Q2 2020 Earnings Call

August 29, 2019

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time, we're mindful that can be placed on musicals. Thank you for your patience.

Come to the fiscal year, 2022nd quarter financial results Conference call for Dell Technologies, Inc.

I'd like to inform all participants this call is being recorded at the request that they will technologies.

This broadcast is the copyrighted property of Dell Technologies, Inc.

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 anytime during the presentation.

Rob Williams: Thanks, Erica. Thanks for joining us. With me today are our Vice Chairman, Jeff Clarke; our CFO, Tom Sweet; and our Treasurer, Tyler Johnson. During this call, we will reference Non-GAAP financial measures including Non-GAAP revenue, gross margin, operating expenses, operating income, net income, EPS, EBITDA, adjusted EBITDA, and adjusted free cash flow. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Please also note that all growth percentages refer to year-over-year change unless otherwise specified. I want to mention that we will not be taking questions related to the Pivotal or Carbon Black transactions that VMware announced on 22 August. Finally, I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements based on current expectations.

I'd now like to turn the call over to Ralph Williams head of Investor Relations Mr. Williams you may begin.

Thanks, Erika and thanks for joining us.

With me today are Vice Chairman, John Paul Our CFO , Tom Suite, and our Treasurer Tyler Johnson.

During this call we were all things non-GAAP financial measures, including non-GAAP revenue gross margin operating expenses operating income net income area.

EBITDA adjusted EBITDA and adjusted free cash flow.

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

Please also note that all growth percentages refer to year over year change unless otherwise specified.

I want to mention that we will not be taking questions related to the pivotal or carbon black transactions. The BMR announced on August 22nd.

Rob Williams: 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. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff. Thanks, Rob. And thanks to all of you for joining us. Since we launched Dell Technologies, we have been consistent about our long-term view on global technology investment and what we have to do to realize this unprecedented opportunity. We have to innovate and integrate across the full Dell Technologies portfolio. Doing this creates the next generation of technology infrastructure that enables digital organizations operating in the data economy. We have to continue innovating within our business units to win the consolidation and generate cash. And of course, we have to do this with an eye towards the inevitable fluctuations in near-term demand.

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. We assume no obligation to update our forward-looking statements. Now I'll turn it over to Jeff. Thanks, Rob. And thanks to all of you for joining us. Since we launched Dell Technologies, we have been consistent about our long-term view on global technology investment and what we have to do to realize this unprecedented opportunity. We have to innovate and integrate across the full Dell Technologies portfolio. Doing this creates the next generation of technology infrastructure that enables digital organizations operating in the data economy. We have to continue innovating within our business units to win the consolidation and generate cash. And of course, we have to do this with an eye towards the inevitable fluctuations in near-term demand.

Finally, I'd like to remind you that all 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 disgusting or what that we assume no obligation to update our forward looking statements now I'll turn it over to John Thanks, Rob and thanks to all of you for joining us.

Since we launched Delta acknowledging we have been consistent about our long term view on global technology investment.

And what we have to do to realize this unprecedented opportunity.

We have to innovate and integrate across the full Dell technologies portfolio.

Doing this creates the next generation of technology infrastructure that enables digital organizations operating in the data economy.

We have to continue innovating within our business units to win the consolidations and generate cash.

And of course.

Rob Williams: Today, I would like to touch on each of these areas and share some of the progress we have made executing against our strategic priorities. To begin, let me emphasize the long-term drivers for our business remain intact. We are in the early stages of a technology-led investment cycle that is accelerating digital transformation. That investment cycle is fueled by the exponential increase in data and data-centric workloads that drive better business outcomes alongside an increasingly diverse and mobile workforce. But to realize these outcomes, customers are grappling with increasing complexity across their operating environments and infrastructure including data proliferation, multi-cloud management, security, new software architectures, application, artificial intelligence, and machine learning, all the while defining their approach to cloud and increasingly the edge and IoT. Take hybrid cloud as an example.

Today, I would like to touch on each of these areas and share some of the progress we have made executing against our strategic priorities. To begin, let me emphasize the long-term drivers for our business remain intact. We are in the early stages of a technology-led investment cycle that is accelerating digital transformation. That investment cycle is fueled by the exponential increase in data and data-centric workloads that drive better business outcomes alongside an increasingly diverse and mobile workforce. But to realize these outcomes, customers are grappling with increasing complexity across their operating environments and infrastructure including data proliferation, multi-cloud management, security, new software architectures, application, artificial intelligence, and machine learning, all the while defining their approach to cloud and increasingly the edge and IoT. Take hybrid cloud as an example.

We have to do this with an eye towards the inevitable fluctuations in near term demand.

Today.

I'd like to touch on each of these areas I'm sure. Some of the progress we have made executing against our strategic priorities.

To begin.

Let me emphasize the long term drivers for our business remain intact. We are in the early stages of the technology, let investment cycle that is accelerating digital transformation.

That investment cycle is fueled by the exponential increase in data.

And data Central work left data centric workloads that drive better business outcomes, alongside an increasingly diverse and mobile workforce.

But to realize these outcomes customers are grappling with increasing complexity across their operating environments and infrastructure, including.

Data proliferation, multi cloud management security.

New software architectures application artificial intelligence and machine learning.

All the while defining their approach to cloud and increasingly the edge and I T.

Rob Williams: Companies deploying hybrid cloud strategies want seamless compatibility, consistent infrastructure and operations across private clouds, public clouds, and the edge. We are optimistic about IT spending because customers need a partner to help them address these challenges, one who is innovating and delivering a comprehensive end-to-end IT strategy. In fact, the latest IDC forecast for IT spending through 2023 excluding telco backs up our optimistic view. IDC projects growth will be more than 2x real GDP or about 4.3% per year on average. So as I said, we believe the long-term drivers of our business are intact. This brings me to my second point. Dell Technologies is uniquely positioned to capitalize on this enormous opportunity. We have been hard at work innovating and integrating across the portfolio to deliver the future of technology infrastructure with solutions that dramatically simplify IT management.

Companies deploying hybrid cloud strategies want seamless compatibility, consistent infrastructure and operations across private clouds, public clouds, and the edge. We are optimistic about IT spending because customers need a partner to help them address these challenges, one who is innovating and delivering a comprehensive end-to-end IT strategy. In fact, the latest IDC forecast for IT spending through 2023 excluding telco backs up our optimistic view. IDC projects growth will be more than 2x real GDP or about 4.3% per year on average. So as I said, we believe the long-term drivers of our business are intact. This brings me to my second point. Dell Technologies is uniquely positioned to capitalize on this enormous opportunity. We have been hard at work innovating and integrating across the portfolio to deliver the future of technology infrastructure with solutions that dramatically simplify IT management.

Take hybrid cloud as an example.

Companies deploying hybrid cloud strategy is one seamless compatibility consistent consistent infrastructure and operations across private cloud public clouds.

And the edge.

We are optimistic about like Ti spending because customers need a partner to help them addresses. These challenges one who is innovating and delivering a comprehensive end to end.

Hi to strategy in fact, the latest ITC forecast.

For I.T. spending through 2023, excluding telco backs up our optimistic view.

I do see project growth will be more than two X real GDP or about 4.3% per year on average.

So as I said, we believe the long term drivers of our business are intact.

This brings me to my second point Delta technologies is uniquely positioned to capitalize on this enormous opportunity.

Rob Williams: Last quarter, we made major progress with the announcement of Dell Technologies Cloud and Unified Workspace. Interest remains high in our Dell Technologies Cloud platform, the easiest and fastest way to a consistent hybrid cloud experience. It brings together Dell EMC's VxRail hyper-converged infrastructure with VMware's Cloud Foundation software stack, offering customers a single, consistent platform for both traditional and cloud-native workloads with full automation and integration for hybrid and multi-cloud environments with consistent SLAs, tools, services, and management from VMware and Dell EMC. The customer pays subscription fees for as long as they use it the same way they pay for public cloud infrastructure. CapEx becomes OpEx.

Last quarter, we made major progress with the announcement of Dell Technologies Cloud and Unified Workspace. Interest remains high in our Dell Technologies Cloud platform, the easiest and fastest way to a consistent hybrid cloud experience. It brings together Dell EMC's VxRail hyper-converged infrastructure with VMware's Cloud Foundation software stack, offering customers a single, consistent platform for both traditional and cloud-native workloads with full automation and integration for hybrid and multi-cloud environments with consistent SLAs, tools, services, and management from VMware and Dell EMC. The customer pays subscription fees for as long as they use it the same way they pay for public cloud infrastructure. CapEx becomes OpEx.

We have been hard at work innovating in integrating across the portfolio to deliver the future of technology infrastructure. The solutions that dramatically simplify ITM management last quarter, we made major progress with the announcement of Dell technologies cloud and unified work space.

Interest remains high and our Dell technologies cloud platform, the easiest and fastest way to get into a consistent hybrid cloud experience that brings together Dell IBM sees VX real hyper converged infrastructure.

With Vmware Cloud Foundation software stack offering customers a single consistent platform for both traditional and cloud native workloads will full automation integration for hybrid and multi cloud environments.

With consistent escalation tools services and management from Vmware and going to see.

Rob Williams: Earlier this week at VMworld, we announced several other enhancements to our Dell Technologies Cloud offerings, including new validated designs for storage arrays and servers, initial availability of the industry's first fully managed on-premise data center as a service offering, and general availability of new pay-for-what-you-use flexible consumption models. In addition, we announced Dell Technologies Cloud platforms now support VMware Pivotal Container Service. With VMware's recent announcement of its intent to acquire Pivotal, our solutions and speed-to-market get even stronger. Pivotal further extends VMware's Kubernetes capabilities for building, running, managing modern applications on any cloud. Another powerful example of how we're innovating across Dell Technologies is Unified Workspace. The solution integrates capabilities across Dell devices and services, VMware, and Secureworks, and now includes Dell ProManage, managed services that integrate Dell's highly skilled experts as part of a customer's IT teams.

Earlier this week at VMworld, we announced several other enhancements to our Dell Technologies Cloud offerings, including new validated designs for storage arrays and servers, initial availability of the industry's first fully managed on-premise data center as a service offering, and general availability of new pay-for-what-you-use flexible consumption models. In addition, we announced Dell Technologies Cloud platforms now support VMware Pivotal Container Service. With VMware's recent announcement of its intent to acquire Pivotal, our solutions and speed-to-market get even stronger. Pivotal further extends VMware's Kubernetes capabilities for building, running, managing modern applications on any cloud. Another powerful example of how we're innovating across Dell Technologies is Unified Workspace. The solution integrates capabilities across Dell devices and services, VMware, and Secureworks, and now includes Dell ProManage, managed services that integrate Dell's highly skilled experts as part of a customer's IT teams.

The customer pay subscription fees for as long as they use it the same way they pay for public cloud infrastructure Capex becomes opex.

Earlier this week at Vmworld, we announced several other enhancements to our Dell technologies cloud offerings, including.

New validated designed for storage arrays and servers initial availability of the industry's first fully managed on premise data center as a service offerings.

General availability of new pay for what you use flexible consumption models. In addition, we announced Dell technologies cloud platforms now support Vmware pivotal container service.

And with Vmwares recent announcement of its intent to acquire pivotal our solutions and speed to market to get even stronger capital further extends VM worse kubernetes capabilities for building running managing modern applications on any cloud.

Another powerful example of how we're innovating across Dell technologies since unified workspace.

Rob Williams: Think about the IT investment cycle I mentioned earlier and the needs of the growing diverse and mobile workforce. Unified Workspace is an intelligent solution that tells you the specific devices and applications your workforce needs on their specific usage. Then it delivers those personalized devices directly to the end user, preconfigured and preloaded with all the applications and security features they need. IT never has to touch the device. With VMware's acquisition of Carbon Black, Unified Workspace will only improve with a comprehensive intrinsic security portfolio for the multi-cloud world and for modern applications and devices. As you can see, we are delivering on our promise to innovate across Dell Technologies to create the future of technology infrastructure from the cloud to the edge while dramatically simplifying the customer experience.

Think about the IT investment cycle I mentioned earlier and the needs of the growing diverse and mobile workforce. Unified Workspace is an intelligent solution that tells you the specific devices and applications your workforce needs on their specific usage. Then it delivers those personalized devices directly to the end user, preconfigured and preloaded with all the applications and security features they need. IT never has to touch the device. With VMware's acquisition of Carbon Black, Unified Workspace will only improve with a comprehensive intrinsic security portfolio for the multi-cloud world and for modern applications and devices. As you can see, we are delivering on our promise to innovate across Dell Technologies to create the future of technology infrastructure from the cloud to the edge while dramatically simplifying the customer experience.

The solution integrates capabilities across all devices and services Vmware and secure works and now includes dealt pro manage managed services that integrate delta highly skilled experts as part of their customers I cheat teams.

Thinking about the IP investment cycle, I mentioned earlier and the needs of the growing diverse and mobile workforce unified work spaces and intelligent solution that tells you the specific devices.

An applications your workforce needs on their specific usage.

Then it delivers those personalized devices directly to the end user preconfigured and pre loaded with all the applications and security features they need.

She never has to touch the device.

Well the Morris acquisition of carbon Black unified work space will only improve with a comprehensive intrinsic security portfolio for the multi cloud world and for modern applications and devices.

As you can see we are delivering on our promise to innovate across Dell technologies to create a future of technology infrastructure from the cloud to the edge, while dramatically simplifying the customer experience.

Rob Williams: This brings me to our next strategic priority which is all about what we are creating in our business units to drive and win in the consolidation, generate cash flow, and fuel innovation. We have the strongest solution set in our history with businesses that are consistently outperforming their competitors. In the data center, we are seeing significant traction from our new Unity XT mid-range storage solution. The strong acceptance of XT in the market gives us confidence as we ramp the solution and prepare to bring our next generation mid-range storage offering to the market. We are also seeing strong receptivity of our PowerProtect X400 and PowerProtect software. The X400 delivers next generation data management and protection in a software-defined scale-out appliance. It is highly complemented by our PowerProtect software offering that delivers data protection, deduplication, operation agility, self-service, and IT governance.

This brings me to our next strategic priority which is all about what we are creating in our business units to drive and win in the consolidation, generate cash flow, and fuel innovation. We have the strongest solution set in our history with businesses that are consistently outperforming their competitors. In the data center, we are seeing significant traction from our new Unity XT mid-range storage solution. The strong acceptance of XT in the market gives us confidence as we ramp the solution and prepare to bring our next generation mid-range storage offering to the market. We are also seeing strong receptivity of our PowerProtect X400 and PowerProtect software. The X400 delivers next generation data management and protection in a software-defined scale-out appliance. It is highly complemented by our PowerProtect software offering that delivers data protection, deduplication, operation agility, self-service, and IT governance.

And this brings me to our next strategic priority, which is all about what we are trading in our business units to drive and win in the consolidation generate cash flow and fuel innovation.

We have the strongest solution set in our history with businesses that are consistently outperforming their competitors and the data center, we are seeing significant traction from our new unity Eckstein mid range storage solution.

And the strong acceptance of equity in the market gives us confidence as we ramp the solution and prepare to bring our next generation mid range storage offerings to the market.

We're also seeing strong receptivity of our power protect X 400 and power protect software.

The X. 400 delivers next generation data management and protection and a software defined scale out appliance. It is highly complemented by our power protect software offerings that delivers data protection.

Duplications operation agility self service and governance.

Rob Williams: In Q2, VxRail orders grew 77% as organizations continue to benefit from its simple integration with VMware Cloud Foundation to enable hybrid cloud environments. It's just another example of how we are collaborating with VMware to bring another first and best solution to the marketplace. In client solutions, we introduce new XPS products with leading design and user experience including more powerful processing and applications matched with thinner and lighter designs like our new XPS 13 2-in-1. Our Dell Latitude 7400 2-in-1 continues to receive incredible praise from the media and customers alike with PCWorld deeming it a nearly perfect combination of power and battery life. It is the first commercial laptop with built-in sensing technology. Our teams are turning out the industry's best products and solutions executing on our priority to win the consolidation and generate cash flow. Which brings me to my final point.

In Q2, VxRail orders grew 77% as organizations continue to benefit from its simple integration with VMware Cloud Foundation to enable hybrid cloud environments. It's just another example of how we are collaborating with VMware to bring another first and best solution to the marketplace. In client solutions, we introduce new XPS products with leading design and user experience including more powerful processing and applications matched with thinner and lighter designs like our new XPS 13 2-in-1. Our Dell Latitude 7400 2-in-1 continues to receive incredible praise from the media and customers alike with PCWorld deeming it a nearly perfect combination of power and battery life. It is the first commercial laptop with built-in sensing technology. Our teams are turning out the industry's best products and solutions executing on our priority to win the consolidation and generate cash flow. Which brings me to my final point.

In Q2, the extra orders grew 77% as organizations continue to benefit from its simple integration with Vmware Cloud foundation to enable hybrid cloud environments.

It's just another example of how we are collaborating with Vmware to bring another first and best solution to the marketplace.

And client solutions, we introduced new xps products, a leading design and user experience, including more powerful processing applications matched the center and lighter designs that are new xps 13 to one one.

And our Dell latitude 70 402 in one continues to receive incredible praise from the media and customers alike with PC world deeming it and nearly perfect combination of power and battery life. It is the first commercial laptop with building since the built in sensing technology.

Our teams are turning out the industry's best products and solutions executing in our priority to win the consolidation and generate.

Cash flow.

Rob Williams: As we invest and innovate to capture on the enormous opportunity in front of us, we must remain disciplined and mindful of the near-term environment in which we operate in. So before I turn it over to Tom, let me shift gears to the current demand environment and our view on component cost. Our core Dell orders were up 4% excluding China, and we are seeing a clear split between enterprise infrastructure and PC spending globally. In enterprise infrastructure, the market is softer than we and the industry anticipated. We expect it to remain soft through the balance of the year, particularly in China. We feel really good about our ISG execution in Q2 given the market context. In the first half, we acquired approximately 21,000 ISG customers, up 11% from the prior year. More of our ISG customers are purchasing multiple lines of businesses.

As we invest and innovate to capture on the enormous opportunity in front of us, we must remain disciplined and mindful of the near-term environment in which we operate in. So before I turn it over to Tom, let me shift gears to the current demand environment and our view on component cost. Our core Dell orders were up 4% excluding China, and we are seeing a clear split between enterprise infrastructure and PC spending globally. In enterprise infrastructure, the market is softer than we and the industry anticipated. We expect it to remain soft through the balance of the year, particularly in China. We feel really good about our ISG execution in Q2 given the market context. In the first half, we acquired approximately 21,000 ISG customers, up 11% from the prior year. More of our ISG customers are purchasing multiple lines of businesses.

Which brings me to my final point, as we invest and innovate to capture on the enormous opportunity in front of US we must remain disciplined and mindful of the near term environment in which we operate in so before I turn it over to Tom Let me shift gears to the current demand environment and our view on component costs.

Our core del orders were up 4%, excluding China and we are seeing a clear were split between enterprise infrastructure and PC spending globally.

And enterprise infrastructure, the market is softer than we and the industry anticipated we expect it to remain soft through the balance of the year, particularly in China, We feel really good about our eyes Gi execution in Q2, given the market context than the first half we acquired approximately 21000 EISG customers up 11% from the prior year.

And more of our IC customers are purchasing multiple lines of businesses.

Rob Williams: Our storage business remains healthy in Q2 with orders up 1% and first-half orders up 4%. Our sales team remain optimistic about our portfolio and positioning as we head into the second half of the year. Turning to servers, the industry saw unprecedented growth last year, and many customers are still digesting their CapEx investments. We are balancing revenue and profitability as we navigate through the current server dynamics. Our Q2 server revenue declined, but we realized higher margin dollars as we were consciously more selective on large, low-margin deals in all geographies. Outside of China, our server orders were up 1%, and we expect to gain share this quarter in North America and EMEA when IDC publishes its results next week. Our server ASPs remain strong, up high single digits as customers are increasingly buying higher-end systems to support their high-value workloads.

Our storage business remains healthy in Q2 with orders up 1% and first-half orders up 4%. Our sales team remain optimistic about our portfolio and positioning as we head into the second half of the year. Turning to servers, the industry saw unprecedented growth last year, and many customers are still digesting their CapEx investments. We are balancing revenue and profitability as we navigate through the current server dynamics. Our Q2 server revenue declined, but we realized higher margin dollars as we were consciously more selective on large, low-margin deals in all geographies. Outside of China, our server orders were up 1%, and we expect to gain share this quarter in North America and EMEA when IDC publishes its results next week. Our server ASPs remain strong, up high single digits as customers are increasingly buying higher-end systems to support their high-value workloads.

Our storage business remains healthy in Q2 with orders up 1% and first half orders up 4% our sales team remain optimistic about our portfolio and positioning as we head into the second half of the year.

Turning to servers.

The industry saw unprecedented growth last year and many customers are still digesting their capex investments.

We are balancing revenue and profitability as we navigate through the current server dynamics.

Our Q2 server revenue decline, but we realized higher margin dollars as we were consciously more selective on large low margin deals in all geographies.

Outside of China, Our server orders were up 1% and we expect to gain share this quarter in North America and EMEA when ITC publishes results next week.

Rob Williams: In Q2, CSG delivered record performance driven by strong execution, the Win10 refresh, and a declining component cost environment. Longer term, we expect to continue to drive share gains through innovation and execution as the industry continues to consolidate among the top vendors. We will continue to focus on commercial, high-end consumer, and gaming as well as increasing our attach of services, financing, and software and peripherals. In the supply chain, we expect the component cost environment to remain deflationary in aggregate through at least the end of the year. Though it's important to note, we expect the decline to significantly slow down in the second half measured against the first half. This quarter, we clearly benefited from the strength of our broad IT solutions portfolio, which helped us deliver strong results amid short-term market volatility.

In Q2, CSG delivered record performance driven by strong execution, the Win10 refresh, and a declining component cost environment. Longer term, we expect to continue to drive share gains through innovation and execution as the industry continues to consolidate among the top vendors. We will continue to focus on commercial, high-end consumer, and gaming as well as increasing our attach of services, financing, and software and peripherals. In the supply chain, we expect the component cost environment to remain deflationary in aggregate through at least the end of the year. Though it's important to note, we expect the decline to significantly slow down in the second half measured against the first half. This quarter, we clearly benefited from the strength of our broad IT solutions portfolio, which helped us deliver strong results amid short-term market volatility.

Our server Asps remained strong up high single digits as customers are increasingly by a high buying higher end systems support for high high value workloads.

In Q2, CSG delivered record performance driven by strong execution, so when 10 refresh and a declining component cost environment longer term, we expect to continue to drive share gains through innovation and execution as the industry continues to consolidate among the top vendors.

We will continue to focus on commercial high end consumer end gaming as well as increasing our attach of services financing and software and peripherals.

And the supply chain, we expect the component cost environment to remain deflationary in aggregate through at least the end of the year.

So it's important to note, we expect a decline to significantly slowdown in the second half measured against the first half.

Rob Williams: While we saw soft spending in pockets of the marketplace, our overall performance in Q2 reflected our competitive advantage. In the second half, you should expect us to continue to balance growth and profitability but with a slightly higher bias towards maintaining growth at the portfolio level. We have built a business to be successful in any environment. We are differentiated by our broad portfolio in the industry with leading solutions, our direct model including services and financing, and our world-class supply chain with its size and scale. Whether the market expands or declines, we expect to outperform the industry. So to recap, we believe strongly that our long-term growth drivers are intact. We are innovating across the portfolio to create the infrastructure for the digital future.

While we saw soft spending in pockets of the marketplace, our overall performance in Q2 reflected our competitive advantage. In the second half, you should expect us to continue to balance growth and profitability but with a slightly higher bias towards maintaining growth at the portfolio level. We have built a business to be successful in any environment. We are differentiated by our broad portfolio in the industry with leading solutions, our direct model including services and financing, and our world-class supply chain with its size and scale. Whether the market expands or declines, we expect to outperform the industry. So to recap, we believe strongly that our long-term growth drivers are intact. We are innovating across the portfolio to create the infrastructure for the digital future.

This quarter, we clearly benefited from the strength of our broad I T solutions portfolio, which helped us deliver strong results amid short term market volatility.

While we saw spit soft spending in pockets of the marketplace. Our overall performance in Q2 reflected our competitive advantage in the second half you should expect us to continue to balance growth and profitability, but with a slightly higher biased towards maintaining growth at the portfolio level.

We have built a business to be successful in any environment. We are differentiated by our broad portfolio in the industry with leading solutions, our direct model, including services and financing and our world class supply chain is that size and scale, whether the market expands our declines we expect outperform the industry.

So to recap we believe strongly that our long term growth drivers are intact.

Rob Williams: We are investing and innovating to win the consolidation, and we are mindful of the near-term environment, and we are confident we can outperform. Ultimately, it's all about the customer, and no one is better positioned than Dell Technologies to be our customer's best, most trusted partner on their digital transformation journey. With that, I'll turn it over to Tom to talk about our Q2 results.

We are investing and innovating to win the consolidation, and we are mindful of the near-term environment, and we are confident we can outperform. Ultimately, it's all about the customer, and no one is better positioned than Dell Technologies to be our customer's best, most trusted partner on their digital transformation journey. With that, I'll turn it over to Tom to talk about our Q2 results.

We are innovating across the portfolio to create the infrastructure for the digital future, we are investing and innovating to win the consolidation and we are mindful of the near term environment and we are confident we can outperform.

Ultimately, it's all about the customer and no one is better positioned than Dell technologies to be our customers best most trusted partner on their digital transformation journey.

Tom Sweet: Thanks, Jeff. Our model is focused on long-term profitable growth with the ability to adjust as needed based on market conditions. We are focused on growing faster than competitors in the industry, growing operating income and EPS faster than revenue, and generating strong cash flow over time. We executed well against these priorities again in Q2 as we balanced revenue and profitability with market conditions. While we saw a softer enterprise IT market this quarter, we continued to benefit from having the industry's broadest portfolio of solutions. Revenue was $23.5 billion, up 1%, with core orders revenue up 4% excluding China. Our deferred revenue balance increased to $25.3 billion, up 17%. FX remained a headwind this quarter impacting year-over-year growth rates by approximately 150 basis points.

With that I'll turn it over to Tom to talk about our Q2 results.

Thanks, Jeff our model is focused on long term profitable growth with the ability to adjust it as needed based on market conditions, we are focused on growing faster than competitors in the industry.

Growing operating income and EPS faster than revenue generating strong cash flow over time.

We executed well against these priorities again in Q2, as we balanced revenue and profitability with market conditions.

Well, we saw a softer enterprise side to market. This quarter, we continued to benefit from having the industry's broadest portfolio of solutions.

Revenue was 23.5 billion up 1% with core orders revenue up 4% excluding China.

And our deferred revenue balance increased to 25.3 billion up 17%.

Tom Sweet: Gross margin was up 13% to $8 billion and was 34% of revenue, up 340 basis points driven by lower component cost and pricing discipline. Operating expenses were $5.2 billion, up 6% due in part to investments we have made in sales coverage to expand our buyer base. In the quarter, new enterprise and commercial customer acquisitions were up over 10% from the prior year. Over the last six quarters, approximately 80% of our top 30,000 customers have purchased four or more lines of business from us. We are pleased with our operating income which was up 30% to $2.7 billion or 11.7% of revenue. Our EPS was $2.15 benefiting from strong operating profitability and a lower tax rate in the quarter due to revenue mix. Adjusted EBITDA was $3.2 billion or 13.5% of revenue and $11.2 billion on a trailing 12-month basis.

Gross margin was up 13% to $8 billion and was 34% of revenue, up 340 basis points driven by lower component cost and pricing discipline. Operating expenses were $5.2 billion, up 6% due in part to investments we have made in sales coverage to expand our buyer base. In the quarter, new enterprise and commercial customer acquisitions were up over 10% from the prior year. Over the last six quarters, approximately 80% of our top 30,000 customers have purchased four or more lines of business from us. We are pleased with our operating income which was up 30% to $2.7 billion or 11.7% of revenue. Our EPS was $2.15 benefiting from strong operating profitability and a lower tax rate in the quarter due to revenue mix. Adjusted EBITDA was $3.2 billion or 13.5% of revenue and $11.2 billion on a trailing 12-month basis.

FX remained a headwind this quarter impacting year over year growth rates by approximately a 150 basis points.

Gross margin was up 13% to 8 billion.

It was 34% of revenue up 340 basis points, driven by lower component cost and pricing discipline.

Operating expenses were $5.2 billion up 6% due in part to investments we have made in sales coverage to expand or buyer base.

In the quarter, New enterprise commercial customer acquisitions were up over 10% from the prior year.

And over the last six quarters, approximately 80% of our top 30000 customers have purchased for more lines of business from us.

We are pleased with our operating income, which was up 30% to 2.7 billion.

Or 11.7% of revenue.

Tom Sweet: We had a record cash flow quarter generating $3.4 billion of Adjusted Free Cash Flow driven by strong profitability and working capital discipline. Some of our working capital benefit came from reduced inventory as we are working through the supply chain dynamics that impacted cash flow last year. We also saw deferred revenue increase 17% to $25.3 billion, with recurring revenue now making up 20% to 25% of our revenue each quarter. Our services and software businesses continue to grow as we expand the portfolios, adding revenue and cash flow stability and predictability. We repaid approximately $2 billion of gross debt in the quarter and $2.4 billion year to date, and we are well positioned to repay approximately $5 billion of gross debt in total in fiscal year 2020. We have now paid down $17 billion of gross debt since the EMC merger.

We had a record cash flow quarter generating $3.4 billion of Adjusted Free Cash Flow driven by strong profitability and working capital discipline. Some of our working capital benefit came from reduced inventory as we are working through the supply chain dynamics that impacted cash flow last year. We also saw deferred revenue increase 17% to $25.3 billion, with recurring revenue now making up 20% to 25% of our revenue each quarter. Our services and software businesses continue to grow as we expand the portfolios, adding revenue and cash flow stability and predictability. We repaid approximately $2 billion of gross debt in the quarter and $2.4 billion year to date, and we are well positioned to repay approximately $5 billion of gross debt in total in fiscal year 2020. We have now paid down $17 billion of gross debt since the EMC merger.

Our EPS was $2.15 benefiting from strong operating profitability and a lower tax rate in the quarter due to revenue mix. Adjusted EBITDA was 3.2 billion or 13.5% of revenue and 11.2 billion on a trailing 12 month basis.

We had a record cash flow quarter generating 3.4 billion of adjusted free cash flow driven by strong profitability and working capital discipline.

Some of our working capital benefit came from reduced inventory as we are working through the supply chain dynamics that impacted cash flow last year.

We also saw deferred revenue increased 17% to 25.3 billion with recurring revenue now, making up 2020, 5% of our revenue each quarter.

Our services and software businesses continue to grow as we expand the portfolios.

Eddie revenue and cash flow stability and predictability.

We repaid approximately $2 billion of gross debt in the quarter and 2.4 billion year to date, and we are well positioned to repay approximately $5 billion of gross debt in total in fiscal year 2000, we have now paid down.

Tom Sweet: Shifting to our business unit results, ISG revenue was $8.6 billion, down 7%. Storage revenue is flat at $4.2 billion. As Jeff mentioned, orders were up 1% driven by strength in Isilon and our industry-leading HCI solutions. We are seeing strong receptivity for our new Unity XT solution in the mid-range, and we continue to press on growth levers within the broadest and most diverse portfolio in the industry. Servers and networking revenue was $4.4 billion, down 12%. The global server market remains softer than anticipated coming into the year and has affected our server growth. The impact to our business was most pronounced in China again this quarter, where we were more selective on larger deals and focused on building sustainable long-term customer relationships. ISG operating income was $1.1 billion or 12.2% of revenue.

Shifting to our business unit results, ISG revenue was $8.6 billion, down 7%. Storage revenue is flat at $4.2 billion. As Jeff mentioned, orders were up 1% driven by strength in Isilon and our industry-leading HCI solutions. We are seeing strong receptivity for our new Unity XT solution in the mid-range, and we continue to press on growth levers within the broadest and most diverse portfolio in the industry. Servers and networking revenue was $4.4 billion, down 12%. The global server market remains softer than anticipated coming into the year and has affected our server growth. The impact to our business was most pronounced in China again this quarter, where we were more selective on larger deals and focused on building sustainable long-term customer relationships. ISG operating income was $1.1 billion or 12.2% of revenue.

Orders were up 1% driven by strength in Iceland, and our industry, leading HCM solutions.

We're seeing strong receptivity for our new Unity X T solution in the mid range.

And we continue to press on growth levers within the broadest and most diverse portfolio in the industry.

Servers, and networking revenue was $4.4 billion down 12%.

The global server market remained softer than anticipated coming into the year and has affected our server growth.

The impact to our business was most pronounced in China again, this quarter, where we were more selective on larger deals and focused on building sustainable long term customer relationships.

Iced tea operating income was 1.1 billion or 12.2% of revenue.

Tom Sweet: Operating income percentage was up 120 basis points largely due to our business and geography mix as well as pricing discipline. Our VMware business unit had another good quarter with revenue of $2.5 billion, up 12%. Operating income was $762 million or 30.9% of revenue. Based on VMware standalone results reported last week, VMware's growth in total revenue plus the sequential change in total unearned revenue was 17%. Core software-defined data center license bookings grew in the high single digits. NSX license bookings were up over 30%, and vSAN license bookings grew over 45%. CSG delivered record revenue in units with strong profitability in Q2. Revenue was $11.7 billion, up 6%. Within CSG, commercial revenue was $9.1 billion, up 12% driven by double-digit growth in commercial notebooks, desktops, and workstations.

Operating income percentage was up 120 basis points largely due to our business and geography mix as well as pricing discipline. Our VMware business unit had another good quarter with revenue of $2.5 billion, up 12%. Operating income was $762 million or 30.9% of revenue. Based on VMware standalone results reported last week, VMware's growth in total revenue plus the sequential change in total unearned revenue was 17%. Core software-defined data center license bookings grew in the high single digits. NSX license bookings were up over 30%, and vSAN license bookings grew over 45%. CSG delivered record revenue in units with strong profitability in Q2. Revenue was $11.7 billion, up 6%. Within CSG, commercial revenue was $9.1 billion, up 12% driven by double-digit growth in commercial notebooks, desktops, and workstations.

Operating income percentage was up 120 basis points, largely due to our business and geography mix as well as pricing discipline.

Our Viom, where business unit had another good quarter with revenue of 2.5 billion up 12% operating income was 762 million or 30.9% of revenue.

Based on Vmware Standalone results reported last week.

Demers growth in total revenue plus the sequential change in total unearned revenue was 17%.

Core software defined data center license bookings grew in the high single digits in at X license bookings were up over 30% in VCM license bookings grew over 45%.

CSG delivered record revenue and units with strong profitability in Q2.

Tom Sweet: Consumer revenue was $2.7 billion, down 12% as we continue to prioritize commercial mix in the higher end of consumer PCs. We saw strong profitability in CSG this quarter due to component cost declines, commercial consumer mix, and pricing discipline. CSG operating income was $982 million or 8.4% of revenue. Going forward, you'll continue to see us balance revenue and profitability against market dynamics. Dell Financial Services originations were $2 billion, up 3%. We did record a non-cash charge of $619 million or $524 million net of tax benefits after a strategic review of our Virtustream business. We remain committed to serving our customers as we reposition the business. Turning to our balance sheet and capital structure, we grew cash and investments in the quarter to approximately $10 billion even after the Q2 debt paydown of $2 billion.

Consumer revenue was $2.7 billion, down 12% as we continue to prioritize commercial mix in the higher end of consumer PCs. We saw strong profitability in CSG this quarter due to component cost declines, commercial consumer mix, and pricing discipline. CSG operating income was $982 million or 8.4% of revenue. Going forward, you'll continue to see us balance revenue and profitability against market dynamics. Dell Financial Services originations were $2 billion, up 3%. We did record a non-cash charge of $619 million or $524 million net of tax benefits after a strategic review of our Virtustream business. We remain committed to serving our customers as we reposition the business. Turning to our balance sheet and capital structure, we grew cash and investments in the quarter to approximately $10 billion even after the Q2 debt paydown of $2 billion.

Revenue was $11.7 billion up 6% within CSG commercial revenue was 9.1 billion up 12% driven by double digit growth in commercial notebooks desktops and workstations.

Consumer revenue was $2.7 billion down 12% as we continue to prioritize commercial mix and the higher end of consumer Pcs.

We saw strong profitability in CSG this quarter due to component cost declines commercial consumer mix and pricing discipline.

CSG operating income was $982 million or 8.4% of revenue.

Going forward year continued to see us.

Balanced revenue and profitability against market dynamics.

Del financial services originations were $2 billion up 3%.

We did record a noncash charge of $619 million or $524 million net of tax benefits. After a strategic review of our Virtustream business, we remain committed to serving our customers as we reposition the business.

Turning to our balance sheet and capital structure, we grew cash and investments in the quarter to approximately $10 billion, even after the Q2 debt paydown of $2 billion.

Tom Sweet: Our core debt balance ended the quarter at $36.4 billion, down over $12 billion since the EMC acquisition. Net core debt ended Q2 at $30.5 billion. Please see slide 14 in our web deck for more details. We are focused on maximizing free cash flow, and our capital allocation strategy remains unchanged. We are committed to reducing leverage and achieving investment-grade ratings. Given our recent debt paydown and refinancing activity, we have only $2.3 billion due in the next 18 months excluding VMware. We will continue to look for additional opportunities to smooth our debt maturity profile and optimize our capital structure. We will maintain pricing discipline as we move into the back half of the year while adjusting as appropriate given market and competitive dynamics. We are still monitoring the macroeconomic and IT spending environments as well as ongoing trade discussions between the US and China.

Our core debt balance ended the quarter at $36.4 billion, down over $12 billion since the EMC acquisition. Net core debt ended Q2 at $30.5 billion. Please see slide 14 in our web deck for more details. We are focused on maximizing free cash flow, and our capital allocation strategy remains unchanged. We are committed to reducing leverage and achieving investment-grade ratings. Given our recent debt paydown and refinancing activity, we have only $2.3 billion due in the next 18 months excluding VMware. We will continue to look for additional opportunities to smooth our debt maturity profile and optimize our capital structure. We will maintain pricing discipline as we move into the back half of the year while adjusting as appropriate given market and competitive dynamics. We are still monitoring the macroeconomic and IT spending environments as well as ongoing trade discussions between the US and China.

Our core debt balance ended the quarter at $36.4 billion down over 12 billion since the DMC acquisition and net core debt ended Q2 at 30.5 billion.

Please see slide 14 in our web deck for more details we are focused on maximizing free cash flow and our capital allocation strategy remains unchanged.

We are committed to reducing leverage and achieving investment grade ratings.

Given our recent debt pay down and refinancing activity, we have only $2.3 billion due in the next 18 months excluding Vmware.

And we will continue to look for additional opportunities to smooth our debt maturity profile and optimize our capital structure.

We will maintain pricing discipline as we move into the back half of the year, well adjusting is appropriate given market and competitive dynamics.

We're still monitoring the macroeconomic and it spending environment as well as ongoing trade discussions between the use in China.

Tom Sweet: Moving to guidance, based on Q2 results and our current expectations for the balance of the year and excluding the impact of VMware's Pivotal and Carbon Black acquisitions, we now expect fiscal year 2020 GAAP revenue of $92.7 to 94.2 billion, operating income of $2.9 to 3.3 billion, and EPS of $5.45 to $5.90. We are narrowing our non-GAAP revenue range for the current fiscal year to $93 to 94.5 billion. Due to our strong profitability in the first half of the year, we are increasing our non-GAAP operating income guidance range to $9.8 to 10.2 billion and increasing our non-GAAP EPS guidance range to $6.95 to $7.40. We expect our non-GAAP tax rate to be 16% ± 100 basis points. In closing, we are well positioned.

Moving to guidance, based on Q2 results and our current expectations for the balance of the year and excluding the impact of VMware's Pivotal and Carbon Black acquisitions, we now expect fiscal year 2020 GAAP revenue of $92.7 to 94.2 billion, operating income of $2.9 to 3.3 billion, and EPS of $5.45 to $5.90. We are narrowing our non-GAAP revenue range for the current fiscal year to $93 to 94.5 billion. Due to our strong profitability in the first half of the year, we are increasing our non-GAAP operating income guidance range to $9.8 to 10.2 billion and increasing our non-GAAP EPS guidance range to $6.95 to $7.40. We expect our non-GAAP tax rate to be 16% ± 100 basis points. In closing, we are well positioned.

Moving to guidance based on Q2 results and our current expectations for the balance of the year and excluding the impact of Vmwares pivotal and carbon black acquisitions. We now expect fiscal year 20, GAAP revenue of $92.7 billion to $94.2 billion.

Operating income of $2.9 billion to $3.3 billion in EPS of $5.45 to $5.90.

We are narrowing our non-GAAP revenue range from for the current fiscal year to $93 billion to $94.5 billion due to our strong profitability in the first half of the year, we are increasing our non-GAAP operating income guidance range to $9.8 billion to $10.2 billion and increasing our non-GAAP EPS guidance guidance range to $6.95 to $7.40.

We expect our non-GAAP tax rate to be 16%, plus or minus 100 basis points.

Tom Sweet: We are innovating to drive growth and future value, and we are driving the core for share gain and cash flow. We have one of the industry's strongest and most comprehensive portfolios, its largest direct sales force, and a world-class supply chain with size and scale. We are focused on enabling our customer's digital future. With that, I'll turn it back to Rob to begin Q&A. Thanks, Tom. Let's get to Q&A. We ask that each participant ask one question to allow us to get to as many of you as possible. Erica, could you please introduce the first participant?

We are innovating to drive growth and future value, and we are driving the core for share gain and cash flow. We have one of the industry's strongest and most comprehensive portfolios, its largest direct sales force, and a world-class supply chain with size and scale. We are focused on enabling our customer's digital future. With that, I'll turn it back to Rob to begin Q&A. Thanks, Tom. Let's get to Q&A. We ask that each participant ask one question to allow us to get to as many of you as possible. Erica, could you please introduce the first participant?

In closing we are well positioned we are innovating to drive growth and future value and we are driving the core for share gain in cash flow. We have one of the industry's strongest and most comprehensive portfolios. Its largest direct sales force and a world class supply chain with size and scale and we are focused on enabling our customers' digital future with that I'll turn it back to Rob to begin QNX.

Thanks, Tom let's get to Q on AG, we ask that each participant ask one question to allow us to get to as many as you as possible Erica could you. Please introduce the first purchase.

Operator: We'll take our first question from Katy Huberty with J.P. Morgan.

Well take our first question from Katy Huberty with Jpmorgan.

Rob Williams: Thank you. Good afternoon. You mentioned a bias towards growth in the second half of the year. Does that imply that you expect to pass through more of the lower memory prices into the next couple of quarters? And if so, which segments of your business would you expect to see the most price elasticity?

Katy Huberty: Thank you. Good afternoon. You mentioned a bias towards growth in the second half of the year. Does that imply that you expect to pass through more of the lower memory prices into the next couple of quarters? And if so, which segments of your business would you expect to see the most price elasticity?

Thank you. Good afternoon, you mentioned a bias toward growth in the second half of the year or does it.

Imply that you expect to pass through more more of the lower memory prices into the next couple of quarters, and if so which segments of your business would you expect to see the most price elasticity.

Tom Sweet: Hey, Katy. It's Tom. So look, I mean, what we were trying to signal there is that as we think about the business and the business velocity which we'd like to ramp in business velocity during the quarter, we are starting to as we think about cost trends and the deflationary cycle that we're seeing which is slowing, we do expect that we'll pass, particularly in some of the server space, probably have to pass more of those cost declines through. And in fact, we are seeing a little bit more aggressiveness in some of those large enterprise and large deals that we mentioned in the first quarter. So the bias towards growth was really directed at trying to make sure we're a company that drives on scale. We're going to be balanced in the back half of the year.

Hey, Katy it's Tom So look I mean, what we were trying to signal there is that as we think about the business and the business velocity, which we which we like the ramp and business philosophy during the quarter.

We are starting to see.

As we think about cost trends in the deflationary cycle that we're seeing which is slowing.

We do expect that will pass, particularly in some of the.

Server space, probably have to pass more of those cost declines through and in fact, we are seeing.

A little bit more aggressiveness and some of those large enterprise and large deals that we that we mentioned in the first quarter. So you don't have a bias towards growth was really directed at.

Tom Sweet: But I do think that from the dynamics that we're seeing right now, that I would expect that we're going to see a bit more pricing aggressiveness in the back half. And I would probably point towards servers. I think we feel good about where the client business is and the storage business is from a pricing perspective. But I think servers may have some pressure points.

But I do think that from the dynamics that we're seeing right now, that I would expect that we're going to see a bit more pricing aggressiveness in the back half. And I would probably point towards servers. I think we feel good about where the client business is and the storage business is from a pricing perspective. But I think servers may have some pressure points.

Trying to make sure we're a company that drives on to drives on scale, we're going to be balanced in the back half of the year, but.

I do think that.

From the.

The dynamics that we're seeing right now that I would expect that we're going to see a bit more pricing aggressiveness in the back half and I would probably point towards servers I think we feel good about where the client businesses in the storage businesses from a pricing perspective, but I think servers may have some pressure points.

Operator: Thank you. That's very helpful.

Katy Huberty: Thank you. That's very helpful.

Jeff Clarke: I would add to that. We've certainly spent much of the first half of the year in servers keeping our product line in our traditional price position. We're going to continue to price the product lines going forward to do that. As Tom said, that's going to be our bias towards growth. I think the other thing that we're signaling and we mentioned a couple of times is the fuel of that, the commodity deflation, substantially slows in the second half. We have to watch that. We're going to have a slight bias towards growth keeping our eye on profitability in both of the businesses.

Thank you that's very helpful.

I would add to that we certainly spent much of the first half of the year and servers, keeping our product line and our traditional price position.

And we're going to continue to price the product lines going forward to do that and as Tom said.

That's going to be our bias towards growth and I think the other thing that we're signaling and we've mentioned a couple of times is the fuel of that.

Commodity deflation substantially slows in the second half so we have to watch that but we're going to have a slight bias towards growth keeping our eye on profitability and both of the businesses.

Tom Sweet: All right. Thanks, Katy.

All right. Thanks, guys.

Operator: Our next question is from Rod Hall with Goldman Sachs.

Our next question is from Rod Hall with Goldman Sachs.

[Analyst] (Goldman Sachs): Yeah. Hi, guys. Thank you for the question. I wanted to ask about the trajectory of demand and where you guys have seen weakness, where you've seen strength. When we look at other companies that have reported in enterprise, we've seen a pattern of weakness in large enterprises that seems to have developed in, let's say, the June timeframe. And so I'm wondering whether that has been the same for you and whether you've seen that continue to weaken or you think it's stabilized. And then I'd also love to get a comment on small and medium businesses. Those seem to have been more stable. And I'm wondering if you could just confirm that that's also what you're seeing. Thanks.

Rod Hall: Yeah. Hi, guys. Thank you for the question. I wanted to ask about the trajectory of demand and where you guys have seen weakness, where you've seen strength. When we look at other companies that have reported in enterprise, we've seen a pattern of weakness in large enterprises that seems to have developed in, let's say, the June timeframe. And so I'm wondering whether that has been the same for you and whether you've seen that continue to weaken or you think it's stabilized. And then I'd also love to get a comment on small and medium businesses. Those seem to have been more stable. And I'm wondering if you could just confirm that that's also what you're seeing. Thanks.

Yes, hi, guys. Thank you for the question I wanted to ask about the trajectory of demand and where you guys have seen weakness where you've seen strength.

When we look at other companies that have reported an enterprise we've seen a pattern of weakness in large enterprises that seems to have developed in let's say the June timeframe.

And so I'm wondering whether that has been the same for you and whether youve seen that continue to weaken or you think it's stabilized and then I'd also love to get a comment on small and medium businesses those seem to be have been more stable and I'm wondering if you could just confirm that thats also what you're seeing thanks.

Jeff Clarke: Sure, Rod. Jeff here. When I look at the server business in particular, the softness that we have seen, and we actually talked about it last quarter as well, is in large bids and in China. So those large enterprise bids that you mentioned, we continue to see softness there as well as in China. In fact, if you were to look at our server business excluding China, we actually had growth. Our business was up 1% in orders. We continue to see that pressure in the second half of the year. Tom alluded to just moments ago about the price aggressiveness that we think is turning up in the second half in those large orders, those large enterprise accounts. So I think that's consistent with what you've seen. And then on MB and SB, we continue to see that business perform.

Sure Rod just here when I look at the server business in particular, the softness that we've seen and we actually talked about it last quarter as well as in large bids and in China.

So those large enterprise bids that you mentioned, we continue to see softness there in China as well as in China. In fact, if you were to look at our server business. Excluding China. We were actually had growth our business is up 1% in orders.

We continue to see that pressure in the second half of the year, Tom alluded to just moments ago about the price of oil price aggressiveness that we think is turning up in the second half and those large orders those large enterprise accounts. So I think that's consistent with what you've seen.

And then on and BNS being we continue to see that business perform.

Jeff Clarke: We don't break out the segment performance of the businesses, but it's been an area of growth for us. We'll continue, I think, see that going forward.

We don't break out the segment performance of the businesses, but it's been an area of growth for us. We'll continue, I think, see that going forward.

We don't break out the segment performance of the businesses, but it's been an area of growth for us and will continue I think see that going forward.

[Analyst] (Goldman Sachs): Great. Thanks, Jeff.

Rod Hall: Great. Thanks, Jeff.

Great. Thanks, Jeff that.

Operator: Our next question is from Toni Sacconaghi with AllianceBernstein.

Our next question is from Toni Sacconaghi with Alliance Bernstein.

Tom Sweet: Yes. Thank you. I'm wondering, given your significant overage in operating profit year to date, why you wouldn't look to pay down more debt this year? I think your target was 4 rate. You mentioned close to 5, which sounds pretty similar. But perhaps you can give us an updated view on what you think operating income will be for the year and why you wouldn't want to more aggressively pay down debt?

Toni Sacconaghi: Yes. Thank you. I'm wondering, given your significant overage in operating profit year to date, why you wouldn't look to pay down more debt this year? I think your target was 4 rate. You mentioned close to 5, which sounds pretty similar. But perhaps you can give us an updated view on what you think operating income will be for the year and why you wouldn't want to more aggressively pay down debt?

Yes. Thank you.

I'm wondering.

Given your significant overage in operating profit year to date.

Why you wouldn't look to pay down more debt. This year I think your target was for Ray you mentioned close to five which sounds pretty similar.

But perhaps you can give us an updated view on what you think operating income will be for the year.

And why you wouldn't want to more aggressively pay down debt.

Tom Sweet: Hey, Toni. It's Tom. Let me start. And then I'll let Tyler talk a little bit about our debt plans. And look, I mean, the guidance we gave clearly upped the range around operating income given the overperformance in the first half. We did end the quarter at $10 billion of cash, of which $6 billion of that you should think about as core. So look, I mean, I think we're going to have some flexibility if all things hold like we think it does to take a look at that as we go through the year. Right now, as we look at the maturity stacks that we're planning on addressing, I think we feel good about the 5. We'll have to see how the rest of the year unfolds and whether we would commit to doing anything more than that. Tyler, I don't know if you would add anything.

Hey, Tony It's Tom Let me start and then I'll, let Tyler talk a little bit about our plans and look I mean, the guidance, we gave clearly up the range around.

Operating income given the over performance in the first half.

We are we did in the quarter that $10 billion of cash of which six up 6 billion of that uses about as core. So look I mean, I think we're going to have some flexibility if all things like that.

Just to take a look at that as we go through the year.

Right now as we look at the maturity stacks that reform on addressing I think we feel good about.

We'll have to see what we where we how the rest of the year unfold and whether we will.

Jeff Clarke: No. I think you said it. I mean, the debt paydown remains a priority. So we'll continue to focus on that. We'll see how cash continues to come in for the remainder of the year, but feel very confident about the $5 billion we talked about. So making clearly good progress, Rod. I mean, if you look at our leverage ratios, we improved about a half a turn going from the end of last year to where we are now. So making great progress.

Tyler Johnson: No. I think you said it. I mean, the debt paydown remains a priority. So we'll continue to focus on that. We'll see how cash continues to come in for the remainder of the year, but feel very confident about the $5 billion we talked about. So making clearly good progress, Rod. I mean, if you look at our leverage ratios, we improved about a half a turn going from the end of last year to where we are now. So making great progress.

More than that Tyler I don't know if you would add anything no I think you said it I mean, the debt Paydown remains a priority. So we will continue to focus on that we'll see our cash continues to come in for the remainder of the year, but feel very confident about the 5 billion, we talked about so making really good progress. If you look at our leverage ratios fleeing we improved about a half a turn going from the end of last year to where we are now so making great progress.

[Analyst] (Goldman Sachs): Okay. And if I could just sneak in another one. I missed a couple of minutes because I got disconnected on the call. So I apologize if you addressed this during that period. But you seem to suggest that you see more incremental price aggression in servers but are pretty confident on the PC side. Are you suggesting that sort of the more normalized PC operating margin which is more than 300 basis points currently above your prior indicated range, that we should be thinking, A, about sustainability in mid to high single digit or high single digits for PC operating margins at least for a few more quarters? Or how much do you think the falling component prices has boosted PC op margins above a normalized rate?

Toni Sacconaghi: Okay. And if I could just sneak in another one. I missed a couple of minutes because I got disconnected on the call. So I apologize if you addressed this during that period. But you seem to suggest that you see more incremental price aggression in servers but are pretty confident on the PC side. Are you suggesting that sort of the more normalized PC operating margin which is more than 300 basis points currently above your prior indicated range, that we should be thinking, A, about sustainability in mid to high single digit or high single digits for PC operating margins at least for a few more quarters? Or how much do you think the falling component prices has boosted PC op margins above a normalized rate?

Okay, and if I could just sneak in another one.

I missed a couple of minutes because I got disconnected on the call. So I apologize if you addressed this during that period.

But you seem to suggest that you you seem more incremental price aggression in servers were pretty confident on the PC side.

Are you, suggesting that sort of the more normalized PC operating margin, which is more than 300 basis points above.

Currently above your prior indicated range that we should be thinking hey about sustainability in a mid to high single digit or high single digits for PC operating margins at least for a few more quarters.

Or how much do you think the falling component prices has boosted PC op margins above a normalized rate.

Tom Sweet: Hey, Tony. It's Tom. So let me start. Then Jeff can chime in here as well. As we think about our guidance, as we think of the guidance as we gave which was $98 to $102 which was a raise of roughly about $700 million midpoint to midpoint, as we think about the back half of the year, it's clear as we look at PC that the first half margins benefited from a couple of things. One being the significant cost decline of which we have probably priced through about 60% of that cost. And we've obviously let some of that cost fall through the bottom. The other piece of the dynamic there has been the commercial client mix. And we're up about 4% year-over-year from 69% to 73% of mix. And so that's been beneficial as we've navigated through the first half.

Hey, Tony It's Tom So let me start I mean, Jeff can chime in here as well as we think about.

Our guidance as we think of the guidance as we gave which was nine eight to 10, two which was a raise a rough there about $700 midpoint to midpoint.

As we think about the back half of the year, it's clear as we look at you see that.

GAAP margin benefited from a couple of things like lean efficient cost decline.

Tom Sweet: I think as we step through the back half, I think we're going to see PC margins gradually normalize back towards the historic norms. We'll have to see how that unfolds. But the rate of cost decline is significantly less than it is in the second half than it was in the first half. And, as you think about pricing normalizing and the prices in the market beginning to have captured a lot of that cost decline already. So we are thinking that PC margins gradually come back to more historical norms. Not in any sort of dramatic cliff-like fashion. But I just think we're going to see those things gradually migrating back. Jeff, I don't know what you would add.

I think as we step through the back half, I think we're going to see PC margins gradually normalize back towards the historic norms. We'll have to see how that unfolds. But the rate of cost decline is significantly less than it is in the second half than it was in the first half. And, as you think about pricing normalizing and the prices in the market beginning to have captured a lot of that cost decline already. So we are thinking that PC margins gradually come back to more historical norms. Not in any sort of dramatic cliff-like fashion. But I just think we're going to see those things gradually migrating back. Jeff, I don't know what you would add.

Of which we have called for about 60% of that cost and we've obviously, let some of that cost fall through the bottom. The other piece of the dynamic there has been the commercial client mix and were up about 4% year on year from 69% to 73% of mix and so that's been beneficial as we navigated through the first half I think as we step through the back half I think are going to see PC margins gradually normalize back towards historic norms.

We'll have to see how that on both but the rate of cost decline is significantly less than it is in the second than in the second half than it was in the first half.

Jeff Clarke: A couple of things. Part of our improvement or performance in the first half, you talked about two of them being the commercial mix and pricing through about 60% of the cost decline. Our direct commercial PC business grew double digits, which drives higher attach rates of services, peripherals, and financing that's helped. We've seen an SRU improvement in there as well. That's led to the performance that you just spoke about, Tony. Conversely, when I look at the second half, the second half tilts towards consumer. Consumer has a lower margin structure than our commercial business. We certainly have the uncertainty with trade and the associated costs that go along with trade as we head into the second half. Then I would point to some of the publicly available data which I know you know very, very well.

As you think about pricing normalizing in the prices in the market beginning to cast of capture a lot of that cost decline already. So we are thinking that PC margins gradually come back to more historical norms, not any sort of dramatic clip like fashion advisors think we're going to see those things gradually migrating back Jeff I don't know what you would add a couple of things up part of our improvement or outperformance will first have you talked about two of them being the commercial mix and pricing through about 60% of the cost decline our direct commercial PC business grew double digits, which drives higher attach rates of services portfolio and financing themselves and leasing an FSRU improvement in there as well and that led to the performance that you just spoke about Tony.

Conversely, when I look at the second half the second half tilted towards consumer and consumer has a lower margin structure.

Jeff Clarke: But to make our point, DRAM, if I look at DRAMeXchange, if I look at where we started the first of the year to where we are today, DRAM has fallen 60%, nearly 60%. If I look at what they say the projection is for the remainder of the year, we see a 3% cost decline. So the rate of deflation is changing. And we think the pricing environment will reflect that towards the end of the year.

But to make our point, DRAM, if I look at DRAMeXchange, if I look at where we started the first of the year to where we are today, DRAM has fallen 60%, nearly 60%. If I look at what they say the projection is for the remainder of the year, we see a 3% cost decline. So the rate of deflation is changing. And we think the pricing environment will reflect that towards the end of the year.

That our commercial business, we certainly have the uncertainty with trade and the associated costs that go along with trade as we head into the second half and then I would point to some of the publicly available data, which I know you know very very well to to make our point DRAM. If I look at DRAM exchange. If I look about look at where we started the first of the year to where we are today DRAM has fallen 60% nearly 60% if I look at what they say that projection is for the remainder of the year, we see a 3% cost decline. So the rate of deflation is changing and we think the pricing environment will reflect that towards the end of the year.

[Analyst] (Goldman Sachs): Thanks, Tony.

Thanks, Tony.

Jeff Clarke: Does that help?

Thanks to that help.

[Analyst] (Goldman Sachs): Yes, it does. Thank you.

Toni Sacconaghi: Yes, it does. Thank you.

Yes. It does thank you.

Operator: Our next question is from Paul Coster with J.P. Morgan.

Our next question is from Paul Coster with Jpmorgan.

[Analyst] (J.P. Morgan): Yeah. Thanks for taking my question. I'll sneak in two quick ones if I may. First up, to what extent do you think Windows 10 is kind of fueling the CSP growth this year? And does that kind of set you up for tough comps next year? And on the China front, the business that you're kind of foregoing at the moment, is that business that you think you'll come back to at some future point? Or are you kind of moving on from that very competitive segment of the market? Thank you.

Simon Leopold: Yeah. Thanks for taking my question. I'll sneak in two quick ones if I may. First up, to what extent do you think Windows 10 is kind of fueling the CSP growth this year? And does that kind of set you up for tough comps next year? And on the China front, the business that you're kind of foregoing at the moment, is that business that you think you'll come back to at some future point? Or are you kind of moving on from that very competitive segment of the market? Thank you.

Yes. Thanks for taking my question I'll sneak in two quick ones. If I may 1st off so we'll extend just saying windows 10 is kind of fueling mood CSP growth. So.

This year and does that kind of said you have tough comps next year and on the China from the business.

Tom Sweet: Hey, Paul. Jeff, why don't you take the Windows 10 comment? I'll take China.

Jeff Clarke: Yeah, Paul. I mean, industry data varies. But we're roughly 60-ish% plus through the Windows 10 migration. That has clearly been a source of growth for the commercial PC business for the past year and a half or so. We see that continuing to be a source of growth for the remaining part of the year and probably into the very early part of next calendar year. Of course, if you look at what the commercial PC business has performed at for the past six quarters and what's in front of us, it will be tougher comparison next year. You see that in the industry forecast for PC growth next year, which is going to be down. The latest forecast, I believe, has PCs down 4% next year. This year, it's roughly flat, heavily biased towards commercial, consumer being down.

Kind of going at the moment is that business that you think you will come back to at some future point or are you kind of moving on from from that very competitive segment of the market. Thank you Hey, Paul why don't you, Jeff why don't you take that the winter to comment and I'll, just I'll take China.

Yeah, Paul I mean industry data varies but were roughly 60 ish percent plus through the Windows 10 migration that has clearly been.

A source of growth for the commercial PC business for the past.

Year, and a half or so we see that continuing to be a source of growth for the remaining part of the year and probably into the very early part of next calendar year.

Jeff Clarke: And that will be a headwind as we go into the business next year. I would also tell you the things that we've done in the business to prepare us for that, I think, are pretty encouraging. We're going to focus on the consolidation that's underway. The PC industry continues to consolidate towards the top three manufacturers. We have made investments in coverage and capacity across all sorts of customers from the smallest businesses to the largest businesses in the world. We think that expansion of coverage and capacity helps us in the long term. And then we have new technologies that we think help us with our Unified Workspace driving a differentiated solution into the marketplace that will be a source of growth for the business.

And that will be a headwind as we go into the business next year. I would also tell you the things that we've done in the business to prepare us for that, I think, are pretty encouraging. We're going to focus on the consolidation that's underway. The PC industry continues to consolidate towards the top three manufacturers. We have made investments in coverage and capacity across all sorts of customers from the smallest businesses to the largest businesses in the world. We think that expansion of coverage and capacity helps us in the long term. And then we have new technologies that we think help us with our Unified Workspace driving a differentiated solution into the marketplace that will be a source of growth for the business.

Tough compares of course, if you look at what the commercial PC businesses performed at for the past six quarters and what's in front of US It will be tougher comparison next year, you see that in the industry forecasts for PC growth next year, which is going to be down the latest forecast I believe has Pcs down 4% next year. This year, it's will roughly flat by heavily biased towards commercial consumer being down and that will be a headwind as we go into the business next year I would also tell you the things that we've done in the business to prepare us for that I think are pretty encouraging we're going to focus on the consolidation that's underway that this the PC industry continues to consolidate towards the top three manufacturers.

Jeff Clarke: Clearly, our focus on our direct commercial business and then the high-end consumer and gaming business, or you'll see our focus as we head into next year.

Clearly, our focus on our direct commercial business and then the high-end consumer and gaming business, or you'll see our focus as we head into next year.

We have made investments and coverage and capacity across all sorts of customers from the smallest businesses to the largest businesses in the world. We think that expansion of coverage and capacity helps us in the long term and then we have new technologies that we think help us with our unified workspace driving a differentiated solution into the marketplace that will be a source of growth for the business and then clearly our focus on our direct commercial business and the high end consumer and gaming business or will you will see our focus as we head into next year.

[Analyst] (Goldman Sachs): And Paul, as it relates to China, the business that we've essentially chosen to not participate in this year has generally been in the hyperscale server space where the pricing dynamics have not made a lot of sense to us. And the other thing that we look at when we look at and evaluate large bids or large opportunities is to what extent is that business strategic to us and sticky? Meaning, is it a long-term customer acquisition play where they're going to buy multiple ops and have the opportunity to sell them multiple different types of solutions and service capabilities? What we have generally seen with the hyperscale business in China is that it tends to be very transactional where that business is rebid every quarter or every half year. And given that pattern and what we've seen, we've chosen not to participate in it.

Tom Sweet: And Paul, as it relates to China, the business that we've essentially chosen to not participate in this year has generally been in the hyperscale server space where the pricing dynamics have not made a lot of sense to us. And the other thing that we look at when we look at and evaluate large bids or large opportunities is to what extent is that business strategic to us and sticky? Meaning, is it a long-term customer acquisition play where they're going to buy multiple ops and have the opportunity to sell them multiple different types of solutions and service capabilities? What we have generally seen with the hyperscale business in China is that it tends to be very transactional where that business is rebid every quarter or every half year. And given that pattern and what we've seen, we've chosen not to participate in it.

And.

Paul as it relates to China.

The business that Weve essentially chosen to not participate in NIM. This year has generally been in the.

Our Hyperscale server space, where the the pricing dynamics have not made a lot of sense to us and the other thing that we look at when we look at and evaluate large enough or large goods are large opportunities those.

To what extent to what extent that that is that business strategic to us and sticky meaning.

[Analyst] (Goldman Sachs): If that's the pattern that continues, you'll see us continue to not participate in it. Instead, we're very focused on growing the customer base in China and about building lasting, sustainable customer relationships. So we have shifted the focus of the China business to we much rather than they go out and build the server buyer base into the mid and small enterprise, and larger enterprise space absent the hyperscale and not participate in that hyperscale space just given the purchasing behavior and the buying behaviors that we're seeing. So I don't think with what we know right now that that piece of that market is well, it will still probably be there. It's not of a lot of interest to us at this point in time.

If that's the pattern that continues, you'll see us continue to not participate in it. Instead, we're very focused on growing the customer base in China and about building lasting, sustainable customer relationships. So we have shifted the focus of the China business to we much rather than they go out and build the server buyer base into the mid and small enterprise, and larger enterprise space absent the hyperscale and not participate in that hyperscale space just given the purchasing behavior and the buying behaviors that we're seeing. So I don't think with what we know right now that that piece of that market is well, it will still probably be there. It's not of a lot of interest to us at this point in time.

As a as a long term customer acquisition play, where they're really going to buy multiple lives and have the opportunity to sell them multiple different types of solutions and service capabilities. What we have generally seen with that that the hyperscale business in China is that it tends to be very transactional where you're getting that business is rebid every quarter or every half year and so if you given that pattern in the and what we've seen we've chosen not to participate in it and if thats. The pattern that continues you'll you'll see us continue to not participate in instead, we're very focused on growing the customer base in China and about building lasting sustainable customer relationships. So we have shifted the focus of the China business too we much rather them. They go out and build the server buyer base into the mid and small enterprises larger enterprise space.

Jeff Clarke: But the same characteristics we see globally are occurring in China. It's the second largest market in the world. We're entering a data economy. There's a big opportunity. The role of hybrid cloud is important, data analytics. So the long-term attributes of the marketplace remain strong. And we're very optimistic about that over the long term.

Tom Sweet: Which is why we want the business building the customer base, right?

Jeff Clarke: Correct.

Tom Sweet: Which is why we want them out foundationally improving the scale.

Absent the hyper scale and not participate in that Hyperscale space, just given the purchasing behavior in the buying behaviors that were seeing so I don't think that with what we know right now that that that piece of that market as well as well, we'll still probably be there's not a lot of interest to us at this point in time, but the same characteristics. We see globally are occurring in China is the second largest market in the world. We're entering a data economy, there's a big opportunity the role of hybrid cloud is important data analytics to the long term attributes of the marketplace remain strong and we're very optimistic about that over the long term, which is why we won the business building their customer base right with the right we want them out.

Foundationally improving of scale.

[Analyst] (J.P. Morgan): Thank you.

Simon Leopold: Thank you.

Thank you.

Operator: Our next question is from Aaron Rakers with Wells Fargo.

Our next question is from Aaron Rakers with Wells Fargo.

[Analyst] (Wells Fargo): Yeah. Thanks for taking the questions. I wanted to ask about the storage business. As you look at storage demand being healthy, the revenue was only about flat this past quarter. And we've seen bookings growth or orders growth kind of playing into effect here, up 4% for the first half. But how do I think about the progression of growth as you kind of think about the product cycle and the dynamics? What's your expectation for the back half of the year in terms of the storage growth specifically?

Aaron Rakers: Yeah. Thanks for taking the questions. I wanted to ask about the storage business. As you look at storage demand being healthy, the revenue was only about flat this past quarter. And we've seen bookings growth or orders growth kind of playing into effect here, up 4% for the first half. But how do I think about the progression of growth as you kind of think about the product cycle and the dynamics? What's your expectation for the back half of the year in terms of the storage growth specifically?

Yes, thanks for taking the questions.

I wanted to ask about the storage business as you look at.

Storage demand being healthy that the revenue was only about flat this past quarter.

We've seen bookings growth or orders growth kind of playing into effect here up 4% for the first half.

How do I think about the progression of growth as you kind of think about the product cycle dynamics whats your expectation for the back half of the year in terms of the storage growth specifically.

Jeff Clarke: Well, when I look at the storage performance through the quarter, I certainly point to areas that I think are positive. We see our HCI business continuing to grow. I think we made reference earlier that our HCI business, specifically the VxRail component of that, grew 77%. Our converged infrastructure business grew this past quarter. The broad category of unstructured data grew. And we saw actually good performance in our Unity and the new Unity XT mid-range product had year-over-year growth as well. In addition to the PowerMax 2000 that we introduced early last fall for the high price bands in the mid-range, all grew. I think we've positioned the product line in a great way. You'll see some more announcements through the remainder of the year that will continue to refresh it and keep it competitive. And we expect to outgrow the marketplace.

Tom Sweet: Well, when I look at the storage performance through the quarter, I certainly point to areas that I think are positive. We see our HCI business continuing to grow. I think we made reference earlier that our HCI business, specifically the VxRail component of that, grew 77%. Our converged infrastructure business grew this past quarter. The broad category of unstructured data grew. And we saw actually good performance in our Unity and the new Unity XT mid-range product had year-over-year growth as well. In addition to the PowerMax 2000 that we introduced early last fall for the high price bands in the mid-range, all grew. I think we've positioned the product line in a great way. You'll see some more announcements through the remainder of the year that will continue to refresh it and keep it competitive. And we expect to outgrow the marketplace.

Well when I look at the storage performance through the quarter.

I certainly point to areas that I think are positive we see our HCV business continuing to grow I think we made reference earlier that our HPC business, specifically, the VX rail component of that.

Grew 77% our converged infrastructure business grew this past quarter, the broad category of unstructured data grill, and we saw actually good performance in our unity and the new Unity X teen mid range product had year over year growth as well in addition to the Paramax 2000 that we introduced.

Early last fall for the high price bands in the midrange all group.

I think weve positioned the product line and and a great late you'll see some more announcements through the remainder of the year that will continue to refresh it and keep it competitive and we expect to grow the marketplace.

Jeff Clarke: The marketplace is expected to grow with the last forecast, I think, just under 3%. I would expect us to outperform the market. The investments that we've made in capacity and coverage, the tenure of that sales force continues to grow by the day, literally. We're pretty optimistic about our prospects to outperform the marketplace in the second half of the year.

The marketplace is expected to grow with the last forecast, I think, just under 3%. I would expect us to outperform the market. The investments that we've made in capacity and coverage, the tenure of that sales force continues to grow by the day, literally. We're pretty optimistic about our prospects to outperform the marketplace in the second half of the year.

[Analyst] (Goldman Sachs): Aaron, the one thing I would add to that, and Jeff obviously highlighted a lot of how we're thinking about it, is one of the things we've been very focused on with the investment we've made in the selling capacity has been around customer base expansion, which is why we highlighted the fact that in ISG, we've year-over-year 21,000 new buyers, right, coming back into the ISG business. Now, whether they're buying one op or two ops, but the point of it is that we're expanding the customer base, which gives us a broader field or broader base to sell into. And so we're encouraged by that. Obviously, you got to go out and execute and do the and make sure that the sales motion is right on the coverage model.

Jeff Clarke: Aaron, the one thing I would add to that, and Jeff obviously highlighted a lot of how we're thinking about it, is one of the things we've been very focused on with the investment we've made in the selling capacity has been around customer base expansion, which is why we highlighted the fact that in ISG, we've year-over-year 21,000 new buyers, right, coming back into the ISG business. Now, whether they're buying one op or two ops, but the point of it is that we're expanding the customer base, which gives us a broader field or broader base to sell into. And so we're encouraged by that. Obviously, you got to go out and execute and do the and make sure that the sales motion is right on the coverage model.

The marketplace is expected to grow with the last forecast I think just under 3% I would expect us to outperform the market the investments that we've made and capacity and coverage. The tenure of that sales force continues to grow by the day literally and we're pretty optimistic about our prospects to outperform the market place in the second half of the year.

And the one thing I would add to that Jeff Oxley.

Highlighted a lot of how we're thinking about it is one of the things we've been very focused on with the investment we've made in the selling capacity has been around customer base expansion.

Which is why we highlighted the fact that in iOS G.

Year over year at 21000, new buyers.

Coming back into values too busy now whether they are buying one lava two labs, but the point is that we're expanding the customer base gives us a broader field or broader base to sell them too and so we're encouraged by that and obviously got to go out and execute.

[Analyst] (Goldman Sachs): But one of the investment paybacks we've been looking for from this go-to-market investment that we've made over the last two years has been around. Are we expanding year-over-year our customer base? So encouraged by the trends we're seeing, but clearly, we push some of the products that we're using.

But one of the investment paybacks we've been looking for from this go-to-market investment that we've made over the last two years has been around. Are we expanding year-over-year our customer base? So encouraged by the trends we're seeing, but clearly, we push some of the products that we're using.

Turning into the mix. So the sales motion is right on the coverage model, but.

One of the investment Paybacks, we were looking for from this go to market investments that we've made over the last two years has been around are we expanding.

Customer.

Clearance by the trends, we are seeing but clearly theres an approach.

Jeff Clarke: When you look at the marketplace, we're certainly in the early stages of the data era that we've referenced. There is more data being created. There will be more data created on the edge. We have a leadership position across HCI, CI, and external storage. We've improved the product over the past two years. The past 10 coverage that we talked about. We're optimistic that we can outperform the market.

Tom Sweet: When you look at the marketplace, we're certainly in the early stages of the data era that we've referenced. There is more data being created. There will be more data created on the edge. We have a leadership position across HCI, CI, and external storage. We've improved the product over the past two years. The past 10 coverage that we talked about. We're optimistic that we can outperform the market.

Just when you look at the marketplace.

Certainly in the early stages.

Data era that was referenced.

There is more data being traded there will be more data created on the edge, we have a leadership position across HP, IC and external storage and weaken from here on Earth.

Adding to that in coverage that we talked about.

On the market.

[Analyst] (Wells Fargo): Thank you.

Aaron Rakers: Thank you.

Okay. Thank you.

Operator: Our next question is from Shannon Cross with Cross Research.

Our next question is from Shannon Cross with Cross research.

[Analyst] (Cross Research): Thank you very much. Jeff, can you talk a bit about what you're seeing from customers with initial response to Dell Technologies Cloud? And maybe more in general, just commentary from clients about cloud adoption, both hybrid and public. Thank you.

Shannon Cross: Thank you very much. Jeff, can you talk a bit about what you're seeing from customers with initial response to Dell Technologies Cloud? And maybe more in general, just commentary from clients about cloud adoption, both hybrid and public. Thank you.

Thank you very much Jeff can you talk a bit about what you're seeing from customers with initial response to Dell technologies cloud and maybe in more in general just commentary from clients about cloud adoption, both hybrid and public. Thank you.

Jeff Clarke: I'd be happy to. We had a good week this week. At VMworld, we talked about our Dell Technologies Cloud platform. We actually made several announcements to extend that platform from what we announced at Dell Technologies World the last week of April. The interest this week has been very high. Specifically, we extended the platform of validated designs to support our PowerMax storage arrays and our Unity and Unity XT storage arrays and our PowerEdge MX compute. The thing I'm most excited about, and that product team did a great job on stage earlier in the week, is we announced the initial availability of the first on-prem data center as a service. So a managed service or data center on-prem, the first or the initial availability of that product which is pretty exciting for us.

I'd be happy to we had a good week. This week at Vmworld, we talked about our Dell technologies cloud platform, we actually made several announcements to extend that platform from what we announced at.

Dell technologies World the last week of April and the entrust. This week has been a very high specifically, we extended the platform of validated designs to support our power Max storage arrays, and our unity in unity XT storage rate and our Poweredge Amex compute.

We also which the thing I'm most excited about and that patent team did a great job on stage earlier in the week as we announced initial availability of the first.

On Prem.

Jeff Clarke: And then on top of that, acknowledging or building upon what we announced back in that last week of April, we talked about new consumption models. And we've added our Dell Technologies Cloud platform and our on-demand payment terms that we can pay in any form of consumption. So very similar to how a public cloud operates today, we can actually build a customer by usage. And that's been received quite well. So we're pretty excited about that capability. You think about we added VMware Pivotal Container Service support on top of that. And we have a very comprehensive multi-cloud, hybrid cloud in the marketplace. In fact, the only one that allows you to move data workloads across the edge to on-prem private data centers to the public clouds.

And then on top of that, acknowledging or building upon what we announced back in that last week of April, we talked about new consumption models. And we've added our Dell Technologies Cloud platform and our on-demand payment terms that we can pay in any form of consumption. So very similar to how a public cloud operates today, we can actually build a customer by usage. And that's been received quite well. So we're pretty excited about that capability. You think about we added VMware Pivotal Container Service support on top of that. And we have a very comprehensive multi-cloud, hybrid cloud in the marketplace. In fact, the only one that allows you to move data workloads across the edge to on-prem private data centers to the public clouds.

Data center as a service so I managed service for a data center on Prem the first or the initial availability of that product, which is pretty exciting for us.

And then on top of that acknowledging our building upon what we announced.

Back in that last week of April we talked about new consumption models and Weve added our del technology cloud platform and our on demand.

Payment terms that we can pay in any form of consumption. So very similar to the alley public cloud operates today, we can actually build the customer by usage and Thats been received quite well. So we're pretty excited about that capability.

You think about we added Vmware part.

Jeff Clarke: That's what our customers are asking for, the ability to do that in an automated way, to be able to manage it in a consistent way. Our Dell VMware Cloud allows us to do that. I'm pretty bullish on the opportunities going forward. Does that make sense?

That's what our customers are asking for, the ability to do that in an automated way, to be able to manage it in a consistent way. Our Dell VMware Cloud allows us to do that. I'm pretty bullish on the opportunities going forward. Does that make sense?

Pivotal container service support on top of that and we have a very comprehensive multi cloud hybrid cloud in the marketplace. In fact, the only one that allows you to move data workloads across the edge to on Prem private data centers to the public clouds, that's what our customers are asking for the ability to do that in an automated way to be able to manage it in a consistent way and our delving more cloud allows us to do that so I'm pretty bullish on the.

Opportunities going forward does that make sense.

[Analyst] (Cross Research): Yes. Thank you.

Shannon Cross: Yes. Thank you.

Operator: Of course. Our next question comes from Matt Cabral with Credit Suisse.

Jeff Clarke: Of course.

Yes. Thank you.

Operator: Our next question comes from Matt Cabral with Credit Suisse.

First.

Our next question comes from Matt Cabral with credit Suisse.

[Analyst] (Credit Suisse): Yeah. Thank you. On ISG margins, I'm wondering if you could bridge the strength you saw in the quarter between mix, the commodity tailwinds, and maybe other factors. And in particular, just if you can touch a little bit on what margins for servers versus storage did for you on a year-over-year basis.

Matt Cabral: Yeah. Thank you. On ISG margins, I'm wondering if you could bridge the strength you saw in the quarter between mix, the commodity tailwinds, and maybe other factors. And in particular, just if you can touch a little bit on what margins for servers versus storage did for you on a year-over-year basis.

Yes. Thank you.

And I assume margins I'm wondering if you could bridge the strength you saw in the quarter between mix the commodity tailwind than maybe other factors and in particular, just if you can touch a little bit on what margins for servers versus storage did for you on a year over year basis.

Tom Sweet: Well, hey, Matt. It's Tom. We don't typically parse. We give you a revenue and an OpEx. But let me sort of try and give you some because I'm feeling nice today, I'm going to give you some color around it, right? So look, as we look at if you just we looked at our gross margin or operating margin performance. Let me start there. What I would tell you is that it was up 190 basis points. I'm talking about Q-on-Q now. So from 10/3 to 12/2, I think that from a if you were to think your way through that, most of that goodness was principally OpEx goodness. And the actual gross margins were actually flat to slightly down. And if you parsed that margin, what you would see is storage margins were stable. And we saw some server we had server margins declining slightly.

Hey, Matt its Tom we don't typically parse we give you a revenue and an operating for let me sort of try and give you some growth because I'm feeling nice to them or give you some color around that right. So of book as we look up.

We looked at our margin.

Gross margin for our operating margin performance, let me start there what I would tell you that.

Was up 190 basis points I'm talking about Q on Q now you know.

So for Tim three to 12 to I think from a if you were to think your way through that most of that goodness was principally opex goodness in the actual gross margins were actually flat to slightly down.

Tom Sweet: If you think about what's driving the server margin decline, it's really the things that we just have previously talked about, which we saw some pricing aggressiveness in large enterprise deals. We saw some mixed dynamics within China, which drove some margin pressure downwards. So that's sort of the environment we saw. That's also why we're essentially sort of flashing the headlights on the fact that we do think that we'll see a bit more server pricing aggressiveness as we go through the back half. So that's sort of our current thinking. I don't know, Jeff, if you would add anything. But I think that's how we've thought about it right now.

If you think about what's driving the server margin decline, it's really the things that we just have previously talked about, which we saw some pricing aggressiveness in large enterprise deals. We saw some mixed dynamics within China, which drove some margin pressure downwards. So that's sort of the environment we saw. That's also why we're essentially sort of flashing the headlights on the fact that we do think that we'll see a bit more server pricing aggressiveness as we go through the back half. So that's sort of our current thinking. I don't know, Jeff, if you would add anything. But I think that's how we've thought about it right now.

And if you parse that margin what you would see a storage margins were stable and we saw some server with server margins declining slightly and we if you think about what's driving the server margin decline is really the good things that we just prefer previously talked about which we saw some pricing aggressiveness in large enterprise deals and we saw soon.

Some of you know some some mix dynamics within China, which drove some margin pressure downward. So that's sort of the environment. We saw well. That's also why we're essentially sort of flashing the headlights on the fact that we do think that we will see a bit more server pricing or growth.

And.

Jeff Clarke: Spot on.

[Analyst] (Credit Suisse): Yep. That's very helpful. Thank you.

Matt Cabral: Yep. That's very helpful. Thank you.

In in in as we go through the back half. So that's all that's sort of our current thinking I don't know, Jeff. If you would add anything more I think thats, all weve thought about it retinal spot on.

Thats very helpful. Thank you.

Operator: Our next question is from Amit Daryanani with Evercore ISI.

Our next question is from that amid Darien Arnie with Evercore ISI.

Amit Daryanani: Yep. Thanks a lot, guys. I guess maybe I'm going to just have a broader question. But when I think about getting into this earnings call, the expectation was Dell, and you guys would essentially miss revenues, miss EPS, given what all your peers had talked about in terms of the negative commentary. Your numbers are clearly much more better than that fear was. So I'm curious, what do you think is driving the delta or the better performance at Dell versus what your peers have been talking about? And importantly, do you think this performance is sustainable as you go forward?

Yes.

Thanks, a lot guys aren't I guess so.

Maybe I'm going to just have a broader question, but when I think about getting into the sonnenfeld expectation was down you've got you know you guys, what essentially mis revenues missed Cps given what every year. If you put all your peers have talked about in terms of the negative commentary up your numbers are pretty much more better than that fear was ups I'm curious what do you think is driving the delta the better performance out performance, a downwards, which appears have been talking about and importantly, do you think this performance is sustainable as you go forward.

Tom Sweet: Well, hey, hey. It's Tom. Look, I won't comment on our peers. I mean, what I would tell you is that if you think about the broad set of capabilities and solutions in the comprehensive portfolio we have, we think we have more growth levers and more levers that we can address and build upon with our customers, right? And so we have the most comprehensive portfolio in the IT infrastructure industry from our perspective. You think about the work that we've done on go-to-market over the last two years with the building of the customer bases. We've highlighted this quarter whether it's around the 21,000 new buyers in ISG year over year or, well, it's around the 11% or the 10% growth in customers, new acquisition customers. And so we've been very focused on building our customer base as well.

Well, hey on its Tom looking I won't comment on our peers I mean, what I would tell you is that if you think about the broad set of capabilities and solutions are in their comprehensive portfolio. We have we think we have more growth levers a more levers that we can address and build upon with our customers right and so we have the most comprehensive portfolio in the IP infrastructure industry from our perspective.

You think about the work that we've done on go to market over the last two years with the building of the customer bases. We've highlighted this quarter, whether it's around the 21000, new buyers in EISG year over year as well as around.

Tom Sweet: Now, look, and we've obviously, if you think about the financial performance, we clearly have been aided by we've had some deflationary cost environment in the first half of the year. We are obviously signaling through my guidance that that's just, and we have said that that cost decline or that cost deflation substantially slows in the second half of the year. But our job and our model that we built is to grow at a premium to the market, take share, take relative share, and generate cash flow. And so that's the model we built. We think that's a model that sustains in all the different types of economic environments. And look, I mean, we're doing our best to execute the model. And I think we've had a pretty good execution quarter from my perspective. But again, I think it gets back to the broadness of the portfolio.

Now, look, and we've obviously, if you think about the financial performance, we clearly have been aided by we've had some deflationary cost environment in the first half of the year. We are obviously signaling through my guidance that that's just, and we have said that that cost decline or that cost deflation substantially slows in the second half of the year. But our job and our model that we built is to grow at a premium to the market, take share, take relative share, and generate cash flow. And so that's the model we built. We think that's a model that sustains in all the different types of economic environments. And look, I mean, we're doing our best to execute the model. And I think we've had a pretty good execution quarter from my perspective. But again, I think it gets back to the broadness of the portfolio.

The 11% grow our the 10% growth in in customers New acquisition customers and so we've been very focused on building our customer base as well now look.

You know and we've obviously if you think about the financial performance. We clearly have been aided by we've heard some deflationary cost environment in the first half of the year. We are obviously signaling through my guidance that.

That does and we have said that that that cost decline or that cost deflation substantially slows in the second half of the year, but but our job and our model that we build is to grow at a premium to the market take share.

Let's say relative share and generate cash flow and so that's the model. We built we think thats a model that sustains and all the different types of economic environments.

And.

Look I mean, we're trunk, we're we're doing our best to execute the model and I think we had a pretty good execution quarter from my perspective.

Tom Sweet: If you looked at the results, obviously, we're aided by a strong CSG business this quarter. If we were solely an infrastructure data center business, it would have been quite a little bit of a different story. But our broad portfolio allows us to play the growth levers that are available in the marketplace. And I think the team did a pretty good job on that.

If you looked at the results, obviously, we're aided by a strong CSG business this quarter. If we were solely an infrastructure data center business, it would have been quite a little bit of a different story. But our broad portfolio allows us to play the growth levers that are available in the marketplace. And I think the team did a pretty good job on that.

But again I think it gets back to the broadness of the portfolio. If you looked at the result, obviously were aided by a strong CSG business this quarter.

While we were solely in infrastructure data center business. It would have been a bit you know would have been quite a little bit of a different story, but our broad portfolio allows us to play the growth levers.

That are available in the marketplace and I think the team did a pretty good job on that.

Amit Daryanani: Thank you.

Thank you.

Operator: Our next question is from Wamsi Mohan with Bank of America.

Our next question is from Wednesday, Mohan with Bank of America.

Wamsi Mohan: Yes. Thank you. Can you comment on the ability to absorb the higher tariffs coming here shortly in Lisboa, particularly around notebook and displays? And your message is very clear around server pricing. But how should we think about pricing as a lever for share gains in storage? And if you intend to use pricing as a lever there, can you be a little more specific around ACI and all-flash? Thank you.

Hi, yes. Thank you.

Can you comment on the ability to absorb the higher tariffs coming here shortly and list for particularly around notebook and displays and your message is very clear around surprising, but how should we think about pricing as a lever for share gains in storage and if you intend to use pricing as a lever there.

Can you be a little more specific around anti in all flash. Thank you.

Jeff Clarke: Sure. Why don't I take the tariff question? Wamsi, this is Jeff. I mean, clearly, we have spent a lot of time planning and working through the very dynamic situation that we're living in today with tariffs. Our global supply chain with 25 manufacturing sites around the globe allows us to have the agility and flexibility we need to honestly move fast and to minimize the impact. We're focused on continuity of supply and continuity of supply and delivery to our customers and managing that. But quite honestly, we're working through the challenges of List A, which is what you're specifically talking about. We've mentioned List A one through three in the previous calls. We've successfully mitigated that cost impact to the vast majority of our product. There have been cases where we have not. We have raised price.

Sure why don't I take the tariff question Wamsi. This is Jeff I mean, clearly we have spent a lot of time planning and working through the very dynamic situation that we're living in today with tariffs.

Our global supply chain within 25 manufacturing sites around the globe allows us to have the agility and flexibility we need to to honestly move fast and to minimize the impact.

We're focused on continuity supply and continuity supply and delivery to our customers and managing that but quite honestly, we were working through the challenges.

Jeff Clarke: We will continue to work to mitigate the impact to our customers with List A starting with all-in-ones on 1 September, followed by 15 December with flat panel monitors and notebooks. In some cases, our costs are going to go up. And we will have to move price. It's one of the comments I made earlier. When you think about the second half and what's different in our client business, we have the uncertainty of tariffs and the uncertainty of the associated costs that go along with it. We cannot absorb all of that cost. And we will pass that along to our customers in the form of price in various ways. How we do that, we're still working our way through.

We will continue to work to mitigate the impact to our customers with List A starting with all-in-ones on 1 September, followed by 15 December with flat panel monitors and notebooks. In some cases, our costs are going to go up. And we will have to move price. It's one of the comments I made earlier. When you think about the second half and what's different in our client business, we have the uncertainty of tariffs and the uncertainty of the associated costs that go along with it. We cannot absorb all of that cost. And we will pass that along to our customers in the form of price in various ways. How we do that, we're still working our way through.

Of list for which is what you're specifically talking about we've mentioned less list one through three in the previous calls we successfully mitigated that cost impact to the vast majority of our product there have been cases, where we have not and we have raised price and we will continue to work to mitigate the impact to our customers with lists for starting with all of the ones on September the first follow up December the 15th with flat panel monitors and notebooks.

In some cases, our costs are going to go up and we will have to move price. It's one of the comments I made earlier when you think about the second half and whats different on our client business.

Jeff Clarke: We spent a lot of time making sure that we have our manufacturing capabilities in place, that the manufacturing sites are prepared, the manufacturing processes are prepared for the changes, sourcing operations for our notebooks, all-in-ones, and flat panel monitors. So that's where we are. I think that's the best answer I can give today. More to come. It is pretty dynamic. It has changed a couple of times.

We spent a lot of time making sure that we have our manufacturing capabilities in place, that the manufacturing sites are prepared, the manufacturing processes are prepared for the changes, sourcing operations for our notebooks, all-in-ones, and flat panel monitors. So that's where we are. I think that's the best answer I can give today. More to come. It is pretty dynamic. It has changed a couple of times.

We have the uncertainty of tariffs and the uncertainty of the associated costs that go along with it we cannot absorb all of that cost and we will pass that along to our customers in the form of price and various ways. How we do that we're still working our way through.

We spent a lot of time, making sure that we have our manufacturing capabilities in place that the manufacturing sites are prepared the manufacturing processes are prepared for the changes sourcing operations for our notebooks all in ones and flat panel monitor so thats, where we are.

I think that's the best answer I can give today more to comp it is pretty dynamic it has changed a couple of times.

Tom Sweet: We'll probably continue to change. But.

Jeff Clarke: That's our guess.

Tom Sweet: Hey, Wamsi, your other comment around pricing, obviously, we did signal or are signaling that we are seeing a bit more pricing aggressiveness in the server space as it relates to our intention or our strategy around pricing on storage and some of our other product lines. I mean, we're not driving any sort of significant change in our pricing strategy and our other ops. So we'll obviously react to ensure that we're price competitive relative to the environment and the market. But at this point, there's no intention to use price as a lever in some of these other areas.

And we'll probably continue to change, but that's our guess hey, wamsi. Your other comment around pricing. Obviously, we did signal our signaling that we are seeing a bit more pricing aggressiveness in the server space as it relates to our intention our strategy around pricing on storage in some of our other product lines I mean, we're not.

We don't we're not driving any sort of significant change from our putting our pricing strategy and our other swaps. So.

Obviously react to ensure that we're price competitive and relative to the environment in the market but.

You know at this point there is no intention to to do.

To to use price as a lever on in some of these other areas.

Wamsi Mohan: Okay. Thanks a lot.

Okay. Thanks, a lot.

Operator: Our next question is from Simon Leopold with Raymond James.

Our next question is from Salman LIBOR Leopold with Raymond James.

Amit Daryanani: Great. Thanks for taking the question. I'm wondering if maybe you could talk a little bit more about trending from a geography and market vertical beyond what you've mentioned, China a number of times. But I guess I'd like to hear a little bit more detail, maybe versus Europe. And then you also talked about sort of the large enterprise weakness. Could you maybe touch on some other verticals such as government, SLED-type markets, and maybe some of the dynamics? Because it sounds to me that maybe Europe's a little bit better, government's a little bit better, like some color beyond what we've talked about already. Thank you.

Simon Leopold: Great. Thanks for taking the question. I'm wondering if maybe you could talk a little bit more about trending from a geography and market vertical beyond what you've mentioned, China a number of times. But I guess I'd like to hear a little bit more detail, maybe versus Europe. And then you also talked about sort of the large enterprise weakness. Could you maybe touch on some other verticals such as government, SLED-type markets, and maybe some of the dynamics? Because it sounds to me that maybe Europe's a little bit better, government's a little bit better, like some color beyond what we've talked about already. Thank you.

Great. Thanks for taking the question I was wondering if maybe you could talk a little bit.

More about trending from from a geography and end market vertical beyond what you've you've mentioned, China number times, but I guess I'd like to hear a little bit more detail maybe versus Europe . And then you also talked about sort of the large enterprise weakness.

Could you maybe touch on some other verticals such as.

Government sled type markets and maybe some of the dynamics because it sounds to me that maybe Europe's a little bit better government's a little bit better like like some some color beyond what we've talked about already thank you.

Tom Sweet: Hey, Simon. It's Tom. Let me start. Maybe Jeff can jump in. I'm going to try and keep this at a reasonably high level. But as we think about just geo-based right now, we would tell you that in general, we've seen North America demand has generally been healthy. We're pleased with that. We're pleased with our Latin America demands. I think we have seen some softening in Europe. And whether that's Brexit-related or just sort of general economic dynamics, hard to parse that. But I think we've seen some softening there. I mean, you go to Asia, clearly, we've talked about China being sort of a softer market for us this year. Pleased with what we're seeing in Japan. We're starting to see better velocity coming out of Australia and New Zealand.

Hey, some of it's Tom let me start and maybe Jeff can jump in and I'm going to try and keep this at a reasonably high level, but.

As we think about just Geo based right now we would tell you that in general Weve seen North America demand has generally been quite as has been healthy.

And we're pleased with that we're pleased with our Latin America demand.

I think we have seen some softening in Europe .

Whether that's Brexit related are just sort of general economic dynamics hard to parse that but I think we're seeing some softening there I mean, you go to Asia, clearly, we've talked about China being a.

Sort of a softer market for us this year.

I'm pleased with what we're seeing in Japan.

We're starting to see better velocity coming not Australia, New Zealand.

Tom Sweet: So I think in general, I mean, that would be how I would frame it for you. On a vertical basis, our customer segment perspective, Q2, which is obviously the quarter we're reporting on, is generally a strong education, state, and local government market in the US. And I would tell you that that spending seems to be holding up fine. We're optimistic about the federal business going into Q3 in the US. And so across the, I think, across the globe, government procurements continue to be on track. So I mean, that's sort of what we're seeing right now, Jeff. I don't know if you would add anything to that.

So I think in general, I mean, that would be how I would frame it for you. On a vertical basis, our customer segment perspective, Q2, which is obviously the quarter we're reporting on, is generally a strong education, state, and local government market in the US. And I would tell you that that spending seems to be holding up fine. We're optimistic about the federal business going into Q3 in the US. And so across the, I think, across the globe, government procurements continue to be on track. So I mean, that's sort of what we're seeing right now, Jeff. I don't know if you would add anything to that.

So I think in general I mean that would be how I would frame. It for you on a vertical basis, our customer segment perspective.

Q2, which is the obviously the quarter, we're reporting on its generally a strong education state and local government.

Market in the us and I would tell you that that spending seems to seems to be holding up fine. We're optimistic about the federal business going into Q3 in the us.

You know and I saw in across the.

I think across the globe government procurements continue to be on track. So I mean that sort of what we're seeing right now Jeff I don't know if you would add anything.

[Company Representative] (Dell Technologies): No. I did not at all. It was pretty good.

Jeff Clarke: No. I did not at all. It was pretty good.

Nine.

Not at all.

Okay.

Amit Daryanani: Great. Thank you.

Simon Leopold: Great. Thank you.

Great. Thank you.

Operator: Our next question is from Jeriel Ong with Deutsche Bank.

Our next question is from Jeffrey along with Deutsche Bank.

[Analyst] (Deutsche Bank): Thanks, guys. So let me ask a question. I'm trying to reconcile the storage you guys mentioned, storage is going to grow more than 3% year-on-year, it seems. But yet, enterprise IT spend's going to continue to be weak throughout the rest of the year. It seems like if I model your top-line guidance that at least on a year-on-year basis between Q3 and Q4, I'm actually seeing that year-on-year's revenue should accelerate. Could you verify if that's true and kind of help me reconcile some of these statements, and how that impacts your full-year guidance? Thanks.

Jeriel Ong: Thanks, guys. So let me ask a question. I'm trying to reconcile the storage you guys mentioned, storage is going to grow more than 3% year-on-year, it seems. But yet, enterprise IT spend's going to continue to be weak throughout the rest of the year. It seems like if I model your top-line guidance that at least on a year-on-year basis between Q3 and Q4, I'm actually seeing that year-on-year's revenue should accelerate. Could you verify if that's true and kind of help me reconcile some of these statements, and how that impacts your full-year guidance? Thanks.

Thanks, guys. Let me ask the question I'm trying to reconcile the storage. The storage you guys mentioned storage is going to grow more than 3% year on year teams, but yet enterprise spend is going to continue to be weak throughout the rest of the year. It seems like if my model your topline guidance that at least on a year on year basis between Threeq and Fourq you I'm actually seen that you're on years revenue should accelerate could you clarify if that's true and kind of help me reconcile some of these statements and how that impacts your full year guidance. Thanks.

Tom Sweet: Well, look, I'm not sure it's Tom, Jeriel. So I'm not sure of how you're modeling. And so maybe the team can help you with that offline. I would tell you that as we think about storage, I mean, the market is sort of low single digits. And so that's the forecast from IDC. Jeff talked about the fact that we saw storage demand at 1% in Q2. The broader ISG comment which I think you're referring to is that we continue to see softness in servers. And so you got to think about that mixed dynamic. IDC is forecasting negative growth in servers for mainstream servers for the rest of the year. And so there's some interplay between those two ops as you model ISG. So maybe the team can take that offline and take a look at how you're thinking about it.

Well look I'm not sure it's Tom zero, So im not sure of what how you're modeling and so maybe the team can help you with that offline I would tell you that as we think about George I mean, the market is sort of low single digits.

And in so thats the forecast from I'd see Jeff talked about the fact that we saw storage demand at 1% in Q2.

The the broader EIS Jeep comment, which I think you're referring to is that we continue to see softness in servers and so you've got to think about that mix dynamic.

I'd see us forecasting negative growth in servers for mainstream servers for the rest of the year and so there are some interplay between those two offices as you model is g. So.

Tom Sweet: But as we look at the business, we expect to see server revenue, that's the server market, to continue to be challenging for the remainder of the year with what we know today. We are more optimistic about the storage market. Now, it's not a double-digit growth market. But we are optimistic that given the improvements in the coverage model, all the work that Jeff has done with his team on product and product-line positioning, that we should expect to see better results in storage. And so that's how we've thought about the year at this point.

But as we look at the business, we expect to see server revenue, that's the server market, to continue to be challenging for the remainder of the year with what we know today. We are more optimistic about the storage market. Now, it's not a double-digit growth market. But we are optimistic that given the improvements in the coverage model, all the work that Jeff has done with his team on product and product-line positioning, that we should expect to see better results in storage. And so that's how we've thought about the year at this point.

Yeah, maybe the team Ken Ken can take that offline and take a look at how you're thinking about it but as we look at the business.

We expect to see server revenue.

That's the server market to continue to be challenging for the remainder of the year with what we know today.

We are more optimistic about the storage market now it's still a it's not a double digit growth market, but we are optimistic that given the improvements in the coverage model. All the work that Jeff is done with his team on product and product this product line.

Positioning that you know that we should we expect to see better results in storage and so that's how we've thought about the thought about the year at this point.

[Analyst] (Deutsche Bank): Appreciate it. Thanks.

Jeriel Ong: Appreciate it. Thanks.

Appreciate it thanks.

Operator: Our next question is from Andrew Badon with Wolf Research.

Our next question is from Andrew Bynum with Wolfe Research.

[Analyst] (Wolf Research): Hi. Thank you. So to start the year, you discussed the expectation that investments in sales capacity and coverage would add OpEx. And that you begin to see the benefit of these investments ramp as you moved into the second half of the year. But it seems like today's commentary was that the second half will balance growth and profitability but maybe leaning towards growth. Can you just kind of level set where we are with regards to sales productivity?

Andrew Badon: Hi. Thank you. So to start the year, you discussed the expectation that investments in sales capacity and coverage would add OpEx. And that you begin to see the benefit of these investments ramp as you moved into the second half of the year. But it seems like today's commentary was that the second half will balance growth and profitability but maybe leaning towards growth. Can you just kind of level set where we are with regards to sales productivity?

Hi, Thank you so to start the year you discussed that station.

That investments in sales capacity and coverage would that Opex and then you begin to see the benefit of these investments ramp as you moved into the second half of the year, but it seems like today's commentary was that the second half will balance growth and profitability, but maybe leaning towards growth can you just kind of level set where we are with regards to sales productivity.

Tom Sweet: Well, look, hey, it's Tom. We don't sort of talk about those numbers publicly. But I would tell you that we are seeing the capacity that we've added sort of ramping on sort of the normal productivity curves that we would expect, right? Now, you have to balance that against it is a bit tougher market than it was a year ago. And so there are macro dynamics that you're managing as you think about productivity. Although we don't tend to give the sales orgs a lot of breaks on we're just asking them to drive to the productivity levels that they've committed to. But to be fair, it's a bit choppier market out there, particularly in servers. But the productivity curves, they're on. And to your comment, we're biasing ourselves towards growth.

Well look ahead, it's Tom we don't talk about those numbers publicly but I would tell you that we are seeing the capacity that we've added sort of ramping on the sort of the normal productivity curves that we would expect right now you have to balance that against it is a bit tougher market than it was a year ago and so there are macro dynamics that you're you're managing as you think about productivity. Although we don't tend to get the sales orders a lot of breaks on will just ask him to drive to the productivity levels.

They've committed to.

Tom Sweet: I mean, what we're trying to signal is that we do want to make sure that the growth engine stays intact and that we have a bias towards customer-based expansion, revenue-based expansion, even in a tougher market. The benefits of scale for us are quite significant. We want to make sure that that scale advantage continues. As we think about the back half of the year, that was what we were trying to signal. We're still investing in sales capacity, I might add, particularly as we think about some of the market opportunities as we set up for next year. That's how we're thinking about it.

I mean, what we're trying to signal is that we do want to make sure that the growth engine stays intact and that we have a bias towards customer-based expansion, revenue-based expansion, even in a tougher market. The benefits of scale for us are quite significant. We want to make sure that that scale advantage continues. As we think about the back half of the year, that was what we were trying to signal. We're still investing in sales capacity, I might add, particularly as we think about some of the market opportunities as we set up for next year. That's how we're thinking about it.

But it's moving to be fair, but you know, it's a bit choppier market out there, particularly on servers. So with the productivity curves there all of those into your comment our we're biasing ourselves towards growth what were trying to signal is that we do want to make sure that the growth engine stays intact and that we're we have a bias towards.

Customer base expansion revenue base expansion, even in a tougher market.

The benefits of scale for us are quite significant and we want to make sure. We've got scale advantage continues.

So you know as we think about the back half of the year that was what we were trying to signal and we're still investing in sales capacity I might add particularly as we think about some of the market opportunities as we set up for next year. So.

No thats how were thinking about it.

[Company Representative] (Dell Technologies): Great. I think.

Rob Williams: Great. I think.

[Analyst] (Wolf Research): Thank you.

Wamsi Mohan: Thank you.

[Company Representative] (Dell Technologies): Yeah. Erica, one more question?

Rob Williams: Yeah. Erica, one more question?

Great. Thank you.

Erika and one more question.

Operator: Yes. We'll take our final question from John Roy with UBS.

Yes, we will take our final question from John White with caveat.

Amit Daryanani: Great. Maybe as a final up, you've been talking a lot about enterprise weakness through now and through the back half of the year. Maybe if you could give us some color on why you think that the enterprises are doing that. Is it macro? Is it trade, cloud? Is it really just digestion? Is it something else? Maybe if you could just kind of order what you're seeing out there and why the enterprises seem to be softer.

John Roy: Great. Maybe as a final up, you've been talking a lot about enterprise weakness through now and through the back half of the year. Maybe if you could give us some color on why you think that the enterprises are doing that. Is it macro? Is it trade, cloud? Is it really just digestion? Is it something else? Maybe if you could just kind of order what you're seeing out there and why the enterprises seem to be softer.

Hey, maybe as a final up.

You were talking a lot about enterprise weakness and through now into the back half the year, maybe if you could give us some color on why you think that in the enterprise are doing that is it macro is the trade cloud is it really just digestion is it something else maybe you just kind of order, what you're seeing out there and why the enterprise seem to be softer.

[Company Representative] (Dell Technologies): Well, I think we've talked about it before and I think even made reference in our talking points earlier. Coming off the best server year in times and the best storage year in times in calendar 2018. If memory serves me, we roughly had the storage market growing 12% last year and the server market 30-ish percent, if memory serves me right. There's been a digestion of that that's taken longer than I think all of us in the industry expected. By and large, that's what we're dealing with combined with the softness that we talked about in what has been one of the fastest-growing markets in the world, China.

Jeff Clarke: Well, I think we've talked about it before and I think even made reference in our talking points earlier. Coming off the best server year in times and the best storage year in times in calendar 2018. If memory serves me, we roughly had the storage market growing 12% last year and the server market 30-ish percent, if memory serves me right. There's been a digestion of that that's taken longer than I think all of us in the industry expected. By and large, that's what we're dealing with combined with the softness that we talked about in what has been one of the fastest-growing markets in the world, China.

I think we've talked about it both or and I think even made reference in our.

Talking points earlier.

Coming off the press server year.

Times and the best storage year end times in calendar 2018.

If memory serves me, we roughly have the storage market growing 12% last year in the server market 30 ish percent memory serves me right. There's been a digestion of that that's taking longer than I think.

Industry expected and by and large that's what we're dealing with combined with the softness that we talked about and what has been one of the fastest growing markets in the world China.

Tom Sweet: I would also add that if you just think and we don't have enough visibility to parse it, I think, in the way you're asking it. But most of us that are running large enterprises don't like uncertainty. And then you think about the macro environment, whether it's tariffs or Brexit or some of the other macro dynamics around interest rates and where GDP is trending. It does create an air of potentially an air of uncertainty. And so that also probably has some level of dampening effect on the market. Having said that, though, right, I mean, we think that we're optimistic about the back half of the year. We think we're set up to continue to execute. Companies are still spending. Companies are still in their digital transformation.

Now I would also add that.

If you just.

And I'm not we don't have enough visibility to parse that I think in the way you are asking us but.

You know most of us that are running large enterprises don't like uncertainty and when you think about the macro environment, whether its tariffs are.

Our Brecht said are you know some of the other macro dynamics around interest rates and were GDP is trending does create an arrogant potentially an air of uncertainty and so that also probably has some level dampening effect on the market, having said that though right. I mean, we think that we're optimistic about the back half of the year. We think we're set up to continue to execute and.

You know and.

Tom Sweet: They need to, and they think about some of these IT investments as essential to their business model evolution. We'll continue to press forward and drive the business.

They need to, and they think about some of these IT investments as essential to their business model evolution. We'll continue to press forward and drive the business.

Companies are still spending and companies are still in their digital transformation and they need to do they think about some of these these investments is essential to their business model evolution. So.

We'll continue to press forward and drive the business.

[Company Representative] (Dell Technologies): Great. Thank you.

John Roy: Great. Thank you.

Amit Daryanani: Great. Thank you.

Great. Thank you.

[Company Representative] (Dell Technologies): Thanks, John. Hey, as a reminder, we'll be at the Citi Global Technology Conference in New York on September 4 and 5. We'll also be hosting our business update for the investment community in New York on September 26. So we look forward to continuing the dialogue. Thanks for joining us today.

Rob Williams: Thanks, John. Hey, as a reminder, we'll be at the Citi Global Technology Conference in New York on September 4 and 5. We'll also be hosting our business update for the investment community in New York on September 26. So we look forward to continuing the dialogue. Thanks for joining us today.

Okay, great. Thank you thanks John .

Hey, as a reminder, we will be at the Citi Global Technology Conference in New York on September the fourth and fifth will also be hosting our business update for the investment community in New York on September . The 26, So we look forward to continuing the dialogue thanks for joining us today.

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

This concludes today's conference call. We appreciate your participation you may now disconnect.

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