expanding the Tam for total technology spending and is projected to grow at a 19% CAGR for the next couple of years to approximately $90 billion, including hardware and services.

Speaker 3: MQ2 alone we saw unprecedented strength from our PowerEdge XC-9680. It's the fastest-ramping new solution in Dell history and builds on the success of other GPU-enabled servers we've been selling for years.

In Q2 alone we saw unprecedented strength from our power edge XC 90, 680, <unk> is the fastest ramping new solution until history and builds on the success of other GPU enabled service we've been selling for years.

Speaker 3: The 9680 is a key element to our Dell Genitive AI solutions engineered to speed the deployment of a modular, secure and scalable platform for Genitive AI in the enterprise.

The 90 680 is a key element to our Dell generative AI solutions engineered to speed the deployment of a modular secure and scalable platform for degenerative AI and the enterprise.

Jeff Clarke: Overall, we were pleased with the quarter given strong sequential growth of 10% and growing interest in orders in AI solutions. Artificial intelligence is a strong tailwind for all things data and compete as well as CSG when you think about the potential for workstations and eventually all PCs. AI is expanding the tab for total technology spending and has projected the growth at 19% tager for the next couple of years to approximately $90 billion, including hardware and services.

AI service increased to 20% of our servers order revenue in the first half of the year and the $96 80 was a big factor currently we have approximately $2 billion of XC 90, 680 orders and backlog and our sales pipeline is substantially higher.

Speaker 3: AI servers increased to 20% of our servers order revenue in the first half of the year and the 9680 was a big factor. Currently we have approximately $2 billion of XE 9680 orders in backlog and our sales pipeline is substantially higher. Gen AI represents an inflection point driving fundamental change in the pace of innovation while improving the customer expectation enabling significant productivity gains and new ways to work.

<unk> represents an inflection point driving fundamental change in the pace of innovation, while improving the customer expectation, enabling significant productivity gains and new ways to work.

Jeff Clarke: In Q2 alone, we saw unprecedented strength from our PowerEdge XC-9680. It's the fastest ramping new solution in Dell history, and builds on the success of other GPU-enabled servers we've The 9680 is a key element to our Dell Genitive AI Solutions engineered to speed the deployment of a modular, secure, and scalable platform for genitive AI in the enterprise. AI servers increased to 20% of our server's order revenue in the first half of the year and the 9680 was a big factor.

As the number one infrastructure provider, we are clearly positioned to serve the market in a unique and differentiated way and we have the world's broadest journey infrastructure portfolio that spans from the cloud to the client customers big and small are using their own data and business context to train fine tune an inference on Dell.

Speaker 3: As the number one infrastructure provider, we are clearly positioned to serve the market in a unique and differentiated way. And we have the world's broadest Gen AI infrastructure portfolio that spans from the cloud to the client. Customers big and small are using their own data and business context to train fine tune inference on Dell infrastructure solutions to incorporate advanced AI into their core business processes effectively and efficiently.

<unk> solutions to incorporate advanced AI into their core business processes effectively and efficiently.

Speaker 3: we can help customers size, characterize, and build the Gen AI solutions that meet their performance, cost, and security requirements. Many of these new workloads will be on-prem or at the edge given the importance of latency, data security, and cost.

We can help customers size characterize and build the gen AI solutions that meet their performance cost and security requirements. Many of these new workloads will be on prem or at the edge given the importance of latency data security and cost.

Jeff Clarke: Currently, we have approximately $2 billion of XC 9680 orders and backlog and our sales pipeline is substantially higher. Gen AI represents an inflection point driving fundamental change in the pace of innovation while improving the customer expectation and enabling significant predictivity gains and new ways to work. As the number one infrastructure provider, we are clearly positioned to serve the market in a unique and differentiated way and we have the world's broadest Gen AI infrastructure portfolio that spans from the cloud to the client.

Speaker 3: In the near term, we are seeing organizations concentrate on four Gen AI use cases, customer operations, content creation and management, software development and sales. And internally, we are doing the same to enhance how we build products, service our customers and improve productivity and efficiency.

In the near term, we are seeing organizations concentrate on four Gen. AI use cases customer operations content creation and management software development and sales and internally. We are doing the same to enhance how we build products and service, our customers and improve productivity and efficiency.

Speaker 3: As we think about the back half of the year, we are coming off a Q2 where we agree above normal seasonality and demonstrate the power of our model to generate cash in a sequential growth environment.

As we think about the back half of the year, we're coming off a Q2, where we grew above normal seasonality and demonstrated the power of our model to generate cash in a sequential growth environment.

Jeff Clarke: Customers big and small are using their own data and business context to train fine tune inference on Dell infrastructure solutions to incorporate advanced AI into their core business processes effectively and efficiently. We can help customer size, characterize, and build the Gen AI solutions that meet their performance cost and security requirements. Many of these new workloads will be on-prem or at the edge given the importance of latency, data security, and cost. In the near term, we are seeing organizations concentrate on four Gen AI use cases, customer operations, content creation and management, software development, and sales. And internally, we are doing the same to enhance how we build products, service our customers, and improve productivity and efficiency.

Speaker 3: You should expect us to focus on growing and extending our core business in the areas with the most attractive profit pools, deliver innovation for our customers, remain disciplined in our pricing and focus on costs with multi-cloud, edge and Gen AI as tailwinds. I like our hand and I look forward to talking more about our views on technology trends, strategy and innovation at our Securities Analyst meeting in October . Now over to Yvonne for a detailed Q2 finance.

You should expect us to focus on growing and extending our core business in the areas with the most attractive profit pools deliver innovation for our customers remain disciplined on our pricing and focus on cost with multi cloud edge engine AI as tailwind I like our hand, and I look forward to talking more about our views on technology trends.

Strategy and innovation at our Securities Analyst meeting in October now over to Ivan for detailed Q2 financials.

Thanks, Jeff we're pleased with our Q2 execution and an improving demand environment, we delivered revenue of $22 9 billion down, 13% and up 10% on a sequential basis with strong gross margins and strong operating expense and networking capital management.

Speaker 4: Thanks Jeff. We're pleased with our Q2 execution in an improving demand environment. We delivered revenue of $22.9 billion down 13% and up 10% on a sequential basis, with strong gross margins and strong operating expense and networking capital management. Currency remained ahead 1 and impacted revenue growth by approximately 130 basis points.

Jeff Clarke: As we think about the back half of the year, we are coming off a Q2 where we grew above normal seasonality and demonstrated the power of our model to generate cash in a sequential growth environment. You should expect us to focus on growing and extending our core business in the areas with the most attractive profitable, deliver innovation for our customers, remain disciplined in our pricing and focus on cost with multi-cloud edge and Gen AI as tailwinds.

Currency remained a headwind and impacted revenue growth by approximately.

130 basis points.

Speaker 4: Gross margin was $5.5 billion and 24.1% of revenue.

Margin was $5 5 billion and 24, 1% of revenue.

Speaker 4: Our gross margin rate was up 270 basis points driven by lower input costs and pricing discipline. We did see increased pricing pressure in Q2, but were selective on deals depending on the customer and opportunity. As Jeff mentioned, we are focused on profitable opportunities rather than temporary share gains. And you can expect us to continue to focus on the more profitable segments of the market and maintain pricing discipline.

Our gross margin rate was up 270 basis points, driven by lower input cost and pricing discipline we.

We did see increased pricing pressure in Q2, but we're selective on deals depending on the customer and opportunity as Jeff mentioned, we are focused on profitable opportunities rather than temporary share gain and you can expect us to continue to focus on the more profitable segments of the market and maintain pricing discipline.

Jeff Clarke: I like our hand, and I look forward to talking more about our views on technology trends, strategy, and innovation at our securities analyst meeting in October.

Yvonne McGill: Now over to the volume for detailed Q2 financials. Thanks, Jeff. We're pleased with our Q2 execution in an improving demand environment. We delivered revenue of $22.9 billion down 13% and up 10% on a sequential basis with strong growth margins and strong operating expense and networking capital management. Currency remained a headwind and impacted revenue growth by approximately 130 basis points. Growth margin was $5.5 billion and 24.1% of revenue. Our growth margin rate was up 270 basis points driven by lower input costs and pricing discipline.

Speaker 4: Operating expense was $3.6 billion, down 4% driven by lower discretionary spend in SGNA and with flat sequential.

Operating expense was $3 6 billion down 4% driven by lower discretionary spend in SG&A and was flat sequentially.

Speaker 4: Operating expense was 15.5% of revenue, and we will continue to actively manage our spend as we move through the second.

Operating expense was 15, 5% of revenue and we will continue to actively manage our spend as we move through the second half.

Operating income was $2 billion up 1% and eight 6% of revenue with the impact of the decline in revenue offset by an increase in gross margin rate and lower operating expenses, our quarterly tax rate was 24% net.

Speaker 4: Operating income was $2 billion of 1% and 8.6% of revenue, with the impact of the decline in revenue offset by an increase in gross margin rate and lower operating expense. Our quarterly tax rate was 20.4%. Net income was $1.3 billion of 1% primarily driven by higher operating income and diluted EPS was $1.74 of 4% due to lower share count and higher net income.

Yvonne McGill: We did see increased pricing pressure in Q2 but were selective on deals depending on the customer and opportunity. As Jeff mentioned, we are focused on profitable opportunities rather than temporary share gain and you can expect us to continue to focus on the more profitable segments of the market and maintain pricing discipline. One. Operating expense was $3.6 billion, down 4% driven by lower discretionary spend in S.G.N.A, and with flats sequentially. Operating expense was 15.5% of revenue, and we will continue to actively manage our spend as we move through the second half.

Net income was $1 3 billion up 1%, primarily driven by higher operating income and diluted EPS was $1 74 up.

4% due to lower share count and higher net income.

Speaker 4: Our recurring revenue in the quarter was $5.6 billion, up 8%. And our remaining performance obligations, or RPO, was $39 billion, up 1% sequentially, driven by deferred revenue.

Our recurring revenue in the quarter was $5 $6 billion.

Up 8% and our remaining performance obligations or Rps was $39 billion up 1% sequentially driven by deferred revenue.

Speaker 4: Deferred revenue was primarily due to increases in software and hardware maintenance agreements.

<unk> revenue was up primarily due to increases in software and hardware maintenance agreements.

Speaker 4: ISG revenue was $8.5 billion down 11%, but up 11% sequentially on the back of improving server and storage demand.

ISG revenue was $8 $5 billion down, 11%, but up 11% sequentially on the back of improving server and storage demand.

Yvonne McGill: Operating income was $2 billion of 1% and 8.6% of revenue, with the impact of the decline in revenue offset by an increase in gross margin rate and lower operating expense. Our quarterly tax rate was 20.4%. Net income was $1.3 billion of 1% primarily driven by higher operating income and diluted EPS was $1.74 of 4% due to lower share count and higher net income. Our recurring revenue in the quarter was $5.6 billion, up 8%, and our remaining performance obligations or RPO was $39 billion, up 1% sequentially driven by deferred revenue.

Speaker 4: We delivered storage revenue of $4.2 billion with demand growth in PowerStore and PowerFlex.

We delivered storage revenue of $4 $2 billion with demand growth and power store empower flex.

Speaker 4: Service and networking revenue was $4.3 billion. We saw server ASPs continue to expand, and our AI server mix of server revenue demand continued to increase given the recent rise in customer interest in generative AI solutions.

There was a networking revenue was $4 3 billion. We saw server asps continue to expand and our AI server mix of server revenue demand continue to increase given the recent rise in customer interest and generative AI solutions.

Speaker 4: both storage and service and networking revenue were up 11%.

Both storage and servers and networking revenue were up 11% sequentially.

Speaker 4: ISG operating income was $1 billion or 12.4% of revenue, up 140 basis points driven by an increase in gross margin rate offset by decline in revenue.

Operating income was $1 billion or 12, 4% of revenue up 140 basis points driven by an increase in gross margin rate offset by a decline in revenue.

Yvonne McGill: Deferred revenue was up primarily due to increases in software and hardware maintenance agreements. ISC revenue was $8.5 billion down 11%, but up 11% sequentially on the back of improving server and storage demand. We delivered storage revenue of $4.2 billion with demand growth in power store and power flex. Servers in networking revenue was $4.3 billion. We saw server ASPs continue to expand, and our AI server mix of server revenue demand continued to increase given the recent rise in customer interest in generative AI solutions.

Speaker 4: Turning to CSG, the calendar Q2 PC market was down 14% in units, but is now showing signs of improvement up 7% sequentially.

Turning to CSC the calendar Q2, PC market was down 14% in units, but is now showing signs of improvement up 7% sequentially.

Speaker 4: Our fiscal Q2 CSG revenue was $12.9 billion, down 16%, primarily driven by a decline in units partially offset by higher average selling price.

Our fiscal Q2, <unk> revenue was $12 $9 billion down, 16%, primarily driven by a decline in units, partially offset by higher average selling prices.

Speaker 4: Revenue grew 8% sequentially, and commercial continues to fare better than consumer, with commercial revenue growing sequentially to $10.2 billion. Consumer revenue was 2.4 billion.

<unk> grew 8% sequentially and commercial continues to fare better than consumer with commercial revenue growing sequentially to $10 2 billion.

Yvonne McGill: Those storage and servers in networking revenue were up 11% sequentially. ISC operating income was $1 billion or 12.4% of revenue, up 140 basis points driven by an increase in growth margin rate offset by decline in revenue. Turning to CSG, the calendar Q2 PC market was down 14% in units, but is now showing signs of improvement up 7% sequentially. Our fiscal Q2 CSG revenue was $12.9 billion down 16%, primarily driven by a decline in units, partially offset by higher average selling prices.

Consumer revenue was $2 4 billion.

DSG profitability remained strong in Q2 with operating income of $1 billion.

Speaker 4: CSG profitability remains strong in Q2 with operating income of $1 billion or 7.5% of revenue, up 120 basis points, driven by an increase in gross margin rate and lower operating expense as we maintain pricing discipline and benefited from lower input costs.

Or seven 5% of revenue up 120 basis points, driven by an increase in gross margin rate and lower operating expense as we maintain pricing discipline and benefited from lower input costs, we remain focused on commercial and the high end of consumer profitable.

Speaker 4: We remain focused on commercial and the high end of consumer, profitable, relative performance, and executing our direct attach motion for services, software, peripherals, and high end.

Relative performance and executing our direct attach motion for services software and peripherals and financing.

Speaker 4: Customer interest remains high in financing and consumption models that provide both payment flexibility and predictability. Our Q2 Dell Financial Services originations were $2.3 billion, up 1 percent.

Customer interest remains high in financing and consumption models that provide both payment flexibility and predictability are Q2, Dell financial services originations were $2 3 billion up 1% DSS.

Yvonne McGill: Revenue grew 8% sequentially, and commercial continues to fare better than consumer, with commercial revenue growing sequentially to $10.2 billion. Consumer revenue was $2.4 billion. CSG profitability remained strong in Q2, with operating income of $1 billion or 7.5% of revenue, up 120 basis points driven by an increase in growth margin rate and lower operating expense as we maintained pricing discipline and benefited from lower input costs. We remained focused on commercial and the high end of consumer, profitable relative performance, and executing our direct attached motion for services, software, peripherals, and financing.

Speaker 4: DFS ending managed assets reached $14.7 billion up 9%. While the overall DFS portfolio quality remains strong and credit losses near historically low levels. During the quarter, we continue to see APEX momentum including a strong double digit percentage increase in a number of new APEX customers that have subscribed to our as a service solutions with strengths in our data center utility and select on demand offerings. Turning.

DSS ending managed assets reached $14 7 billion up 9%, while the overall DFS portfolio quality remains strong and credit losses near historically low levels. During the quarter, we continued to see apex momentum, including a strong double digit percentage increase in the number of.

New apex customers that have subscribed to our as a service solutions with strength in our data center utility and flex on demand offerings.

Turning to our cash flow and balance sheet, our cash flow from operations was $3 2 billion.

Speaker 4: Our cash flow from operations was $3.2 billion, primarily driven by working capital improvements, sequential growth, and profitability.

Primarily driven by working capital improvements sequential growth and profitability.

Yvonne McGill: Customer interest remains high in financing and consumption models that provide both payment, flexibility, and predictability. Our Q2 Dell financial services originations were $2.3 billion, up 1%. DFS ending managed assets reached $14.7 billion, up 9%, while the overall DFS portfolio quality remained strong and credit losses near historically low levels. During the Q4, we continued to see Apex momentum, including a strong double digit percentage increase in a number of new Apex customers that have subscribed to our as-a-service solutions, with strengths in our data-center utility and flexible demand offering.

Speaker 4: Within working capital, we reduced inventory, $0.4 billion sequentially, and continued strong collections performance with PASTU now at record low level.

Within working capital, we reduced inventory point 4 billion sequentially and continued strong collections performance with past due now at record low levels.

With the work we've done on networking capital post pandemic, our cash conversion cycle has now improved to negative 50 days in Q2 in line with pre Covid levels cash and investments was that $7 billion sequentially driven by free cash flow generation offset by $1 1 billion.

Speaker 4: With the work we've done on networking capital post-pandemic, our cash conversion cycle has now improved to negative 50 days in Q2, in line with pre-COVID levels. Cash and investments was up $0.7 billion sequentially, driven by free cash flow generation, offset by $1.1 billion of debt pay down, and $0.5 billion in capital return.

A debt Paydown and <unk> 5 billion in capital returns.

Speaker 4: In Q2, we repurchased 5.2 million shares of stock at an average price of $49.53 and paid at 37 cent per share dividend.

In Q2, we repurchased five 2 million shares of stock at an average price of $49 53.

Yvonne McGill: Turning to our cash flow and balance sheet. Our cash flow from operations was $3.2 billion, primarily driven by working capital improvements, sequential growth, and profitability. Within working capital, we reduced inventory, $0.4 billion sequentially, and continued strong collections performance with cash due now at record low levels. With the work we've done on networking capital post-pandemic, our cash conversion cycle has now improved to negative 50 days in Q2, in line with pre-COVID levels.

And paid at 37 per share dividend.

Our core leverage improved to one six times exiting the quarter and we ended Q2 with $9 9 billion in cash and investments, which gives us flexibility to increase our return of capital going forward.

Speaker 4: Our core leverage improved to 1.6 times exiting the quarter. And we ended Q2 with $9.9 billion in cash and investments, which gives us flexibility to increase our return of capital going forward.

Since we implemented our current capital allocation framework six quarters ago, we have returned over 90% of our adjusted free cash flow in the form of share repurchase and dividends and we continue to evaluate enhancements to our framework based on investor feedback.

Speaker 4: Since we implemented our current capital allocation framework six quarters ago, we have returned over 90% of our adjusted free cash flow in the form of sharey purchase and dividends. And we continue to evaluate enhancements to our framework based on investor feedback.

Yvonne McGill: Cash and investments was at $0.7 billion sequentially driven by free cash flow generation offset by $1.1 billion of debt paydown and $0.5 billion in capital returns. In Q2, we repurchased 5.2 million shares of stock at an average price of $49.53 and paid at $0.37 per share dividend. Our core leverage improved to 1.6 times exiting the quarter, and we ended Q2 with $9.9 billion in cash and investments, which gives us flexibility to increase our return of capital going forward.

Speaker 4: Turning to guidance. We're seeing signs of stability across the number of areas within our business, including small and medium business and government. But our largest corporate and global enterprise customers are still measured in their IT project investments and spending plans.

Turning to guidance, we're seeing signs of stability across a number of areas within our business, including small and medium business and government.

But our largest corporate and global enterprise customers are still measured in their <unk>.

Project investments and spending plans.

Speaker 4: Against that backdrop, we expect Q3 revenue to be in the range of $22.5 and $23.5 billion with a midpoint of $23 billion flat sequentially.

Against that backdrop, we expect Q3 revenue to be in the range of 22, 5% and $23 5 billion.

With a midpoint of $23 billion flat sequentially.

Speaker 4: Currency continues to be a headwind and we are expecting a roughly 40 basis point impact to Q3 revenue.

Currency continues to be a headwind and we are expecting a roughly 40 basis point impact to Q3 revenue.

Yvonne McGill: Since we implemented our current capital allocation framework six quarters ago, we have returned over 90 percent of our adjusted free cash flow in the form of sharey purchase and dividends, and we continue to evaluate enhancements to our framework based on investor feedback.

Speaker 4: We expect the CSG and ISG revenue to be roughly flat.

We expect <unk> revenue to be roughly flat sequentially.

Speaker 4: Although we remain disciplined and focused on profitable share, we expect a more competitive pricing environment.

Although we remain disciplined and focused on profitable share, we expect a more competitive pricing environment.

Speaker 4: Combined with more muted component cost deflation, we expect gross margin rate will be down 150 basis points to point.

Combined with more muted component cost deflation, we expect gross margin rate will be down 150 basis points sequentially.

Yvonne McGill: Turning to guidance, we're seeing signs of stability across the number of areas within our business, including small and medium business and government, but our largest corporate and global enterprise customers are still measured in their IT project investments and spending plans. Against that backdrop, we expect Q3 revenue to be in the range of $22.5 and $23.5 billion with a midpoint of $23 billion sequentially, currency continues to be a headwind and we are expecting a roughly 40 basis point impact to Q3 revenue.

Speaker 4: Our continued focus on cost controls will drive lower sequential operating expense that partially offset expected gross margin dilution.

Our continued focus on cost controls will drive lower sequential operating expense that partially offset expected gross margin dilution.

Speaker 4: We expect our Q3 diluted share count to be between 733 and 737 million shares and our diluted EPS to be $1.45 plus or minus 10.

We expect our Q3 diluted share count to be between 733 and 737 million shares.

And our diluted EPS to be $1, 45, plus or minus <unk> 10.

Speaker 4: For the full year, we're raising our FY24 revenue expectations to be in the range of $89.5 billion and $91.5 billion down 12% at the midpoint.

For the full year, we're raising our FY 'twenty four revenue expectations to be in the range of $89 5 billion and $91 5 billion down 12% at the midpoint.

Yvonne McGill: We expect the CSG and ISG revenue to be roughly flat sequentially. Although we remain disappointed and focused on profitable share, we expect a more competitive pricing environment. Combined with more muted component costification, we expect gross margin rate will be down 150 basis points sequentially. Our continued focus on cost controls will drive lower sequential operating expense that partially offset expected gross margin dilution. We expect our Q3 diluted share count to be between 733 and 737 million shares and our diluted EPS to be $1.45 plus or minus 10 cents.

Speaker 4: Given Q3 guidance, this implies sequential growth in Q4.

Given Q3 guidance this implies sequential growth in Q4.

Speaker 4: we expect interest in other to be roughly flat year over year.

We expect interest and other to be roughly flat year over year.

Speaker 4: For our tax rate, you should assume 22.5% plus or minus 100 basis points.

For our tax rate, you should assume 22, 5% plus or minus 100 basis points.

Speaker 4: We are increasing our expectations for deluded earnings per share to $6.30 plus or minus 20.

We are increasing our expectations for diluted earnings per share to $6 30, plus or minus <unk> 20.

In closing we have strong conviction in the growth of our Tam over the long term with AI multi cloud and edge is tailwind we have generated $8 $1 billion of cash flow from operations over the last 12 months, demonstrating our ability to drive efficiency in working capital during a more challenging demand environment and our Q2 performance.

Speaker 4: In closing, we have strong conviction in the growth of our TAM over the long term with AI, multi-cloud and edge as tailwinds. We have generated $8.1 billion of cash flow from operations over the last 12 months, demonstrating our ability to drive efficiency and working capital during a more challenging demand environment. And our Q2 performance underscores the power of our model to generate cash when we return to sequential growth.

Yvonne McGill: For the full year, we're raising our FY24 revenue expectations to be in the range of $89.5 billion and $91.5 billion down 12 percent at the midpoint. Given Q3 guidance, this implies sequential growth in Q4. We expect interest in other to be roughly flat year over year. For our tax rate, you should assume 22.5% plus or minus a hundred basis points. We are increasing our expectations for deluded earnings per share to $6.30 plus or minus 20 cents.

Thats underscores the power of our model to generate cash when we returned to sequential growth.

Speaker 4: We remain focused on executing our strategy, investing in innovation to expand our TAM, and winning the consolidation of our core markets, including multi-cloud, Edge, Telco, and AAL.

We remained focused on executing our strategy investing in innovation to expand our Tam and winning the consolidation of our core markets, including multi cloud edge telco and AI.

Expect us to continue to be disciplined in how we manage the business focusing on what we can control and delivering to our customers and our shareholders and we look forward to seeing you all at our security analyst meeting in October where we will provide updates on our strategy long term value creation framework and capital allocation part.

Speaker 4: Expect us to continue to be disciplined in how we manage the business, focusing on what we can control, and delivering to our customers and our shareholders.

Speaker 4: And we look forward to seeing you all at our security analyst meeting in October , where we'll provide updates on our strategy, long-term value creation framework, and capital allocation policy. Now, I'll turn it back to Rob to begin to unite.

Yvonne McGill: In closing, we have strong conviction in the growth of our TAM over the long term, with AI, multi-cloud and edge as tailwinds. We have generated $8.1 billion of cash from operations over the last 12 months, demonstrating our ability to drive efficiency in working capital during a more challenging demand environment. And our Q2 performance underscores the power of our model to generate cash when we return to sequential growth. We remain focused on executing our strategy, investing in innovation to expand our TAM and winning the consolidation of our core markets, including multi-cloud, edge, telco, and AI. Expect us to continue to be disciplined in how we manage the business, focusing on what we can control, and delivering to our customers and our shareholders.

Now I'll turn it back to Rob to begin Q&A.

Thanks, Paul let's get to Q&A.

Speaker 5: Thanks, Ron. Let's get to Q&A. We ask that each participant ask one question to allow us to get to a many of you as possible. Let's go to the first question.

Each participant ask one question to allow us to get to as many of you as possible.

The first one.

Okay.

Speaker 1: We will take our first question from Shannon Cross with Credit Suisse. Please go ahead.

We will take our first question from Shannon Cross with Credit Suisse. Please go ahead.

Speaker 6: Thank you very much. Jeff, can you talk a bit more about, you've talked a lot about it, but can you talk a bit more about the AI opportunity?

Thank you very much Jeff can you talk a bit more about and you've talked a lot about it but could you talk a bit more about the AI opportunity.

Speaker 6: I discussed four core use cases, but can you talk on a segment and a geographic basis? And how can we think about ASP potential for both servers and storage with AI-oriented solutions? I'm just wondering, is AI going to drive sort of a change in hardware spend that you think is more of a secular positive versus maybe temporary.

Yes.

It's got four core use cases, but can you talk on a segment and geographic basis, and how should we think about ASP potential for both servers and storage with arrow oriented solutions. I'm. Just wondering are you going to drive sort of a change in hardware spend that you think is more of a secular positive versus maybe temporary in nature.

Rob Williams: And we look forward to seeing you all at our security analyst meeting in October, where we'll provide updates on our strategy, long-term value creation framework, and capital allocation policy. Now, I'll turn it back to Rob to thicken Q&A. Thanks, Ron. Let's get to Q&A. We have to each participant ask one question to allow us to get to as many of you as possible. Let's go to the first question.

Thank you.

Sure.

Speaker 3: Sure. Shannon, let me take a stab at that. First of all, we think AI, and I think I've said this in our last Ask the Experts call, but I think it's worth reinforcing is it's just a new series of workloads and new incremental capability that goes across the PC to the data center to the cloud. And we think it is absolutely because of the uniqueness of the workload, a growth opportunity in all three of those areas.

Sure let me take a stab at that first of all we think AI and I think I've said this in our less SCS experts call, but I think it's worth reinforcing is it's just a new series of workloads and new incremental capability that goes across the PC to the data center to the cloud and we think it is absolutely because of the Uni.

Shannon Cross: We will take our first question from Shannon Cross with Credit Suisse. Please go ahead. Thank you very much.

Neatness of the workload a growth opportunity in all three of those areas distinct in how it's built out distinct in how it's going to be used on the PC opening a whole new opportunity to drive productivity and a great productivity device as is.

Jeff Clarke: Can you talk a bit more about, you've talked a lot about it, but can you talk a bit more about the AI opportunity? I've discussed four core use cases, but can you talk on a segment and a geographic basis? And how do we think about ASP potential for both servers and storage with AI-oriented solutions? I'm just wondering, you know, is AI going to drive sort of a change in hardware spend that you think is, you know, more of a secular positive versus maybe temporary in nature?

Speaker 3: distinct in how it's built out, distinct in how it's going to be used on the PC, opening a whole new opportunity to drive productivity and a great productivity device as is.

Speaker 3: Being able to use these big foundational models at cloud scale, and then what we think really happens on the enterprise level and in business is sort of...

Being able to use these big foundational models at cloud scale and then what we think really happens on the enterprise level and in business is sort of the.

Speaker 3: The notion of domain specific, process specific, or feel the study type of AI. When we actually use customer's data, business will use their data, they will tune the model and then run inference at site on edge, whether that be in a smart factory, a smart hospital, in a transportation network.

The notion of domain specific process specific or field of study type of AI, where we actually use customers data business will use their data they will tune the model and then run inference at site on edge, whether that'd be in a smart factories Smart hospital and a transfer.

Jeff Clarke: Thank you. Sure. Shannon, let me take a stab at that. First of all, we think AI, and I think I said this in our last ASP experts call, but I think it's worth reinforcing is it's just the new series of workloads, the new incremental capability that goes across the PC to the data center to the cloud. And we think it is absolutely because of the uniqueness of the workload, a growth opportunity in all three of those areas.

Our patient network. So when you think about the vertical nature of this and how it will actually work in the real World. We think that technology makes its way all the way out to the edge AI follows where the data is going to be created where the sensors are collecting the information and it allows us to put those compute resources, where the data is actually.

Speaker 3: So when you think about the vertical nature of this and how it will actually work in the real world, we think that technology makes its way all the way out to the edge, AI follows where the data is gonna be created, where the sensors are collecting the information and that allows us to put those compute resources where the data is actually being again created. That's...

Jeff Clarke: Distinct and how it's built out, distinct and how it's going to be used on the PC, opening a whole new opportunity to drive productivity and a great productivity device as is, being able to use these big foundational models at cloud scale. And then what we think really happens on the enterprise level and in business is sort of the notion of domain specific process specific or feel the study type of AI. When we actually use customers data, business will use their data, they will tune the model and then run inference at site on edge, whether that be in a smart factory, a smart hospital, in a transportation network.

Being again created.

That is in <unk>.

Speaker 3: not specific to geography, not specific to size of business, it's going to be really driven by the type of application and the usage environment. And I think that is what's really exciting.

Not specific to geography, it's not specific to size of business, it's going to be really driven by the type of application and the usage of environment and I think that is what's really exciting about this.

Speaker 3: We think it's one size does not fit all. We think there's a whole slew of AI solutions, again, from the PC to workstations, to what happens in the data center and the data center could be a single server running inference at the edge. It could be defined as a small cluster, doing a small micro or fine level tuning all the way into these big foundational models where we do cloud scale.

It's one size does not fit all.

There's a whole slew of AI solutions again from the PC to workstations to what happens in the datacenter in the datacenter could be a single server running inference at the edge it could be defined as a small cluster doing a small micro or find level tuning all the way into these big foundational models were renewed.

Jeff Clarke: So when you think about the vertical nature of this and how it will actually work in the real world, we think that technology makes its way all the way out to the edge. AI follows where the data is going to be created, where the sensors are collecting the information and that allows us to put those compute resources where the data is actually being again created. That is in not specific to geography, not specific to size of business, it's going to be really driven by the type of application and the usage environment.

Cloud scale.

Training so.

In a nutshell I guess, that's as quickly as I could describe the opportunity. We believe it is an incremental am I going to say it doesn't come at the expense of some data center servers of course, not I don't think we know it's in the early innings. We do know the workloads are distinctly different the architectures are distinctly different and we will build different systems for AI and <unk>.

Speaker 3: And I know that's, I guess, that's as quickly as I could describe the opportunity. I believe it is incremental. Am I going to say it doesn't come at the expense of some data center servers? Of course not. I don't think we know it's in the early innings. We do know the workloads are distinctly different. The architectures are distinctly different and we will build different systems for AI and that massive, if you will, data processing that's done in parallel versus how we've historically build applications in the past for the data center.

That massive if you will data processing, that's done in parallel versus how we've historically build applications in the past for the data center.

Jeff Clarke: And I think that is what we're all excited about. We think it's one size that does not fit all. We think there's a whole slew of AI solutions, again, from the PC, to work stations, to what happens in the data center and the data center could be a single server running inference at the edge. It could be defined as a small cluster, doing a small micro or fine level tuning all the way into these big foundational models where we do cloud scale training.

Jeff Clarke: So. And then I'd show I guess that's as quickly as I could describe the opportunity. I edit, we believe it is incremental. Am I going to say it doesn't come at the expense of some data center servers. Of course not. I don't think we know it's in the early innings. We do know the workloads are distinctly different. The architectures are distinctly different and we will build different systems for AI and that massive. If you will data processing that's done in parallel versus how we've historically build applications in the past for the data center. Thank you. Well done.

David Vogt: You've got your next question.

Speaker 7: Well done, sir. You bet you. Next question.

Thank you.

You bet. Your next question. Thanks.

We'll take our next question from David vote with UBS. Please go ahead.

Speaker 1: We'll take our next question from David Vote with UBS. Please go ahead.

Great. Thanks, guys for taking the question can we just stick on AI for a second and maybe dig into how youre thinking about your.

Speaker 3: Can we just stick on AI for a second and maybe dig into how you're thinking about your allocation or your ability to get allocation to GPU capabilities, right? So, obviously...

Allocation or your ability to allocate or get allocation to GPU capabilities. Rachel obviously, it's a bit of a rush right now with some limited supply and some gating factors that you talked about $2 billion of servers. In your order book can you kind of just share with us sort of how you see yourself competitively sitting into their queue and are you seeing any sort of challenge.

Speaker 3: It's a bit of a rush right now with some limited supply and some gaining factors. And you talked about 2 billion of servers in your order book, but can you kind of just share with us sort of how you see yourself competitively sitting into that queue and are you seeing any sort of challenges in getting ample supply to sort of meet that order book and how should we expect that order book to sort of filter through revenue as supply becomes available.

And getting ample supply to sort of meet that order book and how should we expect that order book to sort of filter through revenue as.

Supply becomes available.

Speaker 8: But, sure David, maybe that the easiest measure to determine where we are with supply is demand is way ahead of supply.

Sure David maybe the easiest measure to determine where we are with supply as demand is way ahead of supply.

David Vogt: We'll take our next question from David vote with UBS. Please go ahead. Great. Thanks, guys, for taking the question.

Speaker 8: If you order a product today, it's a 39-week lead time, which would be delivered the last week of May of next year.

If you order a product today, it's a 39 week lead time, which would be delivered the last week of May of next year.

Jeff Clarke: Can we just stick on AI for a second and maybe dig into how you're thinking about your allocation or your ability to allocate or get allocation to GPU capabilities. Right. So, you know, obviously. It's a bit of a rush right now with some of the supply and some gaining factors and you talked about two million of servers in your order book. But can you kind of just share with us sort of how you see yourself competitively sitting into that queue and are you seeing any sort of challenges in getting ample supply to sort of meet that order book and how should we expect that order book to sort of filter through revenue as supply becomes available.

So we are certainly asking for more parts working to get more parts. It's what we do.

Speaker 8: So we are certainly asking for more parts, working to get more parts, it's what we do.

Speaker 8: I'm not the allocator, I'm the allocatee. So we're advocating our position on our demand. Again.

I am not the allocate or on the allocated.

So we're advocating our position our demand again, we are winning business signaled by the $2 billion in backlog today with a pipeline that significantly bigger.

Speaker 8: We are winning business signaled by the $2 billion in backlog today with a pipeline that's significantly bigger. I was in the discussion yesterday with two different customers about AI. The day before about AI, it is constantly something that's coming into our business that we're fielding the opportunity.

The discussion earlier discussion yesterday with two different customers about AI the day before about AI. It is constantly something thats coming into our business that we're fielding the opportunities.

Speaker 8: from different cloud providers to folks building AIS service to enterprises now beginning to do proof of concept and trying to figure out how they do exactly what I just said earlier, use their data on premise to actually drive AIS to improve their business. We'll continue to...

Different cloud providers to folks building AI as a service to enterprises now beginning to do proof of concept and trying to figure out how they do exactly what I just said earlier use their data on premise to actually drive AI to improve their business will continue to.

Jeff Clarke: Thanks. Sure, David. Maybe that the easiest measure to determine where we are with supply is demand is way ahead of supply. If you order a product today, it's a 39 week lead time, which would be delivered the last week of May of next year. So, we are certainly asking for more parts working to get more parts. It's what we do. I'm not the allocator. I'm the allocator. So, we're advocating our position or demand.

Speaker 8: work and advocate for more supply. And then I'll also tell you we're tracking at least 30 different accelerator chips that are in the pipeline in development that are coming.

Work, an advocate for more supply and then I'll also tell you that we're tracking at least 30 different accelerator chips that are in the pipeline in development that are coming.

Speaker 8: So there are many people that see the opportunity, some of these new technologies are fairly exciting from neomorphic type of processors to enforce and eight types of accelerators. There's a series of new technologies and quite frankly new algorithms that we think open up the marketplace and will obviously be watching that and driving that across our businesses and helping customers. All right, thanks David.

Jeff Clarke: Again, we are winning business signal by the $2 billion in backlog today with a pipeline that's significantly bigger. I was in the discussion or in the discussion yesterday with two different customers about AI the day before about AI. It is constantly something that's coming into our business that we're fielding the opportunities from different cloud providers to folks building AI as a service to enterprises now beginning to do proof of concept and trying to figure out how they do exactly what I just said earlier, use their data on premise to actually drive AI to improve their business.

So there are many people that see the opportunity. Some of these new technologies are fairly exciting from Neil Morphic type of processors to enforce a types of accelerators Theres a series of new technologies and quite frankly, new algorithms that we think open up the marketplace and well, obviously be watching that and <unk>.

Driving that across our businesses and helping customers.

Alright, Thanks, David incredibly thorough thanks, Rob Thanks, Jeff.

You bet you.

We will take our next question from Amit <unk> with J P. Morgan. Please go ahead.

Speaker 1: We'll take our next question from FAMIC, Chatterjee with JP Morgan. Please go ahead. FAMIC, your line is open. If you could please check your mute button. Sorry for that. Thank you for taking my question.

Jeff Clarke: We'll continue to work and advocate for more supply. And then I'll also tell you we're tracking at least 30 different accelerator chips that are in the pipeline and development that are coming. So, there are many people that see the opportunity. Some of these new technologies are fairly exciting from neomorphic type of processors to and for and eight types of accelerators. There's a series of new technologies and quite frankly new algorithms that we think open up the marketplace and will obviously be watching that and driving that across our businesses and helping customers. All right, thanks, that was incredibly thorough. Thanks, Rob, thanks, Scott. You bet you.

Okay.

Amit Your line is open if you could please check your mute button.

Hi.

Sorry about that.

Thanks for taking my question and congrats on the results.

Just trying to square the guidance for ISG.

When you talked about seeing order improvement and maybe if you could talk about what.

Sort of what did you see in terms of linearity of orders during the quarter more than sort of so it wasn't storage I mean, I understand large enterprises might be still measured but you did mentioned there are lots of other segments of the market verticals that are spending in.

It does look like you're seeing more of a sort of macro green shoots of a macro improvement. So just trying to square like how much of that.

Speaker 9: trying to square like how much of that flat guidance sort of embeds pricing being the major drive.

Flat guidance.

Pricing being the major driver of that sort of flattish guide versus demand just help me square that please.

Samik Chatterjee: We'll take our next question from Samik Chatterjee with JP Morgan. Please go ahead. Samik, your line is open. If you could please check your mute button. Hi, sorry about that. Thank you for taking my question and congrats on the results. Just trying to square the guidance for ISG to be flat when you talked about seeing order improvement. And maybe if you can talk about what of the sort of what did you see in terms of linearity of orders during the quarter, both in sort of service and storage.

And let me go ahead and start.

Speaker 4: Let me go ahead and start on that to make. So, you know, as we're looking into the third quarter.

Start on that to make so as we're looking into into the third quarter and we're talking about the external environment. We have a lot of near term dynamics that we're navigating through.

Speaker 4: And we're talking about the external environment. You know, we have a lot of near-term dynamics that we're navigating through. We're confident about to go forward, but we're guiding to flat sequentially at $23 billion.

We're confident about the go forward, but we're guiding to flat sequentially at $23 billion.

Speaker 4: We're expecting stability we've seen in the transactional business. So talked about small business, medium business and government.

We're expecting stability, we've seen in the transactional business, so talked about small business medium business and government.

Samik Chatterjee: I mean, I understand large enterprises might be still measured, but you didn't mention there are some other segments of the market of verticals that are spending. And it does look like you're seeing more sort of macro, green shoots of a macro improvement.

Speaker 4: But in the ISG space, which you're particularly asking about, we're seconded out to be overall flat sequentially with servers a bit better, really on the leaning in on the GPI, the GPU mix.

But in the ISG space, which are particularly asking about and we're expecting that to be overall flat sequentially with servers a bit better really on the on leaning in on the GPI GPU execute me.

Yvonne McGill: So just trying to square like how much of that flat guidance sort of embeds pricing, being the major driver of that sort of flat edge guide versus demand to help me square that please. Let me go ahead and start on that, Samik. So as we're looking into the third quarter, and we're talking about the external environment, we have a lot of near-term dynamics that we're navigating through. We're confident about to go forward, but we're guiding to flat sequentially at $23 billion.

Speaker 4: but not expecting that rate of decline to improve much on the rest of the server portfolio. And then from a storage perspective, we've got a seasonality.

But not expecting that rates of <unk>.

<unk> decline to improve much on the rest of the server portfolio and then from a storage perspective, we've got a seasonality.

Speaker 4: We normally seasonally down in the third quarter. And so that storage, you know, we're expecting a lower storage performance in that quarter. Now at CSG, we also have it flat. We have some mixed dynamics in there.

Normally seasonally down in the third quarter, and so that storage, we're expecting a lower storage performance in that quarter.

ESG. We also have it's flat and we have some mixed dynamics in there.

Speaker 4: with mixing more towards the holiday period. So we'll have that coming in.

<unk>.

Yvonne McGill: We're expecting stability. We've seen in the transactional business, so talked about small business meeting business and government. But in the ISG space, which you're particularly asking about, we're expecting that to be overall flat sequentially with servers a bit better, really on the leaning in on the GPI GPU mix, excuse me. But not expecting that rate of decline to improve much on the rest of the server portfolio. And then from a storage perspective, we've got a seasonality. We normally seasonally down in the third quarter, and so that storage, you know, we're expecting a lower storage performance in that quarter.

Mixing more towards the holiday period, so we'll have that coming in.

Speaker 4: And we'll have that also with some PRU pressure that we're expecting from the external environment. Yeah, I'm,

And we will have that also with some some tru pressure that we're expecting from the.

From the external environment.

Yes, I might add its a complement of Ron just said on the ISG specifically storage as you mentioned, it's seasonally down in Q2 to Q3 and with the weakness in our enterprise customers. They happen to be the greatest concentration of the high end or high priced spin storage arrays that we sell and that puts pressure on the P&L in <unk>.

Speaker 8: on just said on the ISG specifically store just mentioned it seasonally down Q2 to Q3. And with the weakness in our enterprise customers they happen to be the greatest concentration of the high end or high price band storage arrays that we sell, and that puts pressure on the PNL and Q3. That's right. And we haven't seen those larger corporate and global enterprise customers really come back into the spending zones yet.

Q3, that's right and we haven't seen those larger corporate and global enterprise customers really come back in.

And to the spending.

Zone yet.

Thank you thanks for the question Simon.

Jeff Clarke: Now at CSG, we also have it flat. We have some mixed dynamics in there with, you know, mixing more towards the holiday periods. So we'll have that coming in, and we'll have that also with some PRU pressure that we're expecting from the external environment. Yeah, I might add, it's a complement of on just said on the ISG specifically store just mentioned it seasonally down, Q2 to Q3. And with the weakness in our enterprise customers, they happen to be the greatest concentration of the high end or high price band storage arrays that we sell. And that puts pressure on the PNL and Q3. That's right. And we haven't seen those larger corporate and global enterprise customers really come back into this spending. Zones, yeah. Thank you.

Yeah.

We will take our next question from Toni <unk> with Bernstein. Please go ahead.

Speaker 1: We'll take our next question from Tony Sakanagi with Bernstein. Please go ahead.

Speaker 10: Yes, thank you. I just have a quick clarification and a question. I think you said your server backlog in revenue terms was 20% GPU or accelerator based. I just wanted to confirm that. And at context, could you add what was the percentage of server revenues this quarter? That was GPU based in the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yes. Thank you.

A quick clarification and a question I think you said your server backlog.

In revenue terms was 20%.

<unk> accelerator based I, just wanted to confirm that and as context could you add.

What was the percentage of server revenues this quarter that with GPU based and a year ago.

Speaker 10: And then my question is just on operating margins, you're kind of above your historical levels in PSG of five to seven.

My question is just on operating margins, you're kind of above your historical levels and PSG, a 5% to 7%.

Speaker 10: your above ISG, historically maybe 11 to 12%. Is there anything structurally that's changing or was this kind of a unique quarter in terms of strong sequential growth and cost control and maybe even next quarter given the gross marching guidance we should.

Above.

Historically, maybe 11% to 12% is there anything structurally thats changing or.

Tony Sakonagi: Thanks for the questions. We'll take our next question from Tony Sakonagi with Bernstein. Please go ahead. Yes, thank you. I just have a quick clarification and a question. I think you said your server backlog in revenue terms was 20% GPU or accelerator based. I just wanted to confirm that. And at context, could you add what was the percentage of server revenues this quarter that was GPU based in the year? Franco. And then my question is just on operating margins, you're kind of above your historical levels in PSG of 5 to 7 percent. You're above ISG, you know, historically maybe 11 to 12 percent. Is there anything structurally that's changing or was this kind of a unique quarter in terms of strong sequential growth and cost control?

Jeff Clarke: And you know, maybe even next quarter, given the growth margin guidance, we should be back down to normal levels, or is there something either about AI or about how you're picking where you want to participate that the kinds of margins we saw this quarter in both businesses, you know, might be something we might continue to see. Thank you. I'll take the first half of the question, Tony. I believe my remarks were 20 percent of the first half orders in servers, or AI-based servers, the XE family, et cetera.

Was this kind of a unique quarter in terms of strong sequential growth and cost control.

And maybe even next quarter given the gross margin guidance, we should be back down to normal levels or or is there something either about AI are about how you're picking where you wanted to participate.

Speaker 10: back down to normal levels or or is there something either about AI or about how you're picking where you want to participate that the kinds of margins we saw this quarter in both businesses you know might be something we might continue.

The kinds of margins, we saw this quarter in both businesses, yes, it might be something we might continue to see thank you.

Hi.

Speaker 8: I'll take the first half of the question, Tony. I believe my remarks were 20% of the first half orders in servers were AI-based servers, the XE family, et cetera.

I'll take the first half of the question Tony I believe my remarks were 20% of the first half orders in servers, where AI based servers, the <unk> family et cetera.

Speaker 8: And if you're to compare it against the eurogoes since the XE family of products did not exist and that's the vast majority of the backlog, it's a very large percentage on a year-over-year basis. I actually didn't calculate it, but it'd be a very big number. Given most of the $2 billion backlog I noted is XE 9680 base.

And if you were to compare it against a year ago since the <unk> family of products did not exist and thats the vast majority of the backlog.

A very large percentage on a year over year basis, I actually didn't calculate it but it would be a very big number given most of the $2 billion backlog I noted is <unk> 90 680 base.

And then.

Speaker 4: I'll jump in on the profitability.

I'll jump in on the on the profitability.

Speaker 4: question. You know, I think what we what we saw or what we did see in Q1 and Q2 was

Question I think what we what we saw what we did see in Q1 and Q2 was really I think a great example of our differentiated model right with the ability to capture that deflationary environment and translated through the P&L quite.

Speaker 4: really I think a great example of our differentiated model, right, with the ability to capture that deflationary environment and translate it through the P&L quite quickly.

Quite quickly.

Speaker 4: We saw component deflation that was better than anticipated and stable TRU and that led us really deliver that higher margin rate. In Q3 though, we're expecting a few things, right? A more competitive environment. Now that we're seeing inventory levels more normalized.

We saw component deflation that was better than anticipated.

Stable tier used and that let us.

Really deliver that higher margin rate in Q3, though we're expecting a few things right a more competitive environment.

Jeff Clarke: And if you're to compare it against the eurogasons, the XE family of products did not exist, and that's the vast majority of the backlog. It's a very large percentage on a year-over-year basis. I actually didn't calculate it, but it'd be a very big number. Given most of the $2 billion backlog I noted is XE 9680-based.

Now that we're seeing inventory levels more normalized.

Speaker 4: And we think that we'll see more of our competitors have, you know, that broader access to lower component costs.

And we're.

We think that we'll see.

More of our competitors have that broader access to lower component cost and then I'd wrap on that with saying that we are expecting a deflationary environment to continue but less less so more muted.

Speaker 4: And then I'd wrap on that with saying that, we're expecting a deflationary environment to continue, but less so more muted in the third quarter than what we saw in Q2. So, you know, is there, you know, we're very pleased with how we performed in the second quarter. And...

Yvonne McGill: And then I'll jump in on the profitability question. You know, I think what we saw, or what we did see in Q1 and Q2, was really, I think, a great example of our differentiated model, right, with ability to capture that deflationary environment and translate it through the DNL quite quickly. You know, we saw component deflation that was better than anticipated, and stable TRUs, and that led us, you know, really deliver that higher margin rate.

In the third quarter than what we saw in Q2, so it's there.

Very pleased with with how we performed in the second quarter in both.

Speaker 4: Those CSG and ISG that are expecting that competitive pressure and mixed dynamics, especially in the third quarter, coming through in ISG as we mix.

CST and ISG, but are expecting that competitive pressure too and mixed dynamics, especially in the third quarter coming through in ISG as we mix less towards storage seasonally and we'll mix backing into that storage element in the fourth quarter.

Speaker 4: less towards storage seasonally and we'll mix back into that storage element in the fourth quarter.

Yvonne McGill: In Q3, though, we're expecting a few things, right? A more competitive environment. Now that we're seeing inventory levels more normalized, and we think that we'll see more of our competitors have, you know, that broader access to lower component costs. And then I'd wrap on that with saying that, you know, we're expecting a deflationary environment to continue, but less so more muted in the third quarter than what we saw in Q2. So, you know, is there, you know, we're very pleased with how we performed in the second quarter in those CSG and ISG that are expecting that competitive pressure to, and mixed dynamics, especially in the third quarter coming through in ISG as we mix less towards storage, seasonally, and we'll mix back into that storage element in the fourth quarter. Thanks, Tony. Thanks for the question.

Alright, Thanks, Tony Thanks for the question.

Speaker 1: We'll take our next question from Aaron Rakers with Wells Fargo. Please go ahead.

We will take our next question from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker 8: Yeah, thanks for the question and also for the rest of the results. I'm going to shift away from the AI narrative and maybe talk a little bit about the balance sheet side of the equation for Dell.

Yes. Thanks for the question and also congrats on the results I'm going to shift away from the AI narrative and maybe.

Maybe talk a little bit about the balance sheet side of the equation for Dell.

Speaker 8: I think in the prepared comments, you highlighted that you've now got, I think it's both the 9.9 billion cash and a balance sheet. And one of the things you also mentioned was, improving flexibility or increased flexibility on the capital return side. So I'm curious of how you're thinking about capital return relative to M&A and any context of how much capacity or maybe put another way, how much operational cash do you necessarily need?

I think in your prepared comments you highlighted that you've now got I think it was close to $9 9 billion of cash on the balance sheet and one of the.

Thank you you also mentioned was.

Improving flexibility or increased flexibility on the capital return side.

I'm curious of how you're thinking about capital return relative to M&A in any context of how much capacity or maybe put another way.

How much operational cash you necessarily need.

Speaker 8: As we think about the excess cash that you're carrying on a balance sheet on top of the free cash flow generation for the

As we think about the excess cash that you are carrying on the balance sheet on top of the free cash flow generation for the company.

Aaron Rakers: We'll take our next question from Aaron Rakers with Wells Fargo. Please go ahead. Yeah, thanks for the question, and also congrats on the results.

Speaker 8: Yeah, hey, this is Tyler. Maybe I'll start and Yvonne might step in. But I think we've always talked about.

Yeah, Hey, this is Tyler maybe I'll start and Yvonne might step in but I think we've always talked about our minimum cash balances being somewhere around call it 4% to $5 billion.

Speaker 8: Our minimum cash balance is being somewhere around, call it four to five billion. Now, it doesn't necessarily mean I'm going to run at those levels, but clearly we have excess cash.

Tyler Johnson: I'm going to shift away from the AI narrative and, you know, maybe talk a little bit about, you know, the balance sheet side of the equation for Dell. I think in the prepared comments, you highlighted that you've now got, I think it's supposed to 9.9 billion of cash from the balance sheet. And one of the things you also mentioned was, you know, improving flexibility or increased flexibility on the capital return side.

Now it doesn't necessarily mean I'm going to run at those levels.

But clearly we have excess cash.

Speaker 8: As you saw, it was a really strong cash quarter and actually if you look at

As you saw was it was a really strong cash quarter and actually if you look at the first half of the year at $5 billion CFO ups, that's a record for us so.

Speaker 8: the first half of the year, it's five million of CFI, that's a record, right? So, you know, great job by the teams or, you know, on working capital and something we've been extremely focused on. So it was great to see the progress that we made.

Great job by the teams.

On working capital and something we've been extremely focused on so it was great to see the progress that we've made.

Tyler Johnson: So, I'm curious of how you're thinking about capital return relative to M&A and, you know, any context of how much capacity or maybe put another way, you know, how much, you know, operational cash you necessarily need, as we think about the excess cash that you're carrying on the balance sheet, on top of the free cash flow generation from the... Yeah, hey, this is Tyler.

Speaker 8: You know, so just like Yvonne mentioned during the opening remarks, that does give us more flexibility. You know, as I think about our capital return framework, nothing has changed there. So, you know, as we look at share repurchase, for example, we look at dilution first, and then we think about opportunistic buys. And I think, you know, this just gives us more flexibility as we're working through that. We don't provide guidance on that, but obviously, something that we're looking at. You know, especially

So just if I could Brian mentioned during the opening remarks that does give us more flexibility.

As I think about our capital return framework nothing has changed there so.

As we look at share repurchase for example, we look at dilution first and then we think about opportunistic buys and I think this just gives us more flexibility as we're working through that we don't provide guidance on that but obviously something that we're looking at.

Tyler Johnson: Maybe I'll start and Von might step in, but I think we've always talked about our minimum cash balances being somewhere around, call it four to five billion. Now, it doesn't necessarily mean I'm going to run at those levels, but clearly we have excess cash. You know, as you saw, it was, it was a really strong cash quarter, and actually if you look at the first half of the year, if five billion, you'll see a file set, that's a record, right?

Thanks, Dara Thanks Darren.

Okay.

We'll take our next question from Erik Woodring with Morgan Stanley. Please go ahead.

Speaker 1: We'll take our next question from Eric Woodring with Morgan Stanley . Please go ahead.

Speaker 11: Hey guys, good afternoon. Thanks for taking the question and congrats to McWhorter. You know Jeff, I want to maybe...

Hey, guys. Good afternoon. Thanks for taking my question and congrats on the quarter.

Tyler Johnson: So, you know, great job by the teams around, you know, I'm working capital and something we've been extremely focused on. So it was great to see the progress that we made. You know, so just like you've on mentioned during the opening remarks that does give us more flexibility. You know, as I think about our capital returns framework, nothing has changed there. So, you know, as we look at Sherry purchase, for example, we look at the Lucian first and then we we think about opportunistic buys. And I think, you know, this just gives us more flexibility. So, the flexibility is we're working through that. We don't provide guidance on that, but obviously something that we're looking at. Thanks. Thanks, sir.

Jeff I wanted to maybe circle.

Speaker 11: sometime on storage in the quarter, revenue down just 3% year-to-year. I imagine that was better than expected. Can you maybe just walk us through what you're seeing in the storage market? Where do you think we are on this cycle? Maybe said differently how much of the performance in 2Q was Dell specific versus the market? And if you could weave in, if there is any storage pull-through from AI servers, that was...

Spent some time on storage in the quarter revenue down just 3% year over year, I imagine that was better than expected.

Can you, maybe just walk us through what youre seeing in the storage market.

Where do you think we are in the cycle, maybe said differently how much of that.

The performance in <unk> was Dell specific versus the market.

If you could even if there is any storage pull through from AI servers that would be helpful. As well. Thank you.

Sure.

Speaker 12: Sure, if you'll, I mean, our performance was primarily driven by our strength in HCI. Most notably, our power flex, which is our proprietary software to find storage solution, and its growth.

Our performance was primarily driven by our strength in HCI most notably.

Our power Flex, which is our proprietary software defined storage solution and its growth.

Eric Woodring: We'll take our next question from Eric Woodring with Morgan Stanley. Please go ahead. Hey guys, good afternoon. Thanks for taking the question and congrats on the quarter. You know, Jeff, I want to maybe spend some time on on storage in the quarter revenue down just 3% year of a year. I imagine that was better than expected. Can you maybe just walk us through what you're seeing in the storage market, where do you think we are on the cycle, maybe maybe said differently, how much of.

Speaker 12: We're seeing great momentum there. Its ability to independently scale, compute, and storage for high-performance applications. We're seeing that technology being embraced in the marketplace, and it clearly has grown. I think I made a remark that it's grown now.

While we're seeing great momentum there its ability to independently scale compute and storage for high performance applications, we're seeing that technology being embraced in the marketplace and it clearly has grown I think I made a remark that it's grown now.

Speaker 12: I think it's eight consecutive quarters and it grew triple digits of more than doubled in the quarter. So that certainly was a highlight of the portfolio in storage, power store.

It gets eight consecutive quarters grew triple digits more than doubled in the quarter. So that certainly was a highlight of the portfolio in storage.

Eric Woodring: So, you know, the performance in 2Q was Dell specific versus the market. And if you could weave in, if there is any storage pull through from AI servers, that would be helpful as well. Thank you. Sure, I feel that I mean, our performance was primarily driven by our strength and HCI most notably our power flex, which is our proprietary software to find storage solution and it's growth. We're seeing great momentum there.

Power store.

Our mid range offering now has grown 12 consecutive quarters in a row.

Speaker 12: Our mid-range offering now has grown 12 consecutive quarters in a row.

Speaker 12: uh... it is the main state of our mid-range offer so that continues to be a strength of the business particularly given the largest multinational customers in the world are

It is the mainstay of our mid range offer so that continues to be a strength of the business, particularly given the largest multinational customers in the world are.

Very guarded and they're buying being able to sell to large corporates large mid sized medium sized businesses. Certainly is the home of our midrange product as I mentioned earlier in one of the questions that are high end storage is going through that down cycle, where we saw the mainframe refresh we saw.

Speaker 12: very guarded in their buying, being able to sell to large corporates, large mid-size, medium-sized businesses, certainly as the home of where our mid-range product is.

Eric Woodring: It's ability to independently scale compute and storage for high performance applications. We're seeing that technology being embraced in the marketplace and it clearly is grown. I think I made a remark that it's grown now. I think it's 8 consecutive quarters and it grew triple digits of more than double in the quarter. So that certainly was a highlight of the portfolio and storage power store. Our mid range offering now has grown 12 consecutive quarters in a row.

Speaker 12: I mentioned earlier in one of the questions that our high end storage is going through that down cycle where we saw the main frame refresh. We saw build up through the COVID time or now in the digestion of that capacity that was brought online.

The buildup through the Covid time, we're now in the digestion of that capacity that was brought online.

Speaker 12: That's the backdrop of our storage business. I'm very optimistic.

Thats the backdrop of our storage business.

Very optimistic.

Speaker 12: We're working to get tighter correlation that the AI compute side should be driving the unstructured storage side and the object storage side, our ECS business. When you think about the large amounts of data...

We're working to get tighter correlation that the AI compute side should be driving the unstructured storage side and the object storage side, our ECS business. When you think about the large amounts of data.

Eric Woodring: It is the main stay of our mid range offer so that continues to be a strength of the business, particularly given the largest multinational customers in the world are. Very guarded in their buying, being able to sell to large corporates, large mid size, medium size businesses, certainly as the home of where our mid range product is. I mentioned earlier in one of the questions that our high end storage is going through that down cycle where we saw the main frame refresh we saw build up through the COVID time we're now in the digestion of that capacity that was brought online. That's the backdrop of our storage business.

Speaker 12: This is going through and I think we'll really see this as enterprises deploy AI more broadly.

This is going through and I think we'll really see this as enterprises deploy AI more broadly that the unstructured data in its various forms all in structure will be looking for a highly scalable solutions and we have the most highly scalable high performance unstructured systems in the market with our power scale it.

Speaker 12: that the unstructured data and its various forms, all unstructured will be looking for highly scalable solutions and we have the most highly scalable, high performance unstructured systems in the market with our power scale at ECS object storage. So I'm optimistic. I would tell you there's not a tight correlation to that, to the moment. Most of it is compute with software to find storage inside that compute. I hope that helped.

<unk> object storage, so im optimistic I would tell you theres not a tight correlation to the moment most of it is compute with software defined storage inside that compute I hope that helped.

Thank you for your questioner.

Jeff Clarke: I'm very optimistic. We're working to get tighter correlation that the AI compute site should be driving the unstructured storage site and the object storage site, our ECS business. When you think about the large amounts of data, this is going through and I think we'll really see this as enterprises deploy AI more broadly, that the unstructured data and its various forms, all unstructured will be looking for highly scalable solutions and we have the most highly scalable, high performance unstructured systems in the market with our power scale and ECS object storage.

Okay.

Speaker 1: We'll take our next question from Amit Gariyanani with Evercore. Please go ahead.

We will take our next question from Amit <unk> with Evercore. Please go ahead.

Speaker 13: Yep, thanks for being my question. I can wrap on a nice set of numbers here. I mean, you just go back to the AI server opportunity. I was hoping you folks would talk about, who are the customers that are buying this from Dell today? Are they traditional enterprises, are they hyperscale customers? And, you know, I guess...

Yes, thanks for taking my question.

Rats on a nice set of numbers here.

Can you just go back to the server opportunity I was hoping you could talk about.

Are the customers that are buying this from delta the other traditional enterprises other hyperscale customers and yes, I guess.

Speaker 13: Jeff, maybe this helps us understand what does Dell's value proposition when it comes to GPU enabled servers? Because I think the concern might just be that, what's the durability of these revenues if they're coming from customers that are typically used ODM and I come with you, but they can't get GP allocations. So we're just talking about the value prop Dell is providing who the base is. And is this a creative or dilutive due to your ISU margins? Thanks.

Jeff maybe just help us understand what adult value proposition when it comes to GPU enabled services I think the concern might just be that what's the durability of these revenues are coming from customers that are typically used odm's and they're coming to you because they can get GPU allocation opportunity just talk about the value prop delyth, providing who the basin and is this accretive or dilutive do you think the our ISG Mark.

Jeff Clarke: So I'm optimistic I would tell you there's not a tight correlation to that to the moment. Most of it is compute with software to find storage inside that compute. I hope that helped. Thanks for the question, Eric.

Thank you.

Most of the four or five questions in that question. So let me work my way through that.

Speaker 12: Must have four or five questions and that question. So let me work my way through that. I mean, clearly we believe today.

Clearly we believe today.

Yvonne McGill: We'll take our next question for a moment, Daria Nani, with Evercore. Please go ahead. Yep, thanks for being my question and congrats on a nice set of numbers here. You just go back to the AI server opportunity. I was hoping you folks would talk about who are the customers that are buying this from Dell today? Are they traditional enterprises, are they high fiscal customers? And, you know, I guess Jeff, maybe just help us understand what does Dell's value proposition when it comes to GPU enabled servers?

Speaker 12: And my words, hopefully, of the opening resonated that this is a big, incremental opportunity.

And my words, hopefully at the opening resonated that this is a big incremental opportunity.

Speaker 12: and that these new workloads demand a new type of architecture, a new type of technology.

And that these new workloads demand and new type of architecture, and a new type of technology.

Speaker 12: We believe we've hit the sweet spot with that with our XC 9680 for example, but there are three other

We believe we've hit the sweet spot with that with our <unk> $96 80 for example, but there are three other.

Speaker 12: AI servers on our portfolio as well. Did you think about the 9680? Why is it an interesting product? I mean, clearly we work closely with in video over three years tuning its performance.

AI servers on our portfolio as well, but if you think about the $96 80, why why is it an interesting product I mean, clearly we work closely with and video over three years.

Yvonne McGill: I think the concern might just be that, you know, what's the durability of these revenues if they're coming from customers that are typically use ODMs and I coming to you, but they can't get GP allocations. So we're going to talk about the value problem that is providing who the basis. And is this a creative or dilutive using your ISU margins. Thank you. Most of the four or five questions and that question.

Tuning its performance we believe it's the highest performance most dense AI server you can buy today, you can give us a <unk> product, we think about as power efficiency, what we have been able to do around air cooling at ambient temperature of 35 degrees silica is what we've done with <unk>, what we've done around the connectivity side with <unk>.

Speaker 12: the highest performance most dense AI server you can buy today. You think of this as a 6U product? We think about its power efficiency. What we've been able to do around air cooling at ambient temperature of 35 degrees celsius, what we've done with iDRAC, what we've done around the connectivity side with 10 PCIe, ports for it to work in high performance clusters. So we built something purposely.

Jeff Clarke: So let me work my way through that. I mean, clearly we believe today. And my words, hopefully, of the opening resonated that this is a big incremental opportunity and that these new workloads demand a new type of architecture, a new type of technology. We believe we've hit the sweet spot with that with our XC 9680, for example, but there are three other AI servers on our portfolio as well. If you think about the 9680, why is it an interesting product?

<unk> E ports for it to work in high performance cluster. So we built something purposely for AI. If you think about the types of services that.

Speaker 12: for AI. You can think about the types of services that we announced that Dell Technology World and subsequently brought a range of services with Helix, the ability to help enterprises deploy this, help them understand where their data is, how to get their data prepared, how to implement the infrastructure with ease and how to begin to train models, tune models, and then ultimately be able to run inference at the edge or in their data center.

We announced dead.

Dell technology World and subsequently a broader range of services with helix the ability to help enterprises deploy this helped them understand where their data is how to get their data prepared how to implement the infrastructure with ease and how to begin to train models tuned models and then ultimately be able.

Jeff Clarke: I mean, clearly, we work closely within video for three years tuning its performance. We believe it's the highest performance most dense AI server you can buy today. You think of this as 6U product. We think about its power efficiency. What we've been able to do around air cooling ambient temperature of 35 degrees Celsius, what we've done with iDRAC, what we've done around the connectivity side with temp PCIe, ports for it to work in high performance clusters.

Well, two Brian inference at the edge or in their data center.

Speaker 12: that package of services and capabilities were just in the beginning of it.

That package of services and capabilities, we're just in the beginning.

Speaker 12: The types of customers we're selling today, it's a wide range. There is a density of that today with some of the new AI as a service companies. We're seeing enterprises as I mentioned early by buying small volumes so they can do proof of concepts so they can begin to understand tests, do that sort of work. But if you look at the long term attributes of this opportunity.

The types of customers, we're selling today its a wide range. There is a dense density of that today with some of the new AI as a service companies, we're seeing enterprises as I mentioned early by buying small volume. So they can do proof of concept. So they can begin to understand tests do that sort of work.

Jeff Clarke: So we built something purposely for AI. If you think about the types of services that we announced that built technology world and subsequently broader range of services with helix, the ability to help enterprises deploy this, help them understand where their data is, how to get their data prepared, how to implement the infrastructure with ease and how to begin to train models, tune models, and then ultimately be able to run inference at the edge or in their data center.

But if you look at the long term attributes of this opportunity.

Speaker 12: We think it's AI in a lot of places at the edge at the data center in the cloud. It's gonna track the data. And my mind and architecturally when we look at this in every way that we've looked at it, AI is going to follow the data.

We think it's AI and a lot of places at the edge of the datacenter in the cloud it's going to track the data and my mind and architecturally when we will look at this in every way that we've looked at it AI is going to follow the data.

Speaker 12: It's highly unlikely you're going to have a smart factory or a smart hospital or a

It's highly unlikely youre going to have a smart factory or smart hospital aura.

Speaker 12: set of robots that are going to continuously look to be trained or run inference a long way away. Latency will matter. We think security will matter. We think performance will matter. We ultimately think cost will matter. And when you put that equation together, we think it's going to be a hybrid world. There will be some AI done in the cloud. There will be done some AI now on-prem.

Net of robots that are going to continuously look to be trained to run inference, a long way away latency will matter. We think security will matter, we think performance will matter and we ultimately think costs will matter and when you put that equation together, we think it's going to be a hybrid world there will be some AI done.

Jeff Clarke: That package of services and capabilities were just in the beginning of. The types of customers we're selling today, it's a wide range. There is a density of that today with some of the new AI as a service companies. We're seeing enterprises as I mentioned early by buying small volumes so they can do proof of concepts so they can begin to understand tests, do that sort of work. But if you look at the long term attributes of this opportunity, we think it's AI in a lot of places.

The cloud will be done some AI on Prem.

Speaker 12: We think it's going to be very, very heterogeneous in the way that this will be done with classic compute as well as accelerated compute.

We think it's going to be very very heterogeneous and the way that this will be done with classic compute as well as accelerated computing.

Speaker 12: And I'm not sure that's what we think of the opportunity. I certainly could go into more detail, but I think I hit the series of questions at least on the surface. I'm not sure that's what we think of the opportunity.

In a nutshell, that's what we think of the opportunity certainly to go into more detail, but I think I hit a series of questions at least on the surface.

Jeff Clarke: At the edge of the data center in the cloud, it's going to track the data. And my mind and architecturally when we look at this in every way that we've looked at it, AI is going to follow the data. It's highly unlikely you're going to have a smart factory or a smart hospital or a set of robots that are going to continuously look to be trained or rent inference a long way away.

Alright, Thanks Ahmad.

Okay.

Speaker 1: We'll take our next question from Ramzi Mohan with Bank of America. Please go ahead.

We will take our next question from <unk> Mohan with Bank of America. Please go ahead.

Hi, yes. Thank you.

Speaker 7: Yes, thank you. Your primary US PC competitor noted a lower PC TAM in 2023, also a backdrop of a more challenging component cost environment. I was wondering, maybe Jeff, you could talk about the trends in commercial and consumer to the rest of this year and set up into next year from a PC TAM perspective and also from a margin perspective.

Primary USB C competitor in order to lower PC Tam in 2023 also a backdrop of a more challenging component cost environment. I was wondering maybe Jeff you could talk about the trends in commercial and consumer to the rest of this year and and set up into next year from a PC Tam perspective, and also from a margin perspective. Thank you.

Jeff Clarke: The latency will matter. We think security will matter. We think performance will matter. And we've ultimately think cost will matter. And when you put that equation together, we think it's going to be a hybrid world that will be some AI done in the cloud will be done some AI down on print. We think it's going to be very, very heterogeneous in the way that this will be done with classic compute as well as accelerated compute.

Sure.

Speaker 13: Sure. Our view of the market hasn't materially changed from our last call. I hear it. Maybe that's on our end as a scratch. I'll try to talk over that.

Okay.

Our view of the market Hasnt matured.

Not materially changed from our last call.

Jeff Clarke: And a nutshell, that's what we think of the opportunity. I certainly could go into more detail, but I think I hit the series of questions at least on the surface.

Maybe that's on our end a scratch I'll try to talk over that.

Operator: All right. Thanks on it.

Speaker 12: We see the market at roughly 250 million units, which would roughly have it down 15% over last year, two consecutive years down. We see it slowing in the second half against easier compares that's reflected in what a bond just gave us guidance for both Q3 and tight into the year. So we see PC rate of decline slowing into the point where we head into next year and we're optimistic that there is growth in the PC next year.

We see the market at roughly 250 million units, which would roughly have it down 15% over last year two consecutive years down.

Wamsi Mohan: We'll take our next question from one sea mohan with Bank of America. Please go ahead. Yes, thank you. Your primary USBC competitor noted a lower PC tam and 2023, also a backdrop of a more challenging component cost environment. I was wondering, maybe Jeff, you could talk about the trends and commercial and consumer to the rest of this year and and set up into next year from a PC tam perspective and also from a margin perspective. Thank you.

We see it slowing in the second half against easier compares that's reflected in what our van just gave us guidance for both Q3 and tied into the year. So we see PC rate of declines slowing into the point, where we head into next year and we're optimistic that there is growth in the PC next year low single.

Speaker 12: Low single digits. We can debate that number. If you told us we'd give you say probably in the three to four percent range Is what we think today the opportunity to grow next year

Digits, we can debate that number if you had told US we'd give you say probably in the 3% to 4% range is what we think today the opportunity to grow next year whats really interesting through this phase as the types of Pcs were selling tend to be at a higher ASP.

Speaker 12: What's really interesting through this phase is the types of PCs we're selling tend to be at a higher ASP. If you look at our ASP against the balance of the industry we're roughly 2X. Why is that? One, driven by commercial mix. Two, the attached. The attached of our peripherals, our software and services. It generally drives a 2X ASP to the industry.

Jeff Clarke: Sure. Our view of the market hasn't mature hasn't materially changed from our last call. Maybe that's on our end as scratch. I'll try to talk over that. We see the market at roughly 250 million units, which would roughly have it down 15% over last year, two consecutive years down. We see it slowing in the second half against easier compares that's reflected in what a bond just gave us guidance for both key three and tied into the year.

If you look at our ASP against the balance of the industry, where roughly two X Y as that one driven by commercial mix to the attach the attach of our peripheral our software and services are generally drives a two X asps to the industry.

Speaker 12: Also driven by the types of products we've built or focused to the profit pools that we build to commercial PCs again, premium, consumer and gaming. That recipe is served as well. That's not where all the units have been in the first half of the year. There have been a lot of units.

Also driven by the types of products, we build our focus to the profit pools that we build to commercial Pcs again premium consumer and gaming that recipe has served us well, that's not where all the units have been in the first half of the year there've been a lot of units.

Jeff Clarke: So we see PC rate of decline slowing into the point where we head into next year and we're optimistic that there is growth in the PC next year. Low single digits. We can debate that number. If you told us we'd give you say probably in the three to four percent range is what we think today the opportunity to grow next year. What's really interesting through this phase is the types of PCs we're selling tend to be at a higher ASP.

Speaker 12: which is why quite frankly we've struggled with a bit of share. Challenge this year is many of the units have been in emerging markets.

Which is why we are quite frankly, we've struggled with a bit of share challenge. This year as many of the units have been in emerging markets have been in low price band consumer chrome, which were not particularly strong and we've focused into the profit pools, where we are very strong and a market leader, we think about next year and as we in.

Speaker 12: have been in low price band, consumer, Chrome, which we're not particularly strong in. We focused into the profit pools where we are very strong and a market leader. We think about next year and as we end this year with a new version of Windows, with Copilot, all of us building AI-enabled PCs, we think AI at the edge on the PC is a great, I call it the killer app.

Jeff Clarke: If you look at our ASP against the balance of the industry, we're roughly 2x. Why is that one driven by commercial mix to the attach the attach of our peripherals are software and services it generally drives a 2x ASP to the industry, also driven by the types of products we build or focus to the profit pools that we build to commercial PCs again premium consumer and gaming that recipe has served as well that's not where all the units have been in the first half of the year there've been a lot of units which is why quite frankly we've struggled with a bit of share challenge this year is many of the units have been in emerging markets have been in low price band consumer chrome which we're not particularly sure strong in we focus the into the profit pools where we are very strong and in market leader we think about next year and as we in this year with a new version of windows with co pilot all of us building AI enabled PCs we think AI at the edge on the PC is a great I call it the killer app I think that killer app is going to drive a productivity increase and anytime we've seen new applications that drive productivity at the edge on the PC we've seen the market rebound and if you're going to ask your PC to do more it generally means it needs a bigger CPU a little more memory a little bit more storage a better display etc etc which is another proxy for driving ASPs that was mouthful I think I covered it all or we're going to weather this storm this year the market is down that's not going to change it's what it's rated decline slows in the second half ASPs are holding the opportunities are in the profit pools which we continue to focus on and we're optimistic about a modest growth and calendar 24 thanks for a question while these we'll take our next question from I see a merchant with city group please go ahead great thank you for the opportunity and great results Jeff you you know in some of the PowerPoints you guys talk about the long term market growth opportunity and clearly are very excited about how AI and some of Dell's core offerings are you know helping shape the market as well so if you could just talk about when you think about your growth your market opportunity how we should think about that in the face of the is that something that we should expect to you know maybe edge higher just given the growing amount of workloads the higher ASPs on the computer side as well as we look and is that something that we should expect for calendar 24 to see an acceleration in growth relative to your long term market growth forecast especially coming off a you know a down year in calendar 23 thank you well we tend to think about these growth opportunities in areas where our model really extends or expands so we think about our leadership position across PC storage compute side you think about our large go to market presence you think about our things scale and advantage in the supply chain of very scaled service organization how do you take those for attributes and apply it to new growth opportunities we've clearly picked and talked about them in the past is telco is off to a good start edge we just what we've been engaged through partners in the marketplace but the native edge product that I announced on stage at dtw chips here very shortly next week.

This year with a new version of Windows with co pilot all of US building AI enabled Pcs, we think AI at the edge on the PC is a great I call. It the killer App I think that killer App is going to drive a productivity increase in anytime we've seen new applications that drive productivity at the edge.

Speaker 12: I think that killer app is going to drive a productivity increase and anytime we've seen new applications that drive productivity at the edge on the PC, we've seen the market rebound.

On the PC, we've seen the market rebound.

Speaker 12: And if you're going to ask your PC to do more, it generally means it needs a bigger CPU, a little more memory, a little bit more storage, a better display, etc., etc., which is another proxy for driving ASPs.

And if youre going to ask your PC to do more it generally means it needs a bigger CPU or little more memory, a little bit more storage, a better display et cetera, et cetera, which is another proxy for driving asps.

Speaker 12: That was a mouthful. I think I covered it all. We're going to weather the storm this year. The market is down. That's not going to change. Its rate of decline slows in the second half. ASPs are holding the opportunities during the profit pools, which we continue to.

That was a mouthful I think I covered it all.

We're going to weather the storm this year the market is down thats not going to change it.

Rate of decline slows in the second half.

Asps are holding the opportunities are and the profit pools, which we continue to.

Speaker 12: focus on and we're optimistic about a modest growth in calendar 24. All right, thanks.

Focus on and we're optimistic about a modest growth in calendar 'twenty four.

Alright, thanks for the question.

Speaker 1: We'll take our next question from ASEA Merchant with City Group. Please go ahead.

We will take our next question from Marci <unk> merchant with Citigroup. Please go ahead.

Great. Thank you for the opportunity and great results.

Speaker 14: Great, thank you for the opportunity and great results. Jeff, in some of the PowerPoints, you guys talk about the long-term market growth opportunity. And clearly, you're very excited about how AI and some of Dell's core offerings are helping.

Jack you in terms of the Powerpoint you guys talk about the long term market growth opportunity and clearly you're very excited about how AI.

And some of <unk> core offerings are helping shape.

Speaker 14: the market as well. So if you could just talk about when you think about your growth, your market opportunity, how we should think about that in the face of the AI, is that something that we should expect?

The market as well so if you could just talk about when you think about your growth market opportunity. How we should think about that in the face of the or is that something that we should expect to.

Speaker 14: to maybe edge higher, just given the growing amount of workloads, the higher ESPs on the computer side as well. And is that something that we should expect for calendar 24 to see an acceleration in growth relative to your long-term market growth forecast, especially coming also a down year in calendar?

Maybe a higher just given the growing amount of workload the higher ESP on the computer side as well.

Is that something that we should expect for calendar 'twenty four to see an acceleration in growth relative to your.

Long term market growth, especially coming off.

Down here in calendar 'twenty three thank you.

Speaker 12: Well, we tend to think about these growth opportunities in areas where our model really extends or expands. So if you think about our leadership position across PC storage.

Well, we tend to think about these growth opportunities in areas, where our model really extends our expand so if you think about our leadership position across PC storage.

Speaker 12: compute side. You think about our large go-to-market presence, you think about our scale and advantage in the supply chain are very

Compute side, you think about our large go to market presence, you think about our things scale and advantage in the supply chain, a very scaled service organization. How do you take those four attributes and apply it to new growth opportunities, we clearly pet and talked about them in the past is telco, which is off to a good start edge.

Speaker 12: scaled service organization, how do you take those four attributes and apply it to new growth opportunities? We've clearly picked and talked about them in the past as telco.

Speaker 12: which is off to a good start. Edge, we just, we've been engaged through partners in the marketplace, but the Native Edge product that I announced on stage at DTW ships here very shortly, next week.

We just we've been engaged through partners in the marketplace, but the native edge product that I announced on stage at <unk> ships here very shortly next week.

Speaker 12: We think about the opportunity in multi-cloud as we build up the multi-cloud platforms that I talked about on stage. They get delivered later this year, they're on schedule, and then there's the fourth tailwind that we've talked about.

We think about the opportunity and multi cloud as we build out the multi cloud platforms that I talked about on stage. They get delivered later this year, they're on schedule and then there's the fourth tailwind that we've talked about.

Speaker 12: I've been already today, which is AI. And again, to be clear, we think it is an incremental opportunity. Is it only 100% a new category, not cannibalizing some of the data center. I don't know. I don't think that's worth debating. I know the workloads are different. I know the architecture and the types of products that we have to build to serve that demand and need are different.

A bit already today, which is AI and again to be clear. We think it is an incremental opportunity is it totally 100% of new category not cannibalizing.

Some of the data center I don't know I don't think Thats worth debating I know the workloads are different I know the architecture and the types of products that we have to build to serve that demand and need are different.

Speaker 12: I think that is pretty exciting. Our model plays quite well there. Given the backlog and allocation of parts, we will be carrying AI backlog into next year.

I think that is pretty exciting our model plays quite well there given the backlog and allocation of parts, we will be carrying AI backlog into next year.

It's just we won't get enough parts to clear the backlog given the 39 week lead time of today.

Speaker 12: It's just that we won't get enough parts to clear the backlog given a 39 week lead time up today.

Jeff Clarke: We think about the opportunity in multi-cloud as we build up the multi-cloud platforms that I talked about on stage. They get delivered later this year. They're on schedule. And then there's the fourth tailwind that we've talked about a bit already today, which is AI. And again, to be clear, we think it is an incremental opportunity. Is it totally 100% a new category, not cannibalizing some of the data center? I don't know.

Speaker 12: And I think it continues to build momentum because the early adopters tend to be

And I think it continues to build momentum because the early adopters tend to be.

Speaker 12: concentrated in this AI as a service and the hyper-scalers. And we've now talked about in firmly believe it's going to be deployed on-prem.

Concentrated in this AI as a service and the Hyperscale and.

And we've now talked about and firmly believe it's going to be deployed on prem.

And at the edge.

Speaker 12: We've said this before, we think there's going to be AI factories everywhere, little ones and big ones, and little ones on the edge, and medium-sized ones in data centers, and large ones at cloud scale.

We've said this before we think theres going to be AI factories everywhere, a little ones in big ones and little ones on the edge and medium sized ones and data centers and large ones that cloud scale.

Jeff Clarke: I don't think that's worth debating. I know the workloads are different. I know the architecture and the types of products that we have to build to serve that demand and need are different. I think that is pretty exciting. Our model plays quite well there. Given the backlog and allocation of parts, we will be carrying AI backlog into next year. It's just that we won't get enough parts to clear the backlog, given the 39-week lead time of today.

Paints a picture of a pretty significant opportunity for us and we have to continue to build our portfolio of services, which I think is key with our hardware so our hardware.

Speaker 12: That paints a picture of pretty significant opportunity for us, and we have to continue to build our portfolio of services, which I think is key with the hardware. So our hardware aligned with certification of the application, the open source community that's out there today, making sure they run great on our portfolio of XE servers, and then ultimately build both embedded services and professional services around the platforms themselves.

Aligned with certification of the application of the open source community that's out there today, making sure. They won run great on our portfolio of XC servers, and then ultimately build services, both embedded services and professional services around the platforms themselves.

Jeff Clarke: And I think it can be a great opportunity. It continues to build momentum, because the early adopters tend to be concentrated in this AI as a service and the hyper-scalers. And we've now talked about in firmly believe it's going to be deployed on-prem and at the edge. We said this before. We think there's going to be AI factories everywhere, little ones and big ones and little ones on the edge and medium sized ones and data centers and large ones at cloud scale.

Thanks, Ross I appreciate the question.

Okay.

We will take our next question from Michael <unk> with Goldman Sachs. Please go ahead.

Speaker 1: We'll take our next question from Michael Aing with Goldman Sachs. Please go ahead.

Hey, good afternoon. Thank you very much for the question I just had one AI servers in ISG.

Speaker 3: had on AI servers and ISG, it's encouraging to hear that server ASPs increased, the AI server mix increased.

Encouraging to hear that server Asps increased AI server mix increased and we saw improving gross margins in ISG.

Jeff Clarke: That paints a picture of pretty significant opportunity for us. And we have to continue to build our portfolio of services, which I think is key with a hardware. So our hardware aligned with certification of the application, the open source community that's out there today, making sure they run great on our portfolio of XC servers. And then ultimately build both embedded services and professional services around the platforms themselves. Thanks.

Jeff Clarke: I appreciate the question.

Speaker 3: Was that primarily storage mix or are AI servers accretive to margin? And just...

Was that primarily storage mix or our AI servers accretive margin and I'm. Just wondering if you could talk about whether or not there are any.

Speaker 3: things to discuss as it relates to how GPUs are accounted for in AI servers.

Things to discuss as it relates to how Gpus are accounted for in AI servers.

Is it done on a consignment basis or does it just flow through normally.

And then lastly, I was just wondering if.

Speaker 3: And then lastly, I was just wondering if the success of XE-9680 improves your revenue visibility into next year just given the backlog and whether we should think about these nullity brand.

The success of X E 90, 680 improves the revenue visibility into next year, just given the backlog and weather.

Michael Aing: We'll take our next question from Michael Aing with Goldman Sachs. Please go ahead. Hey, good afternoon. Thank you very much for the question. I just had one AI servers in ISG. You know, it's encouraging to hear that, you know, server ASP's increased the AI server mix increased. And we saw improved gross margins and ISG. Was that primarily storage mix or are AI servers accretive to margin? And I'm just wondering if you could talk about whether or not there are any things to discuss as it relates to how GPUs are accounted for in AI servers.

Whether we should think about seasonality very differently for next year. Thanks.

Ah.

Few questions on <unk>, and I will try to make our way through that.

Speaker 12: Give questions unpacked there, Ovan and I will try to make our way through that and maybe in a logical order. When we think about this, our improvement in the P&L in Q2 was driven by the sequential growth in both storage and in server.

Maybe in a logical order when when we think about this or improvement in the P&L in Q2 was driven by the sequential growth in both storage and in servers.

Speaker 12: And because we had favorable, a favorable cost environment, we saw margin expansion in both servers and storage, which was good. You saw that in.

And because we had favorable a favorable cost environment, we saw margin expansion in both servers and storage which was good.

You saw that in our performance.

Michael Aing: You know, is it done on a confinement basis or does it just flow through normally? And then lastly, I was just wondering if the success of XE 9680 improves your revenue visibility into next year, just give them the backlog and whether we should think about seasonality very differently for sure. Thanks.

<unk>.

Speaker 12: When I think about the role of AI servers, AI servers from an ASP point of view are significantly greater than a data center, or a general purpose computer, if you will.

When I think about the role of AI servers, AI servers from an ASP point.

Point of view are significantly greater than a data center or a general purpose computer if you will.

They are dilutive on a margin percentage they are accretive on a margin dollar basis, that's all about and I will have some business.

Speaker 12: They're dilutive on a margin percentage. They are accretive on a margin dollar basis. That's how about an eye look at business? That's the backdrop of how we look at AI servers in our portfolio, continuing to drive gross margin dollars, making sure that it's accretive from that.

Jeff Clarke: A few questions unpacked there of on and I will try to make our way through that and maybe in a logical order when we think about this, our improvement in the PNL in Q2 was driven by the sequential growth in both storage and in server, and because we had a favorable cost environment, we saw margin expansion in both servers and storage which was good. You saw that in our performance. When I think about the role of AI servers, AI servers from an ASP point of view are significantly greater than a data center or a general purpose computer, if you will.

That's the backdrop of how we will look at AI servers in our portfolio continuing to drive gross margin dollars.

Sure that it's accretive from that point of view.

Speaker 12: Given that this is the early innings, we are selling services around these. Much of the service is deferred on our balance sheet when we sell service around these. That's an opportunity to collect that. When we can build more services around the deployment of these, things like Project Helix that we talked about being able to help our customers across the entire ecosystem that provides more opportunity for us to grow our part of the AI hardware and service market.

Given that this is the early innings, we are selling services surround these much of the services deferred on our balance sheet. When we sell service around these that's an opportunity to collect that when we can build more services around the deployment of these things like project helix that we've talked about being able to help our customers.

Across the entire ecosystem that provides more opportunity for us to grow our part of the AI hardware and service market, which I believe I quoted in my remarks, we think it's going to grow 19% over the next handful of years to $90 billion.

Speaker 12: which I believe I quoted in our remarks. We think it's gonna grow 19% over the next handful of years to 90 billion dollars.

Jeff Clarke: They are a creative on a margin dollar basis. That's how about an eye look at business. That's the backdrop of how we look at AI servers in our portfolio, continuing to drive gross margin dollars, making sure that it's a creative from that point of view. Given that this is the early innings, we are selling services around these. Much of the service is deferred on our balance sheet. When we sell service around these, that's an opportunity to collect that when we can build more services around the deployment of these things like project helix that we talked about being able to help our customers across the entire ecosystem that provides more opportunity for us to grow our part of the AI hardware and service market.

And we will strengthen and strengthen our balance sheet is as that grows so looking looking forward to that opportunity.

Speaker 4: And we'll strengthen our balance sheet as that grows. So looking forward to that opportunity.

Okay. Thanks, Mark great.

We will take our next question from Simon Leopold with James Excuse Me Raymond James. Please go ahead.

Speaker 1: We'll take our next question from Simon Leopold with James. Excuse me, Raymond James, please go ahead.

Speaker 15: Thanks for taking the question. I wanted to see if maybe you could talk about some of the dynamic.

Great. Thanks for taking the question I wanted to see if maybe you could talk about some of the dynamics related to the supply chain for your enterprise storage in that I think you've had some margin benefit from lower prices for NAND solid state memory and there are I guess some expectation.

Speaker 15: related to the supply chain for your enterprise storage.

Speaker 15: in that I think you've had some margin benefits from lower prices for NAND solid state memory. And there are, I guess, some expectations that as supply and demand shift, pricing will go up for the memory next year. And I'm just wondering how to think about the effects on both your revenue and margin in storage. Thanks.

<unk>.

That.

Supply and demand shift pricing will go up for the memory next year and I'm just wondering how to think about the effects on both your revenue and margin and storage.

Jeff Clarke: Which I believe I quoted in our remarks that we think it's going to grow 19% over the next handful of years to 90 billion dollars. And we'll strengthen our balance sheet as that grows. So looking forward to that opportunity.

Yvonne McGill: Next slide.

Speaker 12: Sure, as Yvonne mentioned in a couple of her remarks as well as the questions thus far, we had a deflationary cost environment in...

Sure.

<unk> mentioned in a couple of her remarks as well as for the questions. Thus far we lived we headed deflationary cost environment in.

Yvonne McGill: We'll take our next question from Simon Leopold with James. Excuse me, Raymond James, please go ahead. Thanks for taking the question. I wanted to see if maybe you could talk about some of the dynamics related to the supply chain for your enterprise storage in that I think you've had some some margin benefits from lower prices for NAN solid state memory. And there are, I guess, some expectations that supply and demand shift pricing will go up for the memory next year.

Q2.

Our view is that will be deflationary in the second half, although the rate of deflation is slowing.

Speaker 12: Our view is that we'll be deflationary in the second half, although the rate of deflation is slowing.

Speaker 12: And that clearly benefited our businesses from PCs, to servers, to storage. The actual material content and storage as a percentage of the sales price is actually smallest of all the ARPs.

And that clearly benefited our businesses from Pcs to servers to storage the actual material content and storage as a percentage of the sales prices actually smallest of all of our businesses.

Speaker 12: The spread is the value we believe we bring by our differentiated assets, our capabilities and features mostly in the software.

Spread is the value we believe we bring by our differentiated assets our capabilities and features mostly in the software.

Speaker 12: Typically, when cost increase, we are able to pass that through in time. It isn't one for one or on the nanosecond, the cost increase that we can change the price, given quotes and what's in the system. But we are generally efficient at passing through cost increases over time. And we'll do that here. The signal is or

Typically when cost increase.

Yvonne McGill: And I'm just wondering how to think about the effects on both your revenue and margin in storage. Thank you. Sure, as Avant mentioned in a couple of her remarks as well as the questions thus far, we lived, we had a deflationary cost environment in due to. Our view is that will be deflationary in the second half, although the rate of deflation is slowing. And that clearly benefited our businesses from PCs, the servers, the storage, the actual material content and storage as a percentage of the sales prices actually smallest of all of our businesses.

We're able to pass that through in time.

Isn't one for one or on the nano second the cost increase that we can change the price given quotes and whats in the system, but we are generally efficient at passing through cost increases over time, and we'll do that here.

The signal is our.

Speaker 12: given our purchasing capability and the scale of it.

Given our purchasing capability and the scale of it.

Speaker 12: We tend to see that first. We tend to try to move first. And we have to be sensitive of how we price, not getting ahead of the competitive environment of raising price, we become uncompetitive, but able to do that in the prudent way where we're passing along our incremental cost as we see them in our homes.

We tend to see that first we tend to try to move first and we have to be sensitive of.

How we price not getting ahead of the competitive environment of raising price, we become uncompetitive, but able to do that in a prudent way, where we're passing along our incremental incremental cost as we see them in our business. That's how we've always done this there won't be any different in this cycle.

Yvonne McGill: The spread is the value we believe we bring by our differentiated assets, our capabilities and features mostly in the software. Typically, when cost increase, we are able to pass that through in time. It isn't one for one or on the nanosecond, the cost increase that we can change the price given quotes and what's in the system, but we are generally efficient at passing through cost increases over time. And we'll do that here.

Speaker 12: That's how we've always done this. There won't be any difference in this cycle. You are correct. I anticipate a cost increase cycle in the future. I'm not good enough to tell you what day that's going to occur. I can tell you our reach and understanding into the supply base is really good. And the signals will be measured or pushed all the way through into our pysers and we will understand that. Bye. Bye, Mr. Neeson. No, no, I think I think you've got to be.

You are correct I anticipate a cost increase cycle in the future I'm not good enough to tell you what day, that's going to occur I can tell you our reach an understanding into the supply base is really good and those signals will be measure pushed all the way through into our prices and we will understand that.

Ron.

Yvonne McGill: The signal is or. We're given our purchasing capability and the scale of it. We tend to see that first. We tend to try to move first. And we have to be sensitive of how we price, not getting ahead of the competitive environment of raising price, where we become uncompetitive, but able to do that in a prudent way where we're passing along our incremental incremental cost as we see them in our closeness.

No no I think I think you covered it of course alright.

Thanks, Ron.

We will take our next question from Steven Fox with Fox Advisors. Please go ahead.

Speaker 1: We'll take our next question from Stephen Fox with Fox Advisor. Please go ahead.

Speaker 16: Hi, good afternoon. Just on the pricing discipline that you're exhibiting here. For the quarter, you had better than expect the sales and sort of as expected growth margins. Can you sort of explain how that flowed through it seemed a little different than I would have expected. And then when you think about pricing discipline for the rest of the fiscal year, where would we see it the most? You know?

Hi, good afternoon, just on.

The pricing discipline that youre exhibiting here.

For the quarter, you had better than expected sales and sort of add as expected gross margins can you sort of explain how that flowed through it seemed a little different than I would've expected and then when you think about pricing discipline for the rest of the fiscal year, where would we see it the most.

Yvonne McGill: That's how we've always done this. There won't be any difference in this cycle. So, you are correct. I anticipate a cost increase cycle in the future. I'm not good enough to tell you what day that's going to occur. I can tell you our reach and understanding into the supply base is really good. And the signals will be measured or pushed all the way through into our prices and we will understand that. No, no, I think you covered it. Of course. Thanks.

Sort of come through the income statement. Thank you.

Speaker 12: Well, from a macro point of view, and then Yvonne will certainly weigh in here, when we think about pricing in Q2 in the second half.

Well from a macro point of view in a bundle will certainly weigh in here when we think about pricing in Q2 in the second half.

In many ways, it's business as usual.

Speaker 12: In many ways, it's business as usual when you see a slowing market.

When you see a slowing market.

Speaker 12: in the CXS inventory, you tend to see pockets of aggressiveness to move inventory to try to generate demand. We don't think the market is very elastic as a result, we're very disciplined.

And you see excess inventory you tend to see pockets of aggressiveness to move inventory to try to generate demand. We don't think the market is very elastic as a result, we're very disciplined.

Stephen FOX: Thanks, Simon. We'll take on next question from Stephen Fox with Fox Advisor. Please go ahead.

Jeff Clarke: Hi, good afternoon. Just on the pricing discipline that you're exhibiting here. For the quarter, you had better than expected sales and sort of as expected growth margins. Can you sort of explain how that flowed through it seemed a little different than I would have expected. And then when you think about pricing, just for the rest of the fiscal year, where would we see it the most, you know, sort of come through the income statement.

Speaker 12: And we're very disciplined in the profit pools. There were, as I mentioned, and I think the previous question several back, there were units in the market.

And we're very disciplined in the profit pools, there were as I mentioned and I think the previous question. Several back there were units in the marketplace to go good which tend to be in less profitable pools.

Speaker 12: to go get which tend to be in less profitable pools.

Speaker 12: read near zero, and that's just not attractive for us. We're very disciplined in that regard. When you look at big deals, as Yvonne and I have said several times now, given the

Near zero.

And that's just not attractive for us we're very disciplined in that regard when you look at big.

Yvonne McGill: Thank you. Well, from a macro point of view, and then a bond will certainly weigh in here, when we think about pricing in Q2 and in the second half. In many ways, it's business is usual. When you see a slowing market and you see excess inventory, you tend to see pockets of aggressiveness to move inventory to try to generate demand. And we don't think the market is very elastic. As a result, we're very disciplined.

Big deals.

And I've said this several times now given the.

Speaker 12: Conservative nature, cautious nature, probably more accurately stated of enterprise class customers and not as many large deals they tend to be pockets of aggressiveness. But the market is generally stable outside of areas that I just described.

The conservative nature of cautious nature, probably more accurately stated of enterprise class customers and not as many large deals they tend to be pockets of aggressiveness, but the market is generally stable outside of the areas that I just described we.

Speaker 12: We see that in Q2 as we go into the second half of the year, we'll see consumer, it's consumer promotion time. We think consumer promos will be aggressive in the second half of the year.

We see that in Q2 as we go into the second half of the year, we will see consumer consumer promotion time, we think consumer promos will be aggressive in the second half of the year.

Yvonne McGill: And we're very disciplined in the profit pools. There were you, as I mentioned, and I think the previous question several back. There were units in the marketplace to go get, which tend to be in less profitable pools. Read near zero. And that's just not attractive for us. We're very disciplined in that regard. When you look at big deals as Avant and I have said several times now, given the conservative nature of cautious nature, probably more accurately stated of enterprise class customers and not as many large deals, they tend to be pockets of aggressiveness.

Speaker 12: getting inventory back to historical levels, moving some of the old product that we know that's in inventory out there today, which isn't our issue, we're not exposed with any inventory because we run a very lean inventory model.

Getting inventories back to historical levels moving some of the old product that we know that's in inventory out there today.

Which isn't our issue we're not exposed speak with any inventory because we run.

A very lean inventory model.

Speaker 12: We think those big deals will continue to be aggressive when they come about. They always have been so there's really nothing new there. Just it's business is usual. Or if you prefer a similar pattern that we've seen before, we'll just be disciplined. There are places where it makes sense for us to acquire new customers. There's places where in a customer that we want to expand our portfolio, we call it cross-selling.

We think those big deals, we'll continue to be aggressive when they come about they always have been so there's really nothing new there just it's business as usual.

Prefer a similar pattern that we've seen before and we'll just be disciplined there are places where it makes sense for us to acquire new customers Theres places where in a customer that we want to expand our.

Yvonne McGill: But the market is generally stable outside of areas that I just described. We see that in Q2. As we go into the second half of the year, we'll see consumer. It's consumer promotion time. We think consumer promos will be aggressive in the second half of the year. Getting inventory back to historical levels, moving some of the old product that we know that's in inventory out there today, which isn't our issue. We're not exposed with any inventory because we run a very lean inventory model.

Portfolio, we call it cross selling will.

Speaker 12: will be very judicious and very disciplined in acquiring new customers and making sure that we can.

We will be very judicious and very disciplined in acquiring new customers and making sure that we can.

Speaker 12: Address is much of a customer's estate with our portfolio as we possibly can. No, no, I echo that and say and we continue to be focused on very price discipline and focused on those core profit pools across the market.

The address is much of our customers are state with our portfolio as we possibly can ammonia.

I Echo that and say and we continue to be focused on very price disciplined and focused on those core profit pools across the market. So.

Speaker 4: feel good about that and we always, you know, make investments where we feel like there's, you know, the proper return, future return, but very balanced.

Good about that and we always.

Make investments, where we feel like there is.

Yvonne McGill: We think those big deals will continue to be aggressive when they come about. They always have been so there's really nothing new there. Just it's business is usual or if you prefer a similar pattern that we've seen before will just be disciplined. There are places where it makes sense for us to acquire new customers. There's places where in a customer that we want to expand our portfolio. We call it cross felon.

The proper return future return, but very balanced very disciplined.

Hi, Thanks for the call earlier question, Steve could be if we could take one more question and then we'll turn it back over to you could turn it back over to Jeff for closing remarks.

Speaker 5: Hey, thanks for the call. That was a question Steve. Cynthia, if we could take one more question and then we'll turn it back over to, if you could turn it back over to Jeff for closing remarks.

Speaker 1: We'll now take our final question from Chris Stankar with TD Cowen. Please go ahead.

We will now take our final question from Chris <unk> with TD Cowen. Please go ahead.

Yeah, Hi, Thanks for taking my question a quick one for you on based on our full year revenue guide it looks like your fiscal <unk> revenue should be up low single digits <unk> kind of curious what's driving the strength in <unk> is it.

Speaker 13: Yeah, thanks for taking my question. A quick one for Yvonne. Based on your full year revenue guide, it looks like a fiscal portfolio revenue should be up low single digits QOQ. Kind of curious what's driving a strengthen at 4Q, RRDUD, S3Q. Is it ISG, CSG, CSNality, any kind of color there would be helpful.

Yvonne McGill: We'll be very judicious and very disciplined and acquiring new customers and making sure that we can. I address as much of a customer as the state with our portfolio as we possibly can, a lot. Yeah, no, no, I echo that and say and we continue to be focused on very price discipline and focused on those poor profit pools across the markets so still good about that and we always, you know, make investments where we feel like there's, you know, the proper return future return, but very balanced, very difficult.

<unk> seasonality any kind of color there would be helpful.

So thanks for your question Chris.

Speaker 4: So thanks for your question, Chris. In the fourth quarter, you know, we do have a seasonally strong storage performance. And so we're expecting that again this year. So that's really what would be driving the differential in the fourth.

Fourth quarter, we do have a seasonally strong storage.

<unk> performance and so we're expecting that again again this year.

Operator: Hey, thanks for the call. Well, that was a question, Steve.

So thats really whats what would be driving that differential.

Operator: Cynthia, if we could take one more question and then we'll turn it back over to you can turn it back over to Jeff for closing remarks.

In the fourth quarter.

Speaker 12: Perfect. Well, thank you, everyone. We executed well in Q2 and delivered extraordinary results.

Perfect well. Thank you everyone, we executed well in Q2 and delivered extraordinary results.

Krish Sankar: Well, now take our final question from Krish Sankar with PD Cowan, please go ahead. Yeah, thanks for doing my question. A quick one for Yvonne, based on the full year revenue guide, it looks like a fiscal portfolio revenue should be up, low single digit QOQ. I'm kind of curious what's driving the strength and at for curated F3Q is it ISG CSG seasonality any kind of color there will be helpful. So, so thanks for your question, Chris. In the fourth quarter, you know, we do have a seasonally strong storage, storage performance. And so we're expecting that again, again this year.

Speaker 12: Our model is driven by a unique set of competitive advantages, starting from our position of strength with a broad portfolio of number one positions.

Our model is driven by unique set of competitive advantage advantages starting from our position of strength with a broad portfolio of number one positions technologies largest go to market engine, the industry's leading supply chain and our world Class service organization.

Speaker 12: technology's largest go-to-market engine, the industry's leading supply chain, and our world-class service organization. We remain focused on extending our leadership positions across PCs, compute, storage, and applying our model to new opportunities.

We remained focus on extending our leadership positions across Pcs compute storage and applying our model to new opportunities Michael Ivana line will go into more detail of our strategy and other topics at our security analyst meeting on October 5th we hope to see all there. Thank.

Speaker 12: Michael, Avan, and I will go into more detail of our strategy and other topics at our security analyst meeting on October 5th. We hope to see you all there.

Thank you.

This concludes today's conference call. We appreciate your participation you may disconnect at this time.

Speaker 1: This concludes today's conference call. We appreciate your participation. You may disconnect at this time.

Yvonne McGill: So that's really what would be driving the differential in the fourth quarter.

Jeff Clarke: Well, perfect. Well, thank you, everyone. We executed well in Q2 and delivered extraordinary results. Our model is driven by a unique set of competitive advantage advantages, starting from our position of strength with a broad portfolio of number one positions. Technology's largest go to market engine, the industry's leading supply chain in our world class service organization. We may we remain focused on extending our leadership positions across PCs, compute, storage and applying our model to new opportunities.

Jeff Clarke: Michael of on and I will go into more detail of our strategy and other topics at our security analyst meeting on October the fifth. We hope to see you all there. Thank you.

Operator: This concludes today's conference call. We appreciate your participation. You may disconnect at this time.