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MarketScreener Homepage  >  Equities  >  Nyse  >  Dell Technologies Inc.    DELL

DELL TECHNOLOGIES INC.

(DELL)
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DELL TECHNOLOGIES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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09/04/2020 | 04:39pm EDT
This management's discussion and analysis should be read in conjunction with the
audited Consolidated Financial Statements and accompanying Notes included in the
Company's annual report on Form 10-K for the fiscal year ended January 31, 2020
and the unaudited Condensed Consolidated Financial Statements included in this
report. In addition to historical financial information, the following
discussion contains forward-looking statements that reflect our plans,
estimates, and beliefs, and that are subject to numerous risks and
uncertainties. Our actual results may differ materially from those expressed or
implied in any forward-looking statements.

Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with accounting principles generally accepted in the United States of America ("GAAP"). Additionally, unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.


Unless the context indicates otherwise, references in this report to "we," "us,"
"our," the "Company," and "Dell Technologies" mean Dell Technologies Inc. and
its consolidated subsidiaries, references to "Dell" mean Dell Inc. and Dell
Inc.'s consolidated subsidiaries, and references to "EMC" mean EMC Corporation
and EMC Corporation's consolidated subsidiaries.

Our fiscal year is the 52- or 53-week period ending on the Friday nearest
January 31. We refer to our fiscal year ending January 29, 2021 and our fiscal
year ended January 31, 2020 as "Fiscal 2021" and "Fiscal 2020," respectively.
Fiscal 2021 and Fiscal 2020 include 52 weeks.

INTRODUCTION


Dell Technologies is a leading global end-to-end technology provider, with a
comprehensive portfolio of IT hardware, software, and services solutions
spanning both traditional infrastructure and emerging multi-cloud technologies
that enable our customers to build their digital future and transform how they
work and live. We operate globally across key functional areas such as
technology and product development, marketing, go-to-market, and global
services, and are supported by Dell Financial Services. We continue to
seamlessly deliver differentiated and holistic IT solutions to our customers,
which has driven significant revenue growth and share gains.

Dell Technologies operates with significant scale and an unmatched breadth of
complementary offerings. Digital transformation has become essential to all
businesses, and we have expanded our portfolio to include holistic solutions
that enable our customers to drive their ongoing digital transformation
initiatives. Dell Technologies' integrated solutions help customers modernize
their IT infrastructure, address workforce transformation, and provide critical
solutions to keep people and organizations connected in this current time of
disruption. With our extensive portfolio and our commitment to innovation, we
have the ability to offer secure, integrated solutions that extend from the edge
to the core to the cloud, and we are at the forefront of the software-defined
and cloud native infrastructure era. Our end-to-end portfolio is supported by a
differentiated go-to-market engine, which includes a 43,000-person sales force,
a global network of channel partners, and a world-class supply chain that
together drive long-term growth and operating efficiencies.


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Products and Services

We design, develop, manufacture, market, sell, and support a wide range of comprehensive and integrated solutions, products, and services. We are organized into the following business units, which are our reportable segments: Infrastructure Solutions Group; Client Solutions Group; and VMware.


•Infrastructure Solutions Group ("ISG") - ISG enables the digital transformation
of our customers through our trusted multi-cloud and big data solutions, which
are built upon a modern data center infrastructure. ISG works with customers in
the area of hybrid cloud deployment with the goal of simplifying, streamlining,
and automating cloud operations. ISG solutions are built for multicloud
environments and are optimized to run cloud native workloads in both public and
private clouds, as well as traditional on-premise workloads.

Our comprehensive portfolio of advanced storage solutions includes traditional
storage solutions as well as next-generation storage solutions (such as
all-flash arrays, scale-out file, object platforms, and software-defined
solutions). We have simplified our storage portfolio to ensure that we deliver
the technology needed for our customers' digital transformation. Our server
portfolio includes high-performance rack, blade, tower, and hyperscale servers,
optimized for artificial intelligence and machine learning workloads. Our
networking portfolio helps our business customers transform and modernize their
infrastructure, mobilize and enrich end-user experiences, and accelerate
business applications and processes. Our strengths in server, storage, and
virtualization software solutions enable us to offer leading converged and
hyper-converged solutions, allowing our customers to accelerate their IT
transformation by acquiring scalable integrated IT solutions instead of building
and assembling their own IT platforms. ISG also offers attached software,
peripherals, and services, including support and deployment, configuration, and
extended warranty services.

Approximately half of ISG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in the Europe, Middle East, and Africa region ("EMEA") and the Asia-Pacific and Japan region ("APJ").


•Client Solutions Group ("CSG") - CSG includes branded hardware (such as
desktops, workstations, and notebooks) and branded peripherals (such as displays
and projectors), as well as third-party software and peripherals. Our computing
devices are designed with our commercial and consumer customers' needs in mind,
and we seek to optimize performance, reliability, manageability, design, and
security. In addition to our traditional hardware business, we have a portfolio
of thin client offerings that we believe will allow us to benefit from the
growth trends in cloud computing. For our customers that are seeking to simplify
client lifecycle management, Dell PC as a Service offering combines hardware,
software, lifecycle services, and financing into one all-encompassing solution
that provides predictable pricing per seat per month through Dell Financial
Services. CSG also offers attached software, peripherals, and services,
including support and deployment, configuration, and extended warranty services.

Approximately half of CSG revenue is generated by sales to customers in the Americas, with the remaining portion derived from sales to customers in EMEA and APJ.


•VMware - The VMware reportable segment ("VMware") reflects the operations of
VMware, Inc. (NYSE: VMW) within Dell Technologies. VMware works with customers
in the areas of hybrid and multi-cloud, modern applications, networking,
security, and digital workspaces, helping customers manage their IT resources
across private clouds and complex multi-cloud, multi-device environments.
VMware's portfolio supports and addresses the key IT priorities of customers:
accelerating their cloud journey, modernizing their applications, empowering
digital workspaces, transforming networking, and embracing intrinsic security.
VMware enables its customers to digitally transform their operations as they
ready their applications, infrastructure, and employees for constantly evolving
business needs.

During the third quarter of Fiscal 2020, VMware, Inc. completed its acquisition
of Carbon Black, Inc. ("Carbon Black"), a developer of cloud-native endpoint
protection.

On December 30, 2019, VMware, Inc. completed its acquisition of Pivotal
Software, Inc. ("Pivotal"). Before the transaction, Pivotal was a majority-owned
subsidiary of Dell Technologies through EMC and VMware, Inc. Pivotal provides a
leading cloud-native platform that makes software development and IT operations
a strategic advantage for customers. Pivotal's cloud-native platform, Pivotal
Cloud Foundry, accelerates and streamlines software development

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by reducing the complexity of building, deploying, and operating new
cloud-native applications, and modernizing legacy applications. With the
acquisition, which aligns key software assets, VMware, Inc. will drive and build
on a comprehensive development platform with Kubernetes.

Dell Technologies now reports Pivotal results within the VMware reportable
segment, and the historical segment results have been recast to reflect this
change. Pivotal results were previously reported within other businesses. See
Note 17 of the Notes to the Condensed Consolidated Financial Statements included
in this report for the recast of segment results.

Approximately half of VMware revenue is generated by sales to customers in the United States.


Our other businesses, described below, consist of product and service offerings
of Secureworks, Virtustream, Boomi, and RSA Security, each of which is
majority-owned by Dell Technologies. These businesses are not classified as
reportable segments, either individually or collectively, as the results of the
businesses are not material to our overall results and the businesses do not
meet the criteria for reportable segments.

•Secureworks (NASDAQ: SCWX) is a leading global provider of intelligence-driven
information security solutions singularly focused on protecting its clients from
cyber attacks. The solutions offered by Secureworks enable organizations of
varying size and complexity to fortify their cyber defenses to prevent security
breaches, detect malicious activity in near real time, prioritize and respond
rapidly to security incidents, and predict emerging threats.

•Virtustream offers cloud software and infrastructure-as-a-service solutions
that enable customers to migrate, run, and manage mission-critical applications
in cloud-based IT environments.

•Boomi specializes in cloud-based integration, connecting information between existing on-premise and cloud-based applications to ensure that business processes are optimized, data is accurate and workflow is reliable.


•RSA Security provides essential cybersecurity solutions engineered to enable
organizations to detect, investigate, and respond to advanced attacks, confirm
and manage identities, and, ultimately, help reduce IP theft, fraud, and
cybercrime. As of July 31, 2020, the assets and liabilities of RSA Security were
classified as held for sale on our Condensed Consolidated Statements of
Financial Position. On September 1, 2020, Dell Technologies completed its
divestiture of RSA Security to a consortium of investors in an all-cash
transaction for approximately $2.082 billion. The transaction is intended to
further simplify our product portfolio and corporate structure.

We believe the collaboration, innovation, and coordination of the operations and
strategies across all segments of our business, as well as our differentiated
go-to-market model, will continue to drive revenue synergies. Through our
coordinated research and development activities, we are able to jointly engineer
leading innovative solutions that incorporate the distinct set of hardware,
software, and services across all segments of our business.

Our products and services offerings are continually evolving in response to
industry dynamics. As a result, reclassifications of certain products and
services solutions in major product categories may be required. For further
discussion regarding our current reportable segments, see "Results of Operations
- Business Unit Results" and Note 17 of the Notes to the Condensed Consolidated
Financial Statements included in this report.

Dell Financial Services


Dell Financial Services and its affiliates ("DFS") support our businesses by
offering and arranging various financing options and services for our customers
in North America, Europe, Australia, and New Zealand. DFS originates, collects,
and services customer receivables primarily related to the purchase or use of
our product, software, and service solutions. We also arrange financing for some
of our customers in various countries where DFS does not currently operate as a
captive. DFS further strengthens our customer relationships through its flexible
consumption models, which enable us to offer our customers the option to pay
over time and, in certain cases, based on utilization, providing them with
financial flexibility to meet their changing technological requirements. The
results of these operations are allocated to our segments based on the
underlying product or service financed. In response to the coronavirus disease
2019 ("COVID-19") pandemic, we are focused on supporting our customers and
intend to provide up to $9 billion in financing support by offering low or zero
percent interest rate programs as well as payment deferral options. The
financial impact to DFS and our securitization and structured financing

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programs is not expected to be material. For additional information about our
financing arrangements, see Note 4 of the Notes to the Condensed Consolidated
Financial Statements included in this report.

Strategic Investments and Acquisitions


As part of our strategy, we will continue to evaluate opportunities for
strategic investments through our venture capital investment arm, Dell
Technologies Capital, with a focus on emerging technology areas that are
relevant to all segments of our business and that will complement our existing
portfolio of solutions. Our investment areas include storage, software-defined
networking, management and orchestration, security, machine learning and
artificial intelligence, Big Data and analytics, cloud, Internet of Things
("IoT"), and software development operations. In addition to these investments,
we also may make disciplined acquisitions targeting businesses that advance our
strategic objectives. As of July 31, 2020 and January 31, 2020, Dell
Technologies held strategic investments of $1.0 billion and $0.9 billion,
respectively.

Business Trends and Challenges


COVID-19 Pandemic and Response - In March 2020, the World Health Organization
("WHO") declared the outbreak of the COVID-19 a global pandemic. This
declaration has been followed by significant governmental measures implemented
in the United States and globally, including travel bans and restrictions,
shelter-in-place orders, limitations and closures of non-essential businesses,
and social distancing requirements in efforts to slow down and control the
spread of the virus.

The health of our employees, customers, business partners, and communities
remains our primary focus. We have taken numerous actions to date in response to
COVID-19, including a swift implementation of our business continuity plans. Our
crisis management team is actively engaged to respond to changes in our
environment quickly and effectively, and to ensure that our preparedness plans
and response activities are aligned with recommendations of the WHO, the U.S.
Centers for Disease Control and Prevention, and governmental regulations. We
have implemented broad travel restrictions and moved to virtual-only events.
Most of our employees were previously equipped with remote work capabilities
over the past several years, thus enabling us to quickly establish a
work-from-home posture for the majority of our employees. Further, we
implemented pandemic-specific protocols for our essential employees whose jobs
require them to be on-site or with customers. Certain regions and municipalities
within the United States and internationally are beginning to lift stay-at-home
and quarantine mandates. We are actively working with governments across the
world to develop return-to-site protocols to ensure the health and safety of our
employees, customers, and business partners.

We are working closely with our customers and business partners to support them
as they expand their own remote work solutions and contingency plans, helping
them access our products and services remotely. We have benefited from our
agility, our breadth, and our scale. Notable actions we have taken include the
following:

•Our global sales teams embraced a new selling process and are successfully supporting our customers and partners remotely.

•We are helping to address our customers' cash flow requirements by expanding our as-a-service and financing offerings.


•Our close relationships and ability to connect directly with our customers
through our e-commerce business have enabled us to quickly meet the immediate
demands of the new work- and learn-from-home environments.

•The strength, scale, and resiliency of our global supply chain have afforded us
flexibility to manage through this challenging time. We adapted to events
unfolding real-time by applying predictive analytics to model a variety of
outcomes to respond quickly to the changing environment.  We optimized our
global supply chain footprint to maximize factory uptime, for both Dell
Technologies and our suppliers, by working through various local governmental
regulations and mandates. During this time, we established robust safety
measures to protect the health and safety of our essential team members.

•We continue to drive innovation and excellence in engineering with a largely
remote workforce. Engineers and product teams recently delivered several
critical solutions, including cloud updates and key client product refreshes, as
well as the May 2020 launch of the PowerStore midrange storage solution.


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During the first six months of Fiscal 2021, we took certain precautionary
measures to increase our cash position and preserve financial flexibility. We
also made a series of prudent decisions to manage expenses and preserve
liquidity including but not limited to global hiring limitations, reduction in
consulting and contractor costs, global travel restrictions, suspension of the
Dell 401(k) match program for U.S. employees, and lower facilities-related
costs. All of these actions are aligned with our strategy, which remains
unchanged, of focusing on gaining share, integrating and innovating across the
Dell Technologies portfolio, and strengthening our capital structure.

We saw unique demand dynamics during the first six months of Fiscal 2021. For
additional information about impacts of COVID-19 on our operations, see "Results
of Operations-Consolidated Results" and "-Business Unit Results."

We are unable to accurately predict the full impact this unprecedented
environment may have on our results of operations, financial condition,
liquidity and cash flows due to numerous uncertainties involved, including the
progression of the COVID-19 pandemic, governmental responses, and the timing of
recovery. We will continue to actively monitor global events and make prudent
decisions to navigate in this uncertain and ever-changing environment. We
believe we are well-positioned for long-term success, and that we will continue
to lead the industry with innovative solutions and the essential technology that
the world needs now more than ever.

Dell Technologies Vision and Innovation - Our vision is to be the essential
technology company for the data era and a leader in end-user computing,
software-defined data center solutions, data management, virtualization, IoT,
and cloud software. We believe that our results will benefit from an integrated
go-to-market strategy, including enhanced coordination across all segments of
our business, and from our differentiated products and solutions capabilities.
We intend to continue to execute on our business model and seek to balance
liquidity, profitability, and growth to position our company for long-term
success.

We are seeing an accelerated rate of change in the IT industry. We seek to
address our customers' evolving needs and their broader digital transformation
objectives as they embrace the hybrid multi-cloud environment of today. For many
customers right now, a top digital priority is to build stable and resilient
remote operational capabilities. We are seeing demand for simpler, more agile IT
across multiple clouds. The pandemic has accelerated the introduction and
adoption of new technologies to ensure productivity and collaboration from
anywhere. In light of this rapid pace of innovation, we continue to invest in
research and development, sales, and other key areas of our business to deliver
superior products and solutions capabilities and to drive long-term sustainable
growth.

ISG - We expect that ISG will continue to be impacted by the changing nature of
the IT infrastructure market and competitive environment. The overall server
demand environment was down for the first six months of Fiscal 2021 and remains
varied among international regions. We will continue to be selective in
determining whether to pursue certain large hyperscale and other server
transactions as we drive for balanced growth and profitability. With our scale
and strong solutions portfolio, we believe we are well-positioned to respond to
ongoing competitive dynamics. We continue to focus on customer base expansion
and lifetime value of customer relationships.

Cloud-native applications are expected to continue as a primary growth driver in
the infrastructure market as IT organizations increasingly adopt cloud native
architectures. We believe the complementary cloud solutions across our business
strongly position us to meet these demands for our customers, who are
increasingly looking to leverage cloud native architectures, whether
on-premises, private or public.

The unprecedented data growth throughout all industries is generating continued
demand for our storage solutions and services. We benefit by offering solutions
that address the emerging trends of enterprises deploying software-defined
storage, hyper-converged infrastructure, and modular solutions based on
server-centric architectures. These trends are changing the way customers are
consuming our traditional storage offerings. We continue to expand our offerings
in external storage arrays, which incorporate flexible, cloud-based
functionality. Through our research and development efforts, we are developing
new solutions in this rapidly changing industry that we believe will enable us
to continue to provide superior solutions to our customers.

CSG - Our CSG offerings are an important element of our strategy, generating
strong cash flow and opportunities for cross-selling of complementary solutions.
During the first six months of Fiscal 2021, CSG demand was strong in certain
product lines, particularly for notebooks and gaming systems, while demand for
commercial desktops decreased. These demand dynamics were driven by the
imperative for remote work and remote learning solutions, as business,
government, and education customers sought to maintain productivity in the midst
of COVID-19. We continue to deploy Dell PC as a Service offerings for customers
who are seeking simplified solutions and lifecycle management with predictable
pricing through DFS. We expect

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that the CSG demand environment will to continue to be cyclical, but the
near-term demand environment remains uncertain given current macro-economic
dynamics, including the effects of COVID-19. We expect a higher mix toward
consumer solutions and entry-level notebooks in the second half of Fiscal 2021,
which may put pressure on CSG operating results. We remain committed to our
long-term strategy for CSG and will continue to innovate across the portfolio,
while benefiting from consolidation trends that are occurring in the markets in
which we compete. Competitive dynamics will continue to be a factor in our CSG
business as we seek to balance profitability and growth.

Recurring Revenue and Consumption Models - Our customers are interested in new
and innovative models that address how they consume our solutions. We offer
options including as-a-service, utility, leases, and immediate pay models, all
designed to match customers' consumption and financing preferences. Our
multi-year agreements typically result in recurring revenue streams over the
term of the arrangement. We expect that our flexible consumption models will
further strengthen our customer relationships and provide a foundation for
growth in recurring revenue.

Supply Chain - During Fiscal 2020, we recognized benefits to our ISG and CSG
operating results from significant component cost declines. During the second
quarter of Fiscal 2021, the ISG component cost environment became inflationary.
For CSG, component costs continued to be deflationary during the second quarter
of Fiscal 2021, but at a lower rate than during the first quarter of Fiscal
2021. We currently expect the component cost environment will be inflationary in
the aggregate during the third quarter of Fiscal 2021 and then will return to a
deflationary environment in the fourth quarter of Fiscal 2021. The component
cost trends and forecasts are dependent on the strength or weakness of actual
end-user demand and supply dynamics, which will continue to evolve and
ultimately impact the translation of the cost environment to pricing and
operating results.

Dell Technologies maintains limited-source supplier relationships for
processors, because the relationships are advantageous in the areas of
performance, quality, support, delivery, capacity, and price considerations. In
recent periods, we have been impacted by processor and other supply constraints
in certain product offerings, some of which resulted from COVID-19 driven demand
patterns. Delays in the supply of limited-source components, including as a
result of COVID-19, are affecting the timing of shipments of certain products in
desired quantities or configurations.

Macro-Economic Risks and Uncertainties - The impacts of trade protection
measures, including increases in tariffs and trade barriers, and changes in
government policies and international trade arrangements may affect our ability
to conduct business in some non-U.S. markets. We monitor and seek to mitigate
these risks with adjustments to our manufacturing, supply chain, and
distribution networks.

We manage our business on a U.S. dollar basis. However, we have a large global
presence, generating approximately half of our revenue by sales to customers
outside of the United States during both the first six months of Fiscal 2021 and
Fiscal 2020. As a result, our revenue can be impacted by fluctuations in foreign
currency exchange rates. We utilize a comprehensive hedging strategy intended to
mitigate the impact of foreign currency volatility over time, and we adjust
pricing when possible to further minimize foreign currency impacts.

Key Performance Metrics

Our key performance metrics are net revenue, operating income, adjusted EBITDA, and cash flows from operations, which are discussed elsewhere in this report.

Class V Transaction


On December 28, 2018, we completed a transaction ("Class V transaction") in
which we paid $14.0 billion in cash and issued 149,387,617 shares of our Class C
Common Stock to holders of our Class V Common Stock in exchange for all
outstanding shares of Class V Common Stock. The non-cash consideration portion
of the Class V transaction totaled $6.9 billion. As a result of the Class V
transaction, the tracking stock feature of Dell Technologies' capital structure
was terminated. The Class C Common Stock is traded on the New York Stock
Exchange.


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VMware, Inc. Ownership

On July 15, 2020, we announced that we are exploring potential alternatives with
respect to our ownership in VMware, Inc., including a potential spin-off of that
ownership interest to Dell Technologies' stockholders. Although this process is
currently only at an exploratory stage, we believe a spin-off could benefit both
Dell Technologies' and VMware, Inc.'s stockholders by simplifying capital
structures and enhancing strategic flexibility, while still maintaining a
mutually beneficial strategic and commercial partnership. Any potential spin-off
would not occur prior to September 2021. Other strategic options include
maintaining the status quo with respect to our ownership interest in VMware,
Inc.

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NON-GAAP FINANCIAL MEASURES

In this management's discussion and analysis, we use supplemental measures of
our performance which are derived from our consolidated financial information
but which are not presented in our consolidated financial statements prepared in
accordance with GAAP. These non-GAAP financial measures include non-GAAP product
net revenue; non-GAAP services net revenue; non-GAAP net revenue; non-GAAP
product gross margin; non-GAAP services gross margin; non-GAAP gross margin;
non-GAAP operating expenses; non-GAAP operating income; non-GAAP net income;
earnings before interest and other, net, taxes, depreciation, and amortization
("EBITDA"); and adjusted EBITDA.

We use non-GAAP financial measures to supplement financial information presented
on a GAAP basis. Management considers these non-GAAP measures in evaluating our
operating trends and performance. Moreover, we believe these non-GAAP financial
measures provide our stakeholders with useful and transparent information to
help them evaluate our operating results by facilitating an enhanced
understanding of our operating performance and enabling them to make more
meaningful period to period comparisons. There are limitations to the use of the
non-GAAP financial measures presented in this report. Our non-GAAP financial
measures may not be comparable to similarly titled measures of other companies.
Other companies, including companies in our industry, may calculate non-GAAP
financial measures differently than we do, limiting the usefulness of those
measures for comparative purposes.

Non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net
revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP
gross margin, non-GAAP operating expenses, non-GAAP operating income, and
non-GAAP net income, as defined by us, exclude amortization of intangible
assets, the impact of purchase accounting, transaction-related expenses,
stock-based compensation expense, other corporate expenses and, for non-GAAP net
income, fair value adjustments on equity adjustments and an aggregate adjustment
for income taxes. As the excluded items have a material impact on our financial
results, our management compensates for this limitation by relying primarily on
our GAAP results and using non-GAAP financial measures supplementally or for
projections when comparable GAAP financial measures are not available. The
non-GAAP financial measures are not meant to be considered as indicators of
performance in isolation from or as a substitute for net revenue, gross margin,
operating expenses, operating income, or net income prepared in accordance with
GAAP, and should be read only in conjunction with financial information
presented on a GAAP basis.

Reconciliations of each non-GAAP financial measure to its most directly
comparable GAAP financial measure are presented below. We encourage you to
review the reconciliations in conjunction with the presentation of the non-GAAP
financial measures for each of the periods presented. The discussion below
includes information on each of the excluded items as well as our reasons for
excluding them from our non-GAAP results. In future fiscal periods, we may
exclude such items and may incur income and expenses similar to these excluded
items. Accordingly, the exclusion of these items and other similar items in our
non-GAAP presentation should not be interpreted as implying that these items are
non-recurring, infrequent, or unusual.

Revenue Reclassification - During Fiscal 2020, Dell Technologies made certain
reclassifications of net revenue between the products and services categories on
the Consolidated Statement of Net Income (Loss), which impacted previously
reported amounts for the second quarter and first six months of Fiscal 2020. The
reclassifications were made to provide a more meaningful representation of the
nature of certain service and software-as-a-service offerings of VMware, Inc.
The reclassifications resulted in an increase to services revenue and an equal
and offsetting decrease to product revenue of $195 million and $374 million for
the second quarter and first six months of Fiscal 2020, respectively. Total net
revenue as previously reported remains unchanged. The Company did not recast
cost of goods sold for the related revenue reclassifications due to
immateriality.


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The following is a summary of the items excluded from the most comparable GAAP
financial measures to calculate our non-GAAP financial measures:

•Amortization of Intangible Assets - Amortization of intangible assets primarily
consists of amortization of customer relationships, developed technology, and
trade names. In connection with our acquisition by merger of EMC on September 7,
2016, referred to as the EMC merger transaction, and the acquisition of Dell
Inc. by Dell Technologies Inc. on October 29, 2013, referred to as the
going-private transaction, all of the tangible and intangible assets and
liabilities of EMC and Dell, respectively, were accounted for and recognized at
fair value on the transaction dates. Accordingly, for the periods presented,
amortization of intangible assets represents amortization associated with
intangible assets recognized in connection with the EMC merger transaction and
the going-private transaction. Amortization charges for purchased intangible
assets are significantly impacted by the timing and magnitude of our
acquisitions, and these charges may vary in amount from period to period. We
exclude these charges for purposes of calculating the non-GAAP financial
measures presented below to facilitate a more meaningful evaluation of our
current operating performance and comparisons to our past operating performance.

•Impact of Purchase Accounting - The impact of purchase accounting includes
purchase accounting adjustments related to the EMC merger transaction and, to a
lesser extent, the going-private transaction, recorded under the acquisition
method of accounting in accordance with the accounting guidance for business
combinations. This guidance prescribes that the purchase price be allocated to
assets acquired and liabilities assumed based on the estimated fair value of
such assets and liabilities on the date of the transaction. Accordingly, all of
the assets and liabilities acquired in the EMC merger transaction and the
going-private transaction were accounted for and recognized at fair value as of
the respective transaction dates, and the fair value adjustments are being
amortized over the estimated useful lives in the periods following the
transactions. The fair value adjustments primarily relate to deferred revenue,
inventory, and property, plant, and equipment. Although the purchase accounting
adjustments and related amortization of those adjustments are reflected in our
GAAP results, we evaluate the operating results of the underlying businesses on
a non-GAAP basis, after removing such adjustments. We believe that excluding the
impact of purchase accounting provides results that are useful in understanding
our current operating performance and provides more meaningful comparisons to
our past operating performance.

•Transaction-related Expenses - Transaction-related expenses typically consist
of acquisition, integration, and divestiture related costs and are expensed as
incurred. These expenses primarily represent costs for legal, banking,
consulting, and advisory services.  From time to time, this category also may
include transaction-related gains on divestitures of businesses or asset sales.
During the first quarter of Fiscal 2021, we recognized a gain of $120 million on
the sale of certain intellectual property assets. We exclude these items for
purposes of calculating the non-GAAP financial measures presented below to
facilitate a more meaningful evaluation of our current operating performance and
comparisons to our past operating performance. See Note 8 of the Notes to the
Condensed Consolidated Financial Statements for additional information about
VMware, Inc. acquisitions.

•Stock-based Compensation Expense - Stock-based compensation expense consists of
equity awards granted based on the estimated fair value of those awards at grant
date. We estimate the fair value of service-based stock options using the
Black-Scholes valuation model. To estimate the fair value of performance-based
awards containing a market condition, we use the Monte Carlo valuation model.
For all other share-based awards, the fair value is based on the closing price
of the Class C Common Stock as reported on the NYSE on the date of grant.
Although stock-based compensation is an important aspect of the compensation of
our employees and executives, the fair value of the stock-based awards may bear
little resemblance to the actual value realized upon the vesting or future
exercise of the related stock-based awards. We believe that excluding
stock-based compensation expense for purposes of calculating the non-GAAP
financial measures presented below facilitates a more meaningful evaluation of
our current operating performance and comparisons to our past operating
performance.

•Other Corporate Expenses - Other corporate expenses consists primarily of
severance, facility action, and other costs. Severance costs are primarily
related to severance and benefits for employees terminated pursuant to cost
savings initiatives. We continue to integrate owned and leased facilities and
may incur additional costs as we seek opportunities for operational
efficiencies. Other corporate expenses vary from period to period and are
significantly impacted by the timing and nature of these events. Therefore,
although we may incur these types of expenses in the future, we believe that
eliminating these charges for purposes of calculating the non-GAAP financial
measures presented below facilitates a more meaningful evaluation of our current
operating performance and comparisons to our past operating performance. During

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the second quarter and first six months of Fiscal 2020, this category includes
Virtustream gross impairment charges of $619 million.

•Fair Value Adjustments on Equity Investments - Fair value adjustments on equity
investments primarily consists of the gain (loss) on strategic investments,
which includes the recurring fair value adjustments of investments in
publicly-traded companies, as well as those in privately-held companies, which
are adjusted for observable price changes and, to a lesser extent, any potential
impairments. Given the volatility in the ongoing adjustments to the valuation of
these strategic investments, we believe that excluding these gains and losses
for purposes of calculating non-GAAP net income presented below facilitates a
more meaningful evaluation of our current operating performance and comparisons
to our past operating performance.

•Aggregate Adjustment for Income Taxes - The aggregate adjustment for income
taxes is the estimated combined income tax effect for the adjustments described
above, as well as an adjustment for discrete tax items. Due to the variability
in recognition of discrete tax items from period to period, we believe that
excluding these benefits or charges for purposes of calculating non-GAAP net
income facilitates a more meaningful evaluation of our current operating
performance and comparisons to our past operating performance. The tax effects
are determined based on the tax jurisdictions where the above items were
incurred. This category includes discrete tax benefits of $746 million related
to an audit settlement in the second quarter and first six months of Fiscal
2021, and $59 million from an intra-entity asset transfer of certain of
Pivotal's intellectual property to an Irish subsidiary that was completed by
VMware, Inc. during the first six months of Fiscal 2021. This category also
includes discrete tax benefits of $4.5 billion and $4.9 billion related to
similar intra-entity asset transfers in the second quarter and first six months
of Fiscal 2020, respectively. See Note 11 of the Notes to the Condensed
Consolidated Financial Statements for additional information about our income
taxes.


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The table below presents a reconciliation of each non-GAAP financial measure to
the most directly comparable GAAP measure for the periods indicated:
                                                               Three Months Ended                                                                            Six Months Ended
                                                                                          August 2,                                                       August 2,
                                              July 31, 2020            % Change              2019             July 31, 2020            % Change              2019
                                                                                        (in millions, except percentages)
Product net revenue                         $       16,737                   (7) %       $  17,915$       32,775                   (5) %       $  34,490
Non-GAAP adjustments:
Impact of purchase accounting                            2                                       6                       6                                      10
Non-GAAP product net revenue                $       16,739                   (7) %       $  17,921$       32,781                   (5) %       $  34,500

Services net revenue                        $        5,996                   10  %       $   5,455$       11,855                   10  %       $  10,788
Non-GAAP adjustments:
Impact of purchase accounting                           40                                      78                      84                                     156
Non-GAAP services net revenue               $        6,036                    9  %       $   5,533$       11,939                    9  %       $  10,944

Net revenue                                 $       22,733                   (3) %       $  23,370$       44,630                   (1) %       $  45,278
Non-GAAP adjustments:
Impact of purchase accounting                           42                                      84                      90                                     166
Non-GAAP net revenue                        $       22,775                   (3) %       $  23,454$       44,720                   (2) %       $  45,444

Product gross margin                        $        3,407                  (15) %       $   4,026$        6,641                  (12) %       $   7,522
Non-GAAP adjustments:
Amortization of intangibles                            374                                     519                     746                                   1,038
Impact of purchase accounting                            3                                       7                      10                                      13
Transaction-related expenses                             -                                      (3)                      -                                      (5)
Stock-based compensation expense                         6                                       4                      10                                       6
Other corporate expenses                                 1                                       5                       3                                       9
Non-GAAP product gross margin               $        3,791                  (17) %       $   4,558$        7,410                  (14) %       $   8,583

Services gross margin                       $        3,749                   14  %       $   3,300$        7,368                   12  %       $   6,601
Non-GAAP adjustments:
Amortization of intangibles                              1                                       -                       1                                       -
Impact of purchase accounting                           40                                      78                      84                                     156
Transaction-related expenses                             -                                       3                       -                                       -
Stock-based compensation expense                        44                                      28                      80                                      52
Other corporate expenses                                 1                                      19                       8                                      28
Non-GAAP services gross margin              $        3,835                   12  %       $   3,428$        7,541                   10  %       $   6,837




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                                                                  Three Months Ended                                                                              Six Months Ended
                                                                                                                                                               August 2,
                                              July 31, 2020            % Change           August 2, 2019           July 31, 2020            % Change              2019
                                                                                          (in millions, except percentages)
Gross margin                                $        7,156                   (2) %       $        7,326$       14,009                   (1) %       $  14,123
Non-GAAP adjustments:
Amortization of intangibles                            375                                          519                     747                                   1,038
Impact of purchase accounting                           43                                           85                      94                                     169
Transaction-related expenses                             -                                            -                       -                                      (5)
Stock-based compensation expense                        50                                           32                      90                                      58
Other corporate expenses                                 2                                           24                      11                                      37
Non-GAAP gross margin                       $        7,626                   (5) %       $        7,986$       14,951                   (3) %       $  15,420

Operating expenses                          $        6,020                  (12) %       $        6,807$       12,171                   (7) %       $  13,054
Non-GAAP adjustments:
Amortization of intangibles                           (472)                                        (541)                   (955)                                 (1,239)
Impact of purchase accounting                          (10)                                         (17)                    (22)                                    (34)
Transaction-related expenses                           (83)                                         (47)                   (159)                                    (94)
Stock-based compensation expense                      (363)                                        (269)                   (693)                                   (506)
Other corporate expenses                               (84)                                        (690)                   (170)                                   (700)
Non-GAAP operating expenses                 $        5,008                   (4) %       $        5,243$       10,172                   (3) %       $  10,481

Operating income                            $        1,136                  119  %       $          519          $        1,838                   72  %       $   1,069
Non-GAAP adjustments:
Amortization of intangibles                            847                                        1,060                   1,702                                   2,277
Impact of purchase accounting                           53                                          102                     116                                     203
Transaction-related expenses                            83                                           47                     159                                      89
Stock-based compensation expense                       413                                          301                     783                                     564
Other corporate expenses                                86                                          714                     181                                     737
Non-GAAP operating income                   $        2,618                   (5) %       $        2,743$        4,779                   (3) %       $   4,939

Net income                                  $        1,099                  (74) %       $        4,232$        1,281                  (72) %       $   4,561
Non-GAAP adjustments:
Amortization of intangibles                            847                                        1,060                   1,702                                   2,277
Impact of purchase accounting                           53                                          102                     116                                     203
Transaction-related (income) expenses                   83                                           47                      39                                      89
Stock-based compensation expense                       413                                          301                     783                                     564
Other corporate expenses                                86                                          714                     181                                     737
Fair value adjustments on equity                        (8)                                         (80)                   (102)                                   (142)

investments

Aggregate adjustment for income taxes                 (952)                                      (4,625)                 (1,236)                                 (5,329)
Non-GAAP net income                         $        1,621                   (7) %       $        1,751$        2,764                   (7) %       $   2,960




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In addition to the above measures, we also use EBITDA and adjusted EBITDA to
provide additional information for evaluation of our operating performance.
Adjusted EBITDA excludes purchase accounting adjustments related to the EMC
merger transaction and the going-private transaction, acquisition, integration,
and divestiture related costs, severance, facility action, and other costs, and
stock-based compensation expense. We believe that, due to the non-operational
nature of the purchase accounting entries, it is appropriate to exclude these
adjustments.

As is the case with the non-GAAP measures presented above, users should consider
the limitations of using EBITDA and adjusted EBITDA, including the fact that
those measures do not provide a complete measure of our operating performance.
EBITDA and adjusted EBITDA do not purport to be alternatives to net income
(loss) as measures of operating performance or to cash flows from operating
activities as a measure of liquidity. In particular, EBITDA and adjusted EBITDA
are not intended to be a measure of free cash flow available for management's
discretionary use, as these measures do not consider certain cash requirements,
such as working capital needs, capital expenditures, contractual commitments,
interest payments, tax payments, and other debt service requirements.

The table below presents a reconciliation of EBITDA and adjusted EBITDA to net income for the periods indicated:

                                                                  Three Months Ended                                                                              Six Months Ended
                                                                                                                                                                August 2,
                                              July 31, 2020            % Change           August 2, 2019           July 31, 2020            % Change              2019
                                                                                           (in millions, except percentages)
Net income                                  $        1,099                  (74) %       $        4,232$        1,281                  (72) %       $    4,561
Adjustments:
Interest and other, net (a)                            636                                          630                   1,202                                    1,323
Income tax benefit (b)                                (599)                                      (4,343)                   (645)                                  (4,815)
Depreciation and amortization                        1,340                                        1,498                   2,656                                    3,114
EBITDA                                      $        2,476                   23  %       $        2,017$        4,494                    7  %       $    4,183

EBITDA                                      $        2,476                   23  %       $        2,017$        4,494                    7  %       $    4,183
Adjustments:
Stock-based compensation expense                       413                                          301                     783                                      564
Impact of purchase accounting (c)                       42                                           84                      90                                      167
Transaction-related expenses (d)                        83                                           47                     159                                       89
Other corporate expenses (e)                            86                                          707                     181                                      726
Adjusted EBITDA                             $        3,100                   (2) %       $        3,156$        5,707                    -  %       $    5,729


____________________
(a)See "Results of Operations - Interest and Other, Net" for more information on
the components of interest and other, net.
(b)See Note 11 of the Notes to the Condensed Consolidated Financial Statements
included in this report for additional information on discrete tax items
recorded during the second quarter and first six months of Fiscal 2021 and
Fiscal 2020.
(c)This amount includes the non-cash purchase accounting adjustments related to
the EMC merger transaction and the going-private transaction.
(d)Transaction-related expenses consist of acquisition, integration, and
divestiture related costs.
(e)Other corporate expenses includes impairment charges, severance, facility
action, and other costs.


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RESULTS OF OPERATIONS

Consolidated Results

The following table summarizes our consolidated results for each of the periods
presented. Unless otherwise indicated, all changes identified for the current
period results represent comparisons to results for the prior corresponding
fiscal period.
                                                                       Three Months Ended                                                                                                                                                 Six Months Ended
                                           July 31, 2020August 2, 2019July 31, 2020August 2, 2019
                                                           % of                   %                                     % of                                      % of                   %                                   % of
                                  Dollars               Net Revenue             Change            Dollars            Net Revenue            Dollars            Net Revenue             Change            Dollars          Net Revenue
                                                                                                                 (in millions, except percentages)
Net revenue:
Products (a)                  $      16,737                    73.6  %              (7) %       $ 17,915                    76.7  %       $ 32,775                    73.4  %              (5) %       $ 34,490                76.2  %
Services (a)                          5,996                    26.4  %              10  %          5,455                    23.3  %         11,855                    26.6  %              10  %         10,788                23.8  %
Total net revenue             $      22,733                   100.0  %              (3) %       $ 23,370                   100.0  %       $ 44,630                   100.0  %              (1) %       $ 45,278               100.0  %
Gross margin:
Products (b)                  $       3,407                    20.4  %             (15) %       $  4,026                    22.5  %       $  6,641                    20.3  %             (12) %       $  7,522                21.8  %
Services (c)                          3,749                    62.5  %              14  %          3,300                    60.5  %          7,368                    62.2  %              12  %          6,601                61.2  %
Total gross margin            $       7,156                    31.5  %              (2) %       $  7,326                    31.3  %       $ 14,009                    31.4  %              (1) %       $ 14,123                31.2  %
Operating expenses            $       6,020                    26.5  %             (12) %       $  6,807                    29.1  %       $ 12,171                    27.3  %              (7) %       $ 13,054                28.8  %
Operating income              $       1,136                     5.0  %             119  %       $    519                     2.2  %       $  1,838                     4.1  %              72  %       $  1,069                 2.4  %
Net income                    $       1,099                     4.8  %             (74) %       $  4,232                    18.1  %       $  1,281                     2.9  %             (72) %       $  4,561                10.1  %
Net income attributable to
Dell Technologies Inc.$       1,048                     4.6  %             (69) %       $  3,416                    14.6  %       $  1,191                     2.7  %             (68) %       $  3,709                 8.2 

%


Non-GAAP Financial Information
Non-GAAP net revenue:
Products (a)                  $      16,739                    73.5  %              (7) %       $ 17,921                    76.4  %       $ 32,781                    73.3  %              (5) %       $ 34,500                75.9 

%

Services (a)                          6,036                    26.5  %               9  %          5,533                    23.6  %         11,939                    26.7  %               9  %         10,944                24.1 

%

Total non-GAAP net revenue    $      22,775                   100.0  %              (3) %       $ 23,454                   100.0  %       $ 44,720                   100.0  %              (2) %       $ 45,444               100.0 

%

Non-GAAP gross margin:
Products (b)                  $       3,791                    22.6  %             (17) %       $  4,558                    25.4  %       $  7,410                    22.6  %             (14) %       $  8,583                24.9  %
Services (c)                          3,835                    63.5  %              12  %          3,428                    62.0  %          7,541                    63.2  %              10  %          6,837                62.5  %
Total non-GAAP gross margin   $       7,626                    33.5  %              (5) %       $  7,986                    34.0  %       $ 14,951                    33.4  %              (3) %       $ 15,420                33.9 

%

Non-GAAP operating expenses   $       5,008                    22.0  %              (4) %       $  5,243                    22.4  %       $ 10,172                    22.7  %              (3) %       $ 10,481                23.1 

%

Non-GAAP operating income     $       2,618                    11.5  %              (5) %       $  2,743                    11.7  %       $  4,779                    10.7  %              (3) %       $  4,939                10.9  %
Non-GAAP net income           $       1,621                     7.1  %              (7) %       $  1,751                     7.5  %       $  2,764                     6.2  %              (7) %       $  2,960                 6.5  %
EBITDA                        $       2,476                    10.9  %              23  %       $  2,017                     8.6  %       $  4,494                    10.0  %               7  %       $  4,183                 9.2  %
Adjusted EBITDA               $       3,100                    13.6  %              (2) %       $  3,156                    13.5  %       $  5,707                    12.8  %               -  %       $  5,729                12.6  %


____________________
(a) During Fiscal 2020, Dell Technologies made certain reclassifications of net
revenue between the products and services categories on the Consolidated
Statement of Net Income (Loss), which impacted previously reported amounts for
the second quarter and first six months of Fiscal 2020. The Company did not
recast cost of goods sold for the related revenue reclassifications due to
immateriality. The reclassifications resulted in an increase to services revenue
and an equal and offsetting decrease to product revenue of $195 million and $374
million for the second quarter and first six months of Fiscal 2020,
respectively. Total net revenue as previously reported remains unchanged.


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(b) Product gross margin percentages represent product gross margin as a
percentage of product net revenue, and non-GAAP product gross margin percentages
represent non-GAAP product gross margin as a percentage of non-GAAP product net
revenue.
(c) Services gross margin percentages represent services gross margin as a
percentage of services net revenue, and non-GAAP services gross margin
percentages represent non-GAAP services gross margin as a percentage of non-GAAP
services net revenue.

Non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net
revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP
gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP
net income, EBITDA, and adjusted EBITDA are not measurements of financial
performance prepared in accordance with GAAP. Non-GAAP financial measures as a
percentage of net revenue are calculated based on non-GAAP net revenue. See
"Non-GAAP Financial Measures" for additional information about these non-GAAP
financial measures, including our reasons for including these measures, material
limitations with respect to the usefulness of the measures, and a reconciliation
of each non-GAAP financial measure to the most directly comparable GAAP
financial measure.

Overview


During the second quarter and first six months of Fiscal 2021, our net revenue
decreased 3% and 1%, respectively, as we benefited from the strength of our
broad technology solutions portfolio, which helped us navigate market volatility
and competitive pressures, particularly due to the COVID-19 environment. During
the second quarter and first six months of Fiscal 2021, our non-GAAP net revenue
decreased 3% and 2%, respectively. Declines in ISG and CSG net revenue were
partially offset by an increase in VMware net revenue for both the second
quarter and first six months of Fiscal 2021. VMware net revenue increased as a
result of broad-based strength across the portfolio, primarily due to growth in
sales of subscriptions and software-as-a-service offerings. ISG net revenue
decreased primarily due to a weaker demand environment as customers continued to
direct their investments towards remote work and business continuity solutions.
The decrease in CSG net revenue was primarily driven by lower demand for
commercial desktops, partially offset by growth in consumer solutions and
continued demand for commercial notebooks. Although we are in the midst of
unprecedented uncertainty as a result of the ongoing COVID-19 pandemic, we
believe we are well-positioned for long-term profitable growth while also
maintaining the ability to adjust as needed to changing market conditions with
complementary solutions across all segments of our business, an agile workforce,
and the strength of our global supply chain.

During the second quarter and first six months of Fiscal 2021, our operating
income increased 119% and 72%, respectively, primarily due to the absence of
Virtustream impairment charges of $619 million recognized in the second quarter
and first six months of Fiscal 2020. Operating income also benefited from
increases in operating income for VMware and other businesses, and decreases in
amortization of intangible assets. These benefits were partially offset by
decreases in operating income for CSG and ISG and increases in stock-based
compensation expense.

Amortization of intangible assets, stock-based compensation expense, and other
corporate expenses that impacted our operating income totaled $1.3 billion and
$2.1 billion for the second quarter of Fiscal 2021 and Fiscal 2020,
respectively, and $2.7 billion and $3.6 billion for the first six months of
Fiscal 2021 and Fiscal 2020, respectively. Excluding these costs, and the impact
of purchase accounting and transaction-related expenses, our non-GAAP operating
income decreased 5% and 3% during the second quarter and first six months of
Fiscal 2021, respectively, due to decreases in operating income for ISG and CSG,
which were partially offset by increases in operating income for VMware and
other businesses.

Cash provided by operating activities was $2.5 billion for the first six months
of Fiscal 2021 compared to $4.0 billion for the first six months of Fiscal 2020.
The decrease in operating cash flows during the first six months of Fiscal 2021
was primarily attributable to unfavorable working capital impacts of an increase
in inventory related to the COVID-19 pandemic and timing of purchases and
payments to vendors. See "Market Conditions, Liquidity, and Capital Commitments"
for further information on our cash flow metrics.

Net Revenue


During the second quarter and first six months of Fiscal 2021, our net revenue
decreased 3% and 1%, respectively. During the second quarter and first six
months of Fiscal 2021, our non-GAAP net revenue decreased 3% and 2%,
respectively. The decreases in net revenue and non-GAAP net revenue were
primarily attributable to declines in net revenue in CSG and ISG, which were
partially offset by increases in VMware net revenue. See "Business Unit Results"
for further information.


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•Product Net Revenue - Product net revenue includes revenue from the sale of
hardware products and software licenses. During the second quarter and first six
months of Fiscal 2021, product net revenue decreased 7% and 5%, respectively.
During the second quarter and first six months of Fiscal 2021, non-GAAP product
net revenue also decreased 7% and 5%, respectively. The decreases in product net
revenue and non-GAAP product net revenue were due to decreases in product net
revenue for ISG and CSG. The decrease in CSG product net revenue was driven by a
decline in sales of commercial desktops during the second quarter and first six
months of Fiscal 2021.

•Services Net Revenue - Services net revenue includes revenue from our services
offerings and support services related to hardware products and software
licenses. Services net revenue increased 10% during both the second quarter and
first six months of Fiscal 2021. Non-GAAP services net revenue increased 9%
during both the second quarter and first six months of Fiscal 2021. The
increases in services net revenue and non-GAAP services net revenue were
primarily attributable to increases in services net revenue for CSG third-party
software and maintenance and VMware software. A substantial portion of services
net revenue is derived from offerings that have been deferred over a period of
time, and, as a result, reported services net revenue growth rates will be
different than reported product net revenue growth rates.

From a geographical perspective, net revenue generated by sales to customers in the all regions decreased during the second quarter of Fiscal 2021 due to a weaker demand environment for ISG and CSG stemming from continuing macro-economic challenges.


During the first six months of Fiscal 2021, net revenue generated by sales to
customers in the Americas increased primarily as a result of strong performance
in CSG during the first quarter of Fiscal 2021. In EMEA, net revenue from sales
to customers decreased due to a weaker demand environment for ISG. In APJ, a
weaker demand environment for ISG and CSG drove the decrease in net revenue from
sales to customers.

Gross Margin

During the second quarter and first six months of Fiscal 2021, our gross margin
decreased 2% to $7.2 billion and 1% to $14.0 billion, respectively. The
decreases in our gross margin during the second quarter and first six months of
Fiscal 2021 were driven by gross margin decreases for ISG and CSG, partially
offset by favorable impacts of gross margin increases in VMware and decreases in
amortization of intangible assets. During the second quarter and first six
months of Fiscal 2021, our gross margin percentage increased 20 basis points to
31.5% and 20 basis points to 31.4%, respectively. The increases in our gross
margin percentage during the second quarter and first six months of Fiscal 2021
were primarily driven by favorable impacts of gross margin percentage increases
for VMware and other businesses, and decreases in amortization of intangible
assets and purchase accounting adjustments. These impacts were largely offset by
the decreases in gross margin percentages for ISG and CSG.

Our gross margin included the impact of amortization of intangibles and purchase
accounting adjustments of $0.4 billion and $0.6 billion for the second quarter
of Fiscal 2021 and Fiscal 2020, respectively, and $0.8 billion and $1.2 billion
during the first six months of Fiscal 2021 and Fiscal 2020, respectively.
Excluding these costs, transaction-related expenses, stock-based compensation
expense, and other corporate expenses, non-GAAP gross margin during the second
quarter and first six months of Fiscal 2021 decreased 5% to $7.6 billion and 3%
to $15.0 billion, respectively. Non-GAAP gross margin percentage decreased 50
basis points to 33.5% and 50 basis points to 33.4% during the second quarter and
first six months of Fiscal 2021, respectively.

During the second quarter and first six months of Fiscal 2021, the decreases in
our non-GAAP gross margin and non-GAAP gross margin percentage were attributable
to higher product costs for CSG and ISG and a shift in product mix within CSG.
These negative impacts were partially offset by increases in gross margin and
gross margin percentage for VMware and other businesses.

•Products - During the second quarter of Fiscal 2021, product gross margin
decreased 15% to $3.4 billion, and product gross margin percentage decreased 210
basis points to 20.4%. The decreases in product gross margin and product gross
margin percentage were primarily driven by higher product costs for CSG and ISG
and a shift in product mix within CSG. These unfavorable impacts were partially
offset by a decrease in amortization of intangibles. During the second quarter
of Fiscal 2021, non-GAAP product gross margin decreased 17% to $3.8 billion, and
non-GAAP product gross margin percentage decreased 280 basis points to 22.6% due
to the same CSG and ISG dynamics discussed above.


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During the first six months of Fiscal 2021, product gross margin decreased 12%
to $6.6 billion, and product gross margin percentage decreased 150 basis points
to 20.3%. The decreases in product gross margin and product gross margin
percentage were primarily driven by higher product costs for CSG and ISG and a
shift in product mix within CSG. These unfavorable impacts were partially offset
by a decrease in amortization of intangibles. During the first six months of
Fiscal 2021, non-GAAP product gross margin decreased 14% to $7.4 billion, and
non-GAAP product gross margin percentage decreased 230 basis points to 22.6% due
to the same CSG and ISG dynamics discussed above.

•Services - During the second quarter of Fiscal 2021, services gross margin
increased 14% to $3.7 billion, and services gross margin percentage increased
200 basis points to 62.5%. Services gross margin increased due to growth in
VMware software maintenance and CSG third-party software and maintenance, and a
decrease in purchase accounting adjustments. Excluding purchase accounting
adjustments, transaction-related expenses, stock-based compensation expense, and
other corporate expenses, non-GAAP services gross margin increased 12% to $3.8
billion during the second quarter of Fiscal 2021 primarily due to growth in
VMware software maintenance and CSG third-party software and maintenance.
Non-GAAP services gross margin percentage increased 150 basis points to 63.5%
due to increases in services gross margin percentages across all segments.

During the first six months of Fiscal 2021, services gross margin increased 12%
to $7.4 billion, and services gross margin percentage increased 100 basis points
to 62.2%. Services gross margin increased due to growth in VMware software
maintenance and CSG third-party software and maintenance, and a decrease in
purchase accounting adjustments. Excluding purchase accounting adjustments,
transaction-related expenses, stock-based compensation expense, and other
corporate expenses, non-GAAP services gross margin increased 10% to $7.5 billion
during the first six months of Fiscal 2021 primarily due to growth in VMware
software maintenance and CSG third-party software and maintenance. Non-GAAP
services gross margin percentage increased 70 basis points to 63.2% primarily
due to an increase in VMware services gross margin percentage.

Vendor Programs and Settlements


Our gross margin is affected by our ability to achieve competitive pricing with
our vendors and contract manufacturers, including through our negotiation of a
variety of vendor rebate programs to achieve lower net costs for the various
components we include in our products. Under these programs, vendors provide us
with rebates or other discounts from the list prices for the components, which
are generally elements of their pricing strategy. We account for vendor rebates
and other discounts as a reduction in cost of net revenue. We manage our costs
on a total net cost basis, which includes supplier list prices reduced by vendor
rebates and other discounts.

The terms and conditions of our vendor rebate programs are largely based on
product volumes and are generally negotiated either at the beginning of the
annual or quarterly period, depending on the program. The timing and amount of
vendor rebates and other discounts we receive under the programs may vary from
period to period, reflecting changes in the competitive environment. We monitor
our component costs and seek to address the effects of any changes to terms that
might arise under our vendor rebate programs. Our gross margins for the second
quarter and first six months of Fiscal 2021 and Fiscal 2020 were not materially
affected by any changes to the terms of our vendor rebate programs, as the
amounts we received under these programs were generally stable relative to our
total net cost. We are not aware of any significant changes to vendor pricing or
rebate programs that may impact our results in the near term.


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Operating Expenses

The following table presents information regarding our operating expenses for
the periods indicated:
                                                                  Three Months Ended                                                                                                                                                Six Months Ended
                                       July 31, 2020August 2, 2019July 31, 2020August 2, 2019
                                                      % of                   %                                    % of                                      % of                   %                                   % of
                              Dollars              Net Revenue             Change           Dollars            Net Revenue            Dollars            Net Revenue             Change            Dollars          Net Revenue
                                                                                                            (in millions, except percentages)
Operating expenses:
Selling, general, and
administrative            $      4,761                    21.0  %             (15) %       $ 5,578                    23.8  %       $  9,647                    21.6  %              (9) %       $ 10,649                23.5  %
Research and development         1,259                     5.5  %               2  %         1,229                     5.3  %          2,524                     5.7  %               5  %          2,405                 5.3  %
Total operating expenses  $      6,020                    26.5  %             (12) %       $ 6,807                    29.1  %       $ 12,171                    27.3  %              (7) %       $ 13,054                28.8  %

Other Financial Information
Non-GAAP operating
expenses                  $      5,008                    22.0  %              (4) %       $ 5,243                    22.4  %       $ 10,172                    22.7  %              (3) %       $ 10,481                23.1  %



During the second quarter and first six months of Fiscal 2021, total operating
expenses decreased 12% and 7%, respectively, primarily due to a decrease in
selling, general and administrative expenses, offset partially by an increase in
research and development expenses. Our operating expenses include amortization
of intangible assets, the impact of purchase accounting, transaction-related
expenses, stock-based compensation expense, and other corporate expenses. In
aggregate, these items totaled $1.0 billion and $1.6 billion for the second
quarter of Fiscal 2021 and Fiscal 2020, respectively, and $2.0 billion and $2.6
billion for the first six months of Fiscal 2021 and Fiscal 2020, respectively.
Excluding these costs, total non-GAAP operating expenses decreased 4% and 3% for
the second quarter and first six months of Fiscal 2021, respectively.

•Selling, General, and Administrative - Selling, general, and administrative
("SG&A") expenses decreased 15% and 9%, respectively, during the second quarter
and first six months of Fiscal 2021. The decreases in SG&A expenses were
primarily due to the absence of Virtustream impairment charges of $619 million
recognized in the second quarter and first six months of Fiscal 2020. SG&A
expenses also decreased due to measures taken as a result of the COVID-19
pandemic, which included global hiring limitations, reduction in consulting and
contractor costs, global travel restrictions, suspension of the Dell 401(k)
match program for U.S. employees, and lower facilities-related costs, as well as
a decrease in amortization of intangible assets. With respect to our cost
reduction initiatives, we expect that some of the benefits which we recognized
during the second quarter and first six months of Fiscal 2021 will phase out
over time.

•Research and Development - Research and development ("R&D") expenses are
primarily composed of personnel-related expenses related to product development.
R&D expenses as a percentage of net revenue were approximately 5.5% and 5.3% for
the second quarter of Fiscal 2021 and Fiscal 2020, respectively, and 5.7% and
5.3% for the first six months of Fiscal 2021 and Fiscal 2020, respectively. R&D
expenses as a percentage of net revenue increased during the second quarter and
first six months of Fiscal 2021 primarily due to an increase in
compensation-related expense, including stock-based compensation expense, driven
by VMware. As our industry continues to change and as the needs of our customers
evolve, we intend to support R&D initiatives to innovate and introduce new and
enhanced solutions into the market.

We continue to make selective investments designed to enable growth, marketing,
and R&D, while balancing our efforts to drive cost efficiencies in the business.
We also expect to continue to make investments in support of our own digital
transformation to modernize and streamline our IT operations.

Operating Income


During the second quarter and first six months of Fiscal 2021, our operating
income increased 119% and 72%, respectively. The increases in our operating
income for the second quarter and first six months of Fiscal 2021 were primarily
attributable to the absence of Virtustream impairment charges of $619 million
recognized in the second quarter and first six months of Fiscal 2020. Operating
income also benefited from increases in operating income for VMware and
decreases in amortization of

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Amortization of intangible assets, stock-based compensation expense, and other
corporate expenses that impacted our operating income totaled $1.3 billion and
$2.1 billion for the second quarter of Fiscal 2021 and Fiscal 2020,
respectively, and $2.7 billion and $3.6 billion for the first six months of
Fiscal 2021 and Fiscal 2020, respectively. Excluding these costs, and the impact
of purchase accounting and transaction-related expenses, our non-GAAP operating
income decreased 5% to $2.6 billion and 3% to $4.8 billion during the second
quarter and first six months of Fiscal 2021, respectively. The decreases in our
non-GAAP operating income for the second quarter and first six months of Fiscal
2021 were primarily due to decreases in operating income for ISG and CSG, which
were partially offset by increases in operating income for VMware and other
businesses.

Interest and Other, Net


The following table provides information regarding interest and other, net for
the periods indicated:
                                                      Three Months Ended                                                 Six Months Ended
                                            July 31, 2020             August 2, 2019           July 31, 2020           August 2, 2019
                                                                                  (in millions)
Interest and other, net:
Investment income, primarily interest    $         12               $            42          $           36          $             86
Gain on investments, net                            8                            80                     102                       142
Interest expense                                 (617)                         (692)                 (1,289)                   (1,391)
Foreign exchange                                    -                           (35)                    (99)                      (80)
Other                                             (39)                          (25)                     48                       (80)
Total interest and other, net            $       (636)              $       

(630) $ (1,202) $ (1,323)




During the second quarter of Fiscal 2021, interest and other, net was relatively
unchanged, as debt extinguishment costs and lower gains on the sale of strategic
investments were offset by a decrease in interest expense. During the first six
months of Fiscal 2021, the change in interest and other, net was favorable by
$121 million primarily due to a gain of $120 million recognized from the sale of
certain intellectual property assets during the first quarter of Fiscal 2021.

Income and Other Taxes


For the second quarter of Fiscal 2021 and Fiscal 2020, our effective income tax
rates were -119.8% on pre-tax income of $500 million and 3912.6% on pre-tax
losses of $111 million, respectively. For the first six months of Fiscal 2021
and Fiscal 2020, our effective income tax rates were -101.4% on pre-tax income
of $636 million and 1895.7% on pre-tax losses of $254 million, respectively. The
changes in our effective tax rates were primarily driven by discrete tax items
and changes in our jurisdictional mix of income. For the second quarter and
first six months of Fiscal 2021, our effective income tax rate benefit includes
$746 million of discrete tax benefits related to an audit settlement. For the
first six months of Fiscal 2021, our effective income tax rate benefit also
includes a discrete tax benefit of $59 million from an intra-entity asset
transfer of certain of Pivotal's intellectual property to an Irish subsidiary
that was completed by VMware, Inc. during the period. For the second quarter and
first six months of Fiscal 2020, our effective tax rates include discrete tax
benefits of $4.5 billion and $4.9 billion, respectively, related to similar
intra-entity asset transfers. The tax benefit for each intra-entity asset
transfer was recorded as a deferred tax asset in the period of transaction and
represents the book and tax basis difference on the transferred assets measured
based on the applicable Irish statutory tax rate. We expect to be able to
realize the deferred tax assets resulting from these intra-entity asset
transfers.

Our effective income tax rate can fluctuate depending on the geographic
distribution of our worldwide earnings, as our foreign earnings are generally
taxed at lower rates than in the United States. The differences between our
effective income tax rate and the U.S. federal statutory rate of 21% principally
result from the geographical distribution of income, differences between the
book and tax treatment of certain items, and the discrete tax items discussed
above. In certain jurisdictions, our tax rate is significantly less than the
applicable statutory rate as a result of tax holidays. The majority of our
foreign income that is subject to these tax holidays and lower tax rates is
attributable to Singapore, China, and Malaysia. A significant portion of these
income tax benefits relates to a tax holiday that will be effective until
January 31, 2029.  Our other tax holidays will expire in whole or in part during
Fiscal 2022 through Fiscal 2030. Many of these tax holidays and reduced tax
rates may be extended

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when certain conditions are met or may be terminated early if certain conditions
are not met. As of July 31, 2020, we were not aware of any matters of
non-compliance related to these tax holidays. The effective income tax rate for
future quarters of Fiscal 2021 may be impacted by the actual mix of
jurisdictions in which income is generated.

For further discussion regarding tax matters, including the status of income tax
audits, see Note 11 of the Notes to the Condensed Consolidated Financial
Statements included in this report.
Net Income

During the second quarter and first six months of Fiscal 2021, net income
decreased 74% to $1.1 billion and 72% to $1.3 billion, respectively. The
decreases in net income during the second quarter and first six months of Fiscal
2021 were primarily due to lower discrete tax benefits, which were partially
offset by increases in operating income.

Net income for the second quarter and first six months of Fiscal 2021 and Fiscal
2020 included amortization of intangible assets, the impact of purchase
accounting, transaction-related expenses, stock-based compensation expense,
other corporate expenses, fair value adjustments on equity investments, and
discrete tax items. Excluding these costs and the related tax impacts, non-GAAP
net income decreased 7% to $1.6 billion and 7% to $2.8 billion, respectively.
The decreases in non-GAAP net income during the second quarter and first six
months of Fiscal 2021 were primarily attributable to decreases in non-GAAP
operating income and increases in non-GAAP income taxes.

Non-controlling Interests


During the second quarter and first six months of Fiscal 2021, net income
attributable to non-controlling interests was $51 million and $90 million,
respectively, and consisted of net income or loss attributable to our
non-controlling interests in VMware, Inc. and Secureworks. During the second
quarter and first six months of Fiscal 2020, net income attributable to
non-controlling interests was $816 million and $852 million, respectively, and
consisted of net income or loss attributable to our non-controlling interests in
VMware, Inc., Secureworks, and Pivotal. Pivotal was acquired by VMware, Inc. on
December 30, 2019 and, as a result, we no longer have a separate non-controlling
interest in Pivotal. The decreases in net income attributable to non-controlling
interests during the second quarter and first six months of Fiscal 2021 were
attributable to decreases in net income attributable to our non-controlling
interest in VMware, Inc. For more information about our non-controlling
interests, see Note 13 of the Notes to the Condensed Consolidated Financial
Statements included in this report.

Net Income Attributable to Dell Technologies Inc.


Net income attributable to Dell Technologies Inc. represents net income and an
adjustment for non-controlling interests. During the second quarter and first
six months of Fiscal 2021, net income attributable to Dell Technologies Inc. was
$1.0 billion and $1.2 billion, respectively. During the second quarter and first
six months of Fiscal 2020, net income attributable to Dell Technologies Inc. was
$3.4 billion and $3.7 billion, respectively. The decreases in net income
attributable to Dell Technologies Inc. during the second quarter and first six
months of Fiscal 2021 were primarily attributable to decreases in net income for
the periods.



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Business Unit Results

Our reportable segments are based on the following business units: ISG, CSG, and
VMware. A description of our three business units is provided under
"Introduction." See Note 17 of the Notes to the Condensed Consolidated Financial
Statements included in this report for a reconciliation of net revenue and
operating income by reportable segment to consolidated net revenue and
consolidated operating income, respectively.

Infrastructure Solutions Group

The following table presents net revenue and operating income attributable to ISG for the periods indicated:

                                                  Three Months Ended                                                                               Six Months Ended
                               July 31, 2020           % Change           August 2, 2019         July 31, 2020            % Change            August 2, 2019
                                                                             (in millions, except percentages)
Net revenue:
Servers and networking        $      4,196                   (5) %       $       4,437$       7,954                   (8) %       $         8,617
Storage                              4,011                   (4) %               4,184                  7,822                   (5) %                 8,206
Total ISG net revenue         $      8,207                   (5) %       $       8,621$      15,776                   (6) %       $        16,823

Operating income:
ISG operating income          $        973                   (7) %       $       1,050$       1,705                  (10) %       $         1,893
% of segment net revenue              11.9  %                                     12.2  %                10.8  %                                       11.3  %



Net Revenue - During the second quarter and first six months of Fiscal 2021, ISG
net revenue decreased 5% and 6%, respectively, due to decreases in sales of
servers and networking and storage. ISG net revenue decreased primarily due to a
weaker demand environment, as customers restricted technology spending and
directed their investments toward remote work and business continuity solutions.
Revenue from the sales of servers and networking decreased 5% and 8% during the
second quarter and first six months of Fiscal 2021, respectively, primarily
driven by decreases in average selling prices for servers resulting from
competitive pressures in certain geographies, and, to a lesser extent, declines
in units sold of our PowerEdge servers due to the broader macro-economic
environment, including the effects of COVID-19.

Storage revenue decreased 4% and 5% during the second quarter and first six
months of Fiscal 2021, respectively, primarily due to declines in demand for our
core storage solutions offerings, partially offset by increased demand for data
protection and hyperconverged infrastructure solutions. We continue to make
enhancements to our storage solutions offerings and expect that these offerings,
including the release of our new PowerStore storage array in May 2020, will
drive long-term improvements in the business.

ISG customers are interested in new and innovative models that address how they
consume our solutions. We offer options including as-a-service, utility, leases,
and immediate pay models, all designed to match customers' consumption and
financing preferences. Our multi-year agreements typically result in recurring
revenue streams over the term of the arrangement. We expect our flexible
consumption models will further strengthen our customer relationships and
provide a foundation for growth in recurring revenue.

From a geographical perspective, net revenue attributable to ISG decreased in
all regions during both the second quarter and first six months of Fiscal 2021,
driven by a weaker demand environment as a result of pervasive global COVID-19
disruptions.

Operating Income - During the second quarter of Fiscal 2021, ISG operating
income as a percentage of net revenue decreased 30 basis points to 11.9%. During
the first six months of Fiscal 2021, ISG operating income as a percentage of net
revenue decreased 50 basis points to 10.8%. The declines in operating income
percentages during the second quarter and first six months of Fiscal 2021 were
driven by a decline in gross margin percentages for servers and networking,
which was attributable to higher product costs and competitive pricing dynamics.
During the second quarter of Fiscal 2021, the decline in ISG gross margin
percentage was partially offset by a decrease in operating expenses as a
percentage of revenue, as we realized the benefit of cost reduction initiatives.

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We will continue to monitor our pricing in response to the changing competitive
and component cost environment. We currently expect the ISG component cost
environment will be inflationary in the aggregate during the third quarter of
Fiscal 2021 and then will return to a deflationary environment in the fourth
quarter of Fiscal 2021. This may put pressure on ISG operating results,
particularly for servers and networking.

Client Solutions Group

The following table presents net revenue and operating income attributable to CSG for the periods indicated:

                                                   Three Months Ended                                                                               Six Months Ended
                               July 31, 2020            % Change           August 2, 2019         July 31, 2020            % Change            August 2, 2019
                                                                              (in millions, except percentages)
Net revenue:
Commercial                    $       8,039                  (11) %       $       9,077$      16,673                   (4) %       $        17,384
Consumer                              3,164                   18  %               2,671                  5,634                    7  %                 5,274
Total CSG net revenue         $      11,203                   (5) %       $      11,748$      22,307                   (2) %       $        22,658

Operating income:
CSG operating income          $         715                  (27) %       $         982          $       1,307                  (26) %       $         1,775
% of segment net revenue                6.4  %                                      8.4  %                 5.9  %                                        7.8  %



Net Revenue - During the second quarter and first six months of Fiscal 2021, CSG
net revenue decreased 5% and 2%, respectively, primarily due to decreases in
commercial desktop sales, partially offset by increases in commercial and
consumer notebook sales. Much of this demand was driven by the imperative for
remote work and remote learning solutions, as business, government, and
education customers sought to maintain productivity in the midst of COVID-19.

Commercial revenue decreased 11% and 4% during the second quarter and first six
months of Fiscal 2021, respectively, primarily due to lower demand for
commercial desktops. The decline in demand for commercial desktops was partially
offset by an increase in demand for entry-level commercial notebooks, driven by
customers in education and state and local government. Consumer revenue
increased 18% and 7% during the second quarter and first six months of Fiscal
2021, respectively, due to increased demand for consumer notebooks and high-end
and gaming systems during the second quarter of Fiscal 2021, which more than
offset the weakness in consumer demand during the first quarter of Fiscal 2021.

From a geographical perspective, net revenue attributable to CSG decreased in
all regions during the second quarter of Fiscal 2021. During the first six
months of Fiscal 2021, net revenue in the Americas and EMEA increased despite
weaker demand in the second quarter of Fiscal 2021. In APJ, net revenue
decreased during the first six months of Fiscal 2021.

Operating Income - During the second quarter of Fiscal 2021, CSG operating
income as a percentage of net revenue decreased 200 basis points to 6.4%. During
the first six months of Fiscal 2021, CSG operating income as a percentage of net
revenue decreased 190 basis points to 5.9%. The decreases were primarily due to
decreases in gross margin percentage, partially offset by a decrease in
operating expenses as a percentage of revenue, as we realized the benefit of
cost reduction initiatives. Gross margin percentage decreases were principally
driven by higher product costs and a shift in mix to consumer solutions.

We will continue to monitor our pricing in response to the changing competitive
and component cost environment. We expect the CSG component cost environment
will be relatively flat in the third quarter of Fiscal 2021 and then will return
to a deflationary environment in the fourth quarter of Fiscal 2021. Higher mix
in consumer demand and the related shift in product mix are expected to continue
into the second half of Fiscal 2021, which may put pressure on CSG operating
results.


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VMware

The following table presents net revenue and operating income attributable to
VMware for the periods indicated. During Fiscal 2020, the Company reclassified
Pivotal operating results from other businesses to the VMware reportable
segment. Prior period results have been recast to conform with the current
period presentation.
                                                        Three Months Ended                                                                              Six Months Ended
                                     July 31, 2020           % Change           August 2, 2019         July 31, 2020           % Change            August 2, 2019
                                                                                   (in millions, except percentages)
Net revenue:
VMware net revenue                  $      2,908                   10  %       $       2,651$      5,663                   11  %       $        5,108

Operating income:
VMware operating income             $        894                   19  %       $         751          $      1,667                   24  %       $        1,346
% of segment net revenue                    30.7  %                                     28.3  %               29.4  %                                      26.4   %



Net Revenue - VMware net revenue, inclusive of Pivotal, primarily consists of
revenue from the sale of software licenses under perpetual licenses and
subscription and software-as-a-service ("SaaS") offerings, as well as related
software maintenance services, support, training, consulting services, and
hosted services. VMware net revenue for the second quarter and first six months
of Fiscal 2021 increased 10% and 11%, respectively, primarily due to growth in
sales of subscriptions and SaaS offerings, as well as an increase in sales of
software maintenance services. Growth in sales of subscriptions and SaaS
offerings was primarily driven by increased demand for hybrid cloud offerings
and digital workspaces. Software maintenance revenue benefited from maintenance
contracts sold in previous periods.

From a geographical perspective, approximately half of VMware net revenue during
the second quarter and first six months of Fiscal 2021 was generated by sales to
customers in the United States. VMware net revenue for the second quarter and
first six months of Fiscal 2021 increased in both the United States and
internationally.

Operating Income - During the second quarter and first six months of Fiscal
2021, VMware operating income as a percentage of net revenue increased 240 basis
points to 30.7% and 300 basis points to 29.4%, respectively. The increases were
primarily driven by decreases in selling, general, and administrative expenses
as a percentage of net revenue. While the COVID-19 pandemic has not had a
significant adverse financial impact on VMware operations to date, in future
periods we expect a negative impact on VMware results of operations, the size
and duration of which we are currently unable to predict.

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OTHER BALANCE SHEET ITEMS

Accounts Receivable

We sell products and services directly to customers and through a variety of
sales channels, including retail distribution. Our accounts receivable, net, was
$11.6 billion and $12.5 billion as of July 31, 2020 and January 31, 2020,
respectively. We maintain an allowance for expected credit losses to cover
receivables that may be deemed uncollectible. The allowance for expected credit
losses is an estimate based on an analysis of historical loss experience,
current receivables aging, and management's assessment of current conditions and
reasonable and supportable expectation of future conditions, as well as specific
identifiable customer accounts that are deemed at risk. Our analysis includes
assumptions regarding the impact of COVID-19 and continued market volatility,
which is highly uncertain and subject to significant judgment. Given this
uncertainty, our allowance for expected credit losses in future periods may vary
from our current estimates. As of July 31, 2020 and January 31, 2020, the
allowance for expected credit losses was $146 million and $94 million,
respectively. Allowance for expected credit losses of trade receivables as of
July 31, 2020 includes the impact of adoption of the new current expected credit
losses ("CECL") standard, which was adopted as of February 1, 2020 using the
modified retrospective method. Based on our assessment, we believe that we are
adequately reserved for expected credit losses. We will continue to monitor the
aging of our accounts receivable and take actions, where necessary, to reduce
our exposure to credit losses.

Dell Financial Services


Dell Financial Services and its affiliates ("DFS") support Dell Technologies by
offering and arranging various financing options and services for our customers
globally, including through captive financing operations in North America,
Europe, Australia, and New Zealand. DFS originates, collects, and services
customer receivables primarily related to the purchase of our product, software,
and service solutions. DFS further strengthens our customer relationships
through its flexible consumption models, which enable us to offer our customers
the option to pay over time and, in certain cases, based on utilization, to
provide them with financial flexibility to meet their changing technological
requirements. New financing originations were $2.6 billion and $2.0 billion for
the second quarter of Fiscal 2021 and Fiscal 2020, respectively, and $4.4
billion and $3.7 billion for the first six months of Fiscal 2021 and Fiscal
2020, respectively.

Pursuant to the current lease accounting standard effective February 2, 2019,
new DFS leases are classified as sales-type leases, direct financing leases, or
operating leases. Amounts due from lessees under sales-type leases or direct
financing leases are recorded as part of financing receivables, with interest
income recognized over the contract term. On commencement of sales-type leases,
we typically qualify for up-front revenue recognition. On originations of
operating leases, we record equipment under operating leases, classified as
property, plant, and equipment, and recognize rental revenue and depreciation
expense, classified as cost of net revenue, over the contract term. Direct
financing leases are immaterial. Leases that commenced prior to the effective
date of the current lease accounting standard continue to be accounted for under
previous lease accounting guidance.

As of July 31, 2020 and January 31, 2020, our financing receivables, net were
$10.2 billion and $9.7 billion, respectively. We maintain an allowance to cover
expected financing receivable credit losses and evaluate credit loss
expectations based on our total portfolio. Allowance for expected credit losses
of financing receivables as of July 31, 2020 includes the impact of adoption of
the CECL standard referred to above. Our analysis includes assumptions regarding
the impact of COVID-19 and continued market volatility, which is highly
uncertain and subject to significant judgment. Given this uncertainty, our
allowance for expected credit losses in future periods may vary from our current
estimates. For the second quarter of Fiscal 2021 and Fiscal 2020, the principal
charge-off rate for our total portfolio was 0.8% and 1.1%, respectively. For the
first six months of Fiscal 2021 and Fiscal 2020, the principal charge-off rate
for our total portfolio was 0.9% and 1.0%, respectively. The credit quality of
our financing receivables has improved in recent years due to an overall
improvement in the credit environment and as the mix of high-quality commercial
accounts in our portfolio has continued to increase. We continue to monitor
broader economic indicators and their potential impact on future loss
performance. We have an extensive process to manage our exposure to customer
credit risk, including active management of credit lines and our collection
activities. We also sell selected fixed-term financing receivables without
recourse to unrelated third parties on a periodic basis, primarily to manage
certain concentrations of customer credit exposure.  Based on our assessment of
the customer financing receivables, we believe that we are adequately reserved.


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We retain a residual interest in equipment leased under our lease programs. As
of July 31, 2020 and January 31, 2020, the residual interest recorded as part of
financing receivables was $523 million and $582 million, respectively. The
amount of the residual interest is established at the inception of the lease
based upon estimates of the value of the equipment at the end of the lease term
using historical studies, industry data, and future value-at-risk demand
valuation methods. On a quarterly basis, we assess the carrying amount of our
recorded residual values for impairment. Generally, residual value risk on
equipment under lease is not considered to be significant, because of the
existence of a secondary market with respect to the equipment. The lease
agreement also clearly defines applicable return conditions and remedies for
non-compliance, to ensure that the leased equipment will be in good operating
condition upon return. Model changes and updates, as well as market strength and
product acceptance, are monitored and adjustments are made to residual values in
accordance with the significance of any such changes. Our remarketing sales
staff works closely with customers and dealers to manage the sale of lease
returns and the recovery of residual exposure. No impairment losses were
recorded related to residual assets during the second quarter and first six
months of Fiscal 2021.

As of July 31, 2020 and January 31, 2020, equipment under operating leases, net
was $1.2 billion and $0.8 billion, respectively. Based on triggering events, we
assess the carrying amount of the equipment under operating leases recorded for
impairment. No material impairment losses were recorded related to such
equipment during the second quarter and first six months of Fiscal 2021.

DFS offerings are initially funded through cash on hand at the time of
origination, most of which is subsequently replaced with third-party financing.
For DFS offerings which qualify as sales-type leases, the initial funding of
financing receivables is reflected as an impact to cash flows from operations,
and is largely subsequently offset by cash proceeds from financing. For DFS
operating leases, which have increased under the current lease standard, the
initial funding is classified as a capital expenditure and reflected as an
impact to cash flows used in investing activities.
See Note 4 of the Notes to the Condensed Consolidated Financial Statements
included in this report for additional information about our financing
receivables and the associated allowances, and the equipment under operating
leases.

Off-Balance Sheet Arrangements
As of July 31, 2020, we had no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our financial
condition or results of operations.

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MARKET CONDITIONS, LIQUIDITY, AND CAPITAL COMMITMENTS

Market Conditions


We regularly monitor economic conditions and associated impacts on the financial
markets and our business. We consistently evaluate the financial health of our
supplier base, carefully manage customer credit, diversify counterparty risk,
and monitor the concentration risk of our cash and cash equivalents balances
globally. We routinely monitor our financial exposure to borrowers and
counterparties.

We monitor credit risk associated with our financial counterparties using
various market credit risk indicators such as credit ratings issued by
nationally recognized credit rating agencies and changes in market credit
default swap levels. We perform periodic evaluations of our positions with these
counterparties and may limit exposure to any one counterparty in accordance with
our policies. We monitor and manage these activities depending on current and
expected market developments.

We use derivative instruments to hedge certain foreign currency exposures. We
use forward contracts and purchased options designated as cash flow hedges to
protect against the foreign currency exchange rate risks inherent in our
forecasted transactions denominated in currencies other than the U.S. dollar.
In addition, we primarily use forward contracts and may use purchased options to
hedge monetary assets and liabilities denominated in a foreign currency.  See
Note 7 of the Notes to the Condensed Consolidated Financial Statements included
in this report for more information about our use of derivative instruments.

We are exposed to interest rate risk related to our variable-rate debt
portfolio. In the normal course of business, we follow established policies and
procedures to manage this risk, including monitoring of our asset and liability
mix. As a result, we do not anticipate any material losses from interest rate
risk.

The impact of any credit adjustments related to our use of counterparties on our
Condensed Consolidated Financial Statements included in this report has been
immaterial.

Liquidity and Capital Resources


To support our ongoing business operations, we rely on operating cash flows as
our primary source of liquidity. We monitor the efficiency of our balance sheet
to ensure that we have adequate liquidity to support our strategic initiatives.
In addition to internally generated cash, we have access to other capital
sources to finance our strategic initiatives and fund growth in our financing
operations. Our strategy is to deploy capital from any potential source, whether
internally generated cash or debt, depending on the adequacy and availability of
that source of capital and whether it can be accessed in a cost-effective
manner.

In this unprecedented environment resulting from the COVID-19 pandemic, we are taking actions to strengthen our cash position and preserve financial flexibility, while continuing to prioritize our debt paydown target for the fiscal year.

The following table presents our cash and cash equivalents as well as our available borrowings as of the dates indicated:

                                                              July 31, 2020

January 31, 2020

(in millions) Cash and cash equivalents, and available borrowings: Cash and cash equivalents (a)

                               $       11,221          $          9,302
Remaining available borrowings under revolving credit                5,871                     5,972

facilities

Total cash, cash equivalents, and available borrowings $ 17,092

$ 15,274

____________________

(a) Of the $11.2 billion of cash and cash equivalents as of July 31, 2020, $4.7 billion was held by VMware, Inc.


Our revolving credit facilities as of July 31, 2020 include the Revolving Credit
Facility and the China Revolving Credit Facility, which we entered into on May
25, 2020. The Revolving Credit Facility has a maximum aggregate borrowing
capacity of $4.5 billion, and available borrowings under this facility are
reduced by draws on the facility and outstanding letters of credit. As of
July 31, 2020, there were no borrowings outstanding under the facility and
remaining available borrowings totaled approximately $4.5 billion. The terms of
the China Revolving Credit Facility provide for collateralized and
non-collateralized

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principal amounts not to exceed $1.0 billion Chinese renminbi and $1.8 billion
Chinese renminbi, respectively, or equivalent amounts in U.S. dollars. As of
July 31, 2020, there were no borrowings outstanding under the facility and
remaining available borrowings totaled approximately $2.8 billion Chinese
renminbi or equivalent amounts in U.S. dollars. We may regularly use our
available borrowings from both our Revolving Credit Facility and our China
Revolving Credit Facility on a short-term basis for general corporate purposes.

The VMware Revolving Credit Facility has a maximum capacity of $1.0 billion. As
of July 31, 2020, $1.0 billion was available under the VMware Revolving Credit
Facility. None of the net proceeds of borrowings under the VMware Revolving
Credit Facility will be made available to support the operations or satisfy any
corporate purposes of Dell Technologies, other than the operations and corporate
purposes of VMware, Inc. and VMware, Inc.'s subsidiaries.

See Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information about each of the foregoing revolving credit facilities.


We believe that our current cash and cash equivalents, together with cash that
will be provided by future operations and borrowings expected to be available
under our revolving credit facilities, will be sufficient over at least the next
twelve months to fund our operations, debt service requirements and maturities,
capital expenditures, share repurchases, and other corporate needs.

Debt


The following table summarizes our outstanding debt as of the dates indicated:
                                                                           Increase
                                                 July 31, 2020            (decrease)           January 31, 2020
                                                                         (in millions)
Core debt
Senior Secured Credit Facilities and First     $       30,251          $         587          $         29,664
Lien Notes
Unsecured Notes and Debentures                          1,352                      -                     1,352
Senior Notes                                            2,700                      -                     2,700
EMC Notes                                               1,000                   (600)                    1,600
DFS allocated debt                                     (1,184)                   311                    (1,495)
Total core debt                                        34,119                    298                    33,821
DFS related debt
DFS debt                                                8,837                  1,072                     7,765
DFS allocated debt                                      1,184                   (311)                    1,495
Total DFS related debt                                 10,021                    761                     9,260
Margin Loan Facility and other                          4,092                     68                     4,024
Debt of public subsidiary
VMware Notes                                            4,750                    750                     4,000
VMware Term Loan Facility                               1,500                      -                     1,500
Other                                                      55                     (5)                       60
Total public subsidiary debt                            6,305                    745                     5,560
Total debt, principal amount                           54,537                  1,872                    52,665
Carrying value adjustments                               (584)                    25                      (609)
Total debt, carrying value                     $       53,953          $    

1,897 $ 52,056

During the first six months of Fiscal 2021, the outstanding principal amount of our debt increased by $1.9 billion to $54.5 billion as of July 31, 2020, primarily driven by the increase in DFS debt and the VMware Notes.


We define core debt as the total principal amount of our debt, less DFS related
debt, our Margin Loan Facility and other debt, and public subsidiary debt. Our
core debt was $34.1 billion as of July 31, 2020. During the first six months of
Fiscal 2021, we

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issued multiple series of First Lien Notes in an aggregate principal amount of
$2.25 billion on April 9, 2020, which were offset by repayment of $1.2 billion
and open market repurchases of $235 million of 4.42% First Lien Notes due June
2021, repayment of $600 million principal amount of 2.650% EMC Notes due June
2020 upon maturity, and approximately $229 million of principal amortization
under our term loan facilities. See Note 6 of the Notes to the Condensed
Consolidated Financial Statements included in this report for more information
about our debt.

There are no scheduled maturities of core debt in the second half of Fiscal 2021, although we intend to continue making core debt principal payments as part of our overall capital allocation strategy.


During the first six months of Fiscal 2021, we issued an additional $1.1
billion, net, in DFS debt to support the expansion of our financing receivables
portfolio, which includes the issuance of 500 million Euro of senior unsecured
eurobonds on June 24, 2020. DFS related debt primarily represents debt from our
securitization and structured financing programs. The majority of DFS debt is
non-recourse to Dell Technologies and represents borrowings under securitization
programs and structured financing programs, for which our risk of loss is
limited to transferred lease and loan payments and associated equipment, and
under which the credit holders have no recourse to Dell Technologies.

To fund expansion of the DFS business, we balance the use of the securitization
and structured financing programs with other sources of liquidity. We
approximate the amount of our debt used to fund the DFS business by applying a
7:1 debt to equity ratio to the sum of our financing receivables balance and
equipment under our DFS operating leases, net. The debt to equity ratio used is
based on the underlying credit quality of the assets. See Note 4 of the Notes to
the Condensed Consolidated Financial Statements included in this report for more
information about our DFS debt.

As of July 31, 2020, margin loan and other debt primarily consisted of the $4.0 billion Margin Loan Facility.


Debt of public subsidiary represents VMware, Inc. indebtedness. The increase in
debt of public subsidiary during the first six months of Fiscal 2021 was due to
the issuance of VMware Notes in an aggregate principal amount of $2.0 billion on
April 7, 2020, partially offset by repayment of $1.25 billion principal amount
of its 2.30% Notes due August 2020. See Note 6 of the Notes to the Condensed
Consolidated Financial Statements included in this report for more information
about VMware, Inc. debt.

VMware, Inc. and its respective subsidiaries are unrestricted subsidiaries for
purposes of the core debt of Dell Technologies.  Neither Dell Technologies nor
any of its subsidiaries, other than VMware, Inc., is obligated to make payment
on the VMware Notes or the VMware Term Loan Facility.  None of the net proceeds
of the VMware Notes or, as discussed above, the VMware Term Loan Facility will
be made available to support the operations or satisfy any corporate purposes of
Dell Technologies, other than the operations and corporate purposes of VMware,
Inc. and its subsidiaries.

Our requirements for cash to pay principal and interest on our core debt
increased significantly due to the borrowings we incurred to finance the EMC
merger transaction and, to a lesser extent, the Class V transaction. We have
made good progress in paying down core debt since the EMC merger transaction. We
believe we will continue to be able to make our debt principal and interest
payments, including the short-term maturities, from existing and expected
sources of cash, primarily from operating cash flows. Cash used for debt
principal and interest payments may also include short-term borrowings under our
revolving credit facilities. We will continue to focus on paying down core debt.
Under our variable-rate debt, we could have variations in our future interest
expense from potential fluctuations in LIBOR, or from possible fluctuations in
the level of DFS debt required to meet future demand for customer financing.

We or our affiliates or their related persons, at our or their sole discretion,
may purchase, redeem, prepay, refinance, or otherwise retire any amount of our
outstanding indebtedness under the terms of such indebtedness at any time and
from time to time, in open market or negotiated transactions with the holders of
such indebtedness or otherwise, as appropriate market conditions exist.


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Cash Flows

The following table presents a summary of our Condensed Consolidated Statements of Cash Flows for the periods indicated:

Six Months Ended

                                                                   July 31, 

2020 August 2, 2019

                                                                               (in millions)
Net change in cash from:
Operating activities                                             $        2,536$        3,962
Investing activities                                                     (1,409)                 (1,283)
Financing activities                                                        827                  (2,922)
Effect of exchange rate changes on cash, cash equivalents, and              (52)                    (62)
restricted cash
Change in cash, cash equivalents, and restricted cash            $        

1,902 $ (305)




Operating Activities - Cash provided by operating activities was $2.5 billion
for the first six months of Fiscal 2021 compared to $4.0 billion for the first
six months of Fiscal 2020. The decrease in operating cash flows during the first
six months of Fiscal 2021 was primarily attributable to unfavorable working
capital impacts of an increase in inventory related to the COVID-19 pandemic and
timing of purchases and payments to vendors.

DFS offerings are initially funded through cash on hand at the time of
origination, most of which is subsequently replaced with third-party financing.
For DFS offerings which qualify as sales-type leases, the initial funding of
financing receivables is reflected as an impact to cash flows from operations,
and is largely subsequently offset by cash proceeds from financing. For DFS
operating leases, which have increased under the current leasing standard, the
initial funding is classified as a capital expenditure and reflected as cash
flows used in investing activities. DFS new financing originations were $4.4
billion and $3.7 billion during the first six months of Fiscal 2021 and Fiscal
2020, respectively. As of July 31, 2020, DFS had $10.2 billion of total net
financing receivables and $1.2 billion of equipment under DFS operating leases,
net.

Investing Activities - Investing activities primarily consist of cash used to
fund capital expenditures for property, plant, and equipment, which includes
equipment under DFS operating leases, capitalized software development costs,
strategic investments, and the maturities, sales, and purchases of investments.
During the first six months of Fiscal 2021, cash used in investing activities
was $1.4 billion and was primarily driven by capital expenditures and
acquisitions of businesses. In comparison, cash used in investing activities was
$1.3 billion during the first six months of Fiscal 2020 and was primarily driven
by capital expenditures and acquisitions of businesses, which were partially
offset by net cash proceeds from the net sales of strategic investments.

Financing Activities - Financing activities primarily consist of the proceeds
and repayments of debt, cash used to repurchase common stock, and proceeds from
the issuance of common stock. Cash provided by financing activities of $0.8
billion during the first six months of Fiscal 2021 primarily consisted of cash
proceeds from the issuances of multiple series of First Lien Notes and VMware
Notes, partially offset by debt repayments and repurchases of common stock by
our public subsidiaries. In comparison, cash used in financing activities of
$2.9 billion during the first six months of Fiscal 2020 primarily consisted of
repayments of debt and repurchases of common stock by our public subsidiaries.

Capital Commitments


Capital Expenditures - During the first six months of Fiscal 2021 and Fiscal
2020, we spent $1.0 billion and $1.1 billion, respectively, on property, plant,
and equipment. These expenditures were incurred in connection with our global
expansion efforts and infrastructure investments made to support future growth,
and the funding of equipment under DFS operating leases. During the first six
months of Fiscal 2021 and Fiscal 2020, funding of gross equipment under DFS
operating leases was $0.4 billion and $0.5 billion, respectively. Product
demand, product mix, and the use of contract manufacturers, as well as ongoing
investments in operating and information technology infrastructure, influence
the level and prioritization of our capital expenditures. Aggregate capital
expenditures for Fiscal 2021 are currently expected to total between $2.2
billion and $2.3 billion, of which approximately $1.0 billion is expected for
equipment under DFS operating leases.


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Purchase Obligations - Purchase obligations are defined as contractual
obligations to purchase goods or services that are enforceable and legally
binding on us. These obligations specify all significant terms, including fixed
or minimum quantities to be purchased; fixed, minimum, or variable price
provisions; and the approximate timing of the transaction. Purchase obligations
do not include contracts that may be canceled without penalty.

We utilize several suppliers to manufacture sub-assemblies for our products. Our
efficient supply chain management allows us to enter into flexible and mutually
beneficial purchase arrangements with our suppliers in order to minimize
inventory risk. Consistent with industry practice, we acquire raw materials or
other goods and services, including product components, by issuing to suppliers
authorizations to purchase based on our projected demand and manufacturing
needs. These purchase orders are typically fulfilled within 30 days and are
entered into during the ordinary course of business in order to establish best
pricing and continuity of supply for our production.


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