What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-12-08 compared with 2023-09-12 · 221 added, 225 removed, 523 unchanged (46% of the section changed)

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Dell Technologies operates globally in approximately 180 countries, supported by a world-class organization across key functional areas, including technology and product development, marketing, sales, financial services, and services.

We have a number of durable competitive advantages that provide a critical foundation for our success.

We have a number of operational advantages that provide a critical foundation for our success.

Our go-to-market model includes a 27,000-person direct sales force and a global network of approximately 240,000 channel partners.

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We help customers address their evolving IT needs and their broader digital transformation objectives as they embrace today’s multicloud world.

We intend to execute our vision by growing our core offerings, including opportunities such as artificial intelligence (“AI”), edge, telecom, data management, and as-a-Service consumption models.

We believe we are uniquely positioned in the data and multicloud era and that our results will continue to benefit from our durable competitive advantages.

We intend to execute our vision by focusing on our strategy to leverage our strengths to extend our leadership positions and capture new growth across our core offerings, including opportunities such as artificial intelligence (“AI”), multicloud, edge, telecom, data management, and as-a-Service consumption models.

We believe we are uniquely positioned in the data and multicloud era and that our results will continue to benefit from our operational advantages.

We intend to continue to execute our business model and position our Company for long-term success while balancing liquidity, profitability, and growth and keeping our purpose at the forefront of our decision-making:

to create technologies that drive human progress.

The IT industry is rapidly evolving with demand for simpler, more agile solutions as companies leverage multiple clouds across their increasingly complex IT environments.

The IT industry is rapidly evolving with demand for simple, agile solutions as companies leverage multiple clouds across their increasingly complex IT environments.

To meet our customer needs, 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.

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ISG helps customers simplify, streamline, and automate 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.

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-premises workloads.

Our comprehensive storage portfolio includes traditional as well as next-generation storage solutions, including all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined storage.

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Within our high-end consumer and gaming offerings, we provide our customers with powerful performance, processing, and end-user experiences.

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.

Approximately 60% 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.

Our “other businesses,” described below, primarily consist of our resale of standalone offerings of VMware, Inc.

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• VMware Resale consists of our sale of standalone VMware offerings.

Under our Commercial Framework Agreement with VMware discussed in this report, Dell Technologies continues to act as a key channel partner for VMware, reselling VMware’s offerings to our customers.

This partnership is intended to facilitate mutually beneficial growth for both Dell Technologies and VMware.

VMware works with customers in the areas of hybrid and multicloud, modern applications, networking, security, and digital workspaces, helping customers manage their IT resources across private clouds and complex multicloud, multi-device environments.

Under our Commercial Framework Agreement (the “CFA”) with VMware discussed in this report, Dell Technologies continues to act as a key channel partner for VMware, reselling VMware’s offerings to our customers.

On November 22, 2023, subsequent to the close our third quarter of Fiscal 2024, VMware was acquired by Broadcom Inc.

(“Broadcom”).

See Note 18 of the Notes to the Condensed Consolidated Financial Statements included in this report for more information about the impact of the transaction on our relationship with VMware.

• Secureworks (NASDAQ:

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DFS supports our businesses by offering and arranging various financing options and services for our customers globally.

DFS originates, collects, and services customer receivables primarily related to the purchase or use of our product, software, and services solutions.

DFS originates, collects, and services customer receivables primarily related to the purchase or use of our product, software, and services offerings.

We also arrange financing for some of our customers in various countries where DFS does not currently operate as a captive enterprise.

We further strengthen customer relationships through flexible consumption models, including utility, subscription, and as-a-Service models, which enable us to offer our customers the option to pay over time to provide 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 and may be impacted by, among other items, changes in the interest rate environment and the translation of those changes to pricing.

We further strengthen customer relationships through flexible consumption models, including utility, subscription, and as-a-Service models, which also enable us to offer our customers the option to pay over time to provide 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 and may be impacted by, among other factors, changes in the interest rate environment and the translation of those changes to pricing.

For additional information about our financing arrangements, see Note 4 of the Notes to the Condensed Consolidated Financial Statements included in this report.

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In connection with and upon completion of the VMware Spin-off, we entered into a Commercial Framework Agreement (the “CFA”) with VMware, which provides the framework under which we and VMware continue our commercial relationship.

Pursuant to the CFA, we continue to act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to customers.

We also continue to integrate VMware’s products and services with Dell Technologies’ offerings and sell them to customers.

VMware is considered to be a related party of the Company as a result of Michael Dell’s ownership interests in both Dell Technologies and VMware and Mr.

Dell’s service as Chairman and Chief Executive Officer of Dell Technologies and as Chairman of the Board of VMware, Inc.

Pursuant to the CFA, we act as a distributor of VMware’s standalone products and services and purchase such products and services for resale to customers.

For the periods presented within this report, VMware was considered to be a related party of the Company as a result of Michael Dell’s ownership interests in both Dell Technologies and VMware and Mr.

Dell’s service as Chairman and Chief Executive Officer of Dell Technologies and as Chairman of the Board of VMware.

Upon the completion of Broadcom’s acquisition of VMware described in “Products and Services” above, the Company determined that the acquisition terminated the preexisting related party relationship with VMware and that no related party relationship exists with either Broadcom or VMware as of the date of issuance of this report.

For more information regarding related party transactions with VMware, see Note 15 of the Notes to the Condensed Consolidated Financial Statements included in this report.

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The technologies or products these companies have under development are typically in the early stages and may never have commercial value, which could result in a loss of a substantial part of our investment in the companies.

As of August 4, 2023 and February 3, 2023, we held strategic investments in non-marketable securities of $1.2 billion and $1.3 billion, respectively.

As of November 3, 2023 and February 3, 2023, we held strategic investments in non-marketable securities of $1.2 billion and $1.3 billion, respectively.

See Note 3 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information.

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Our business model generally gives us the ability to optimize product backlog at any point in time, such as by expediting shipping or prioritizing customer orders for products that have shorter lead times.

During Fiscal 2023, we lowered our backlog across both CSG and ISG from previously elevated levels as constraints in limited-source components began to diminish as a result of improving supply positions and overall declines in the demand environment.

During Fiscal 2023, we reduced our backlog across both CSG and ISG from previously elevated levels as constraints in limited-source components began to diminish as a result of improving supply positions and overall declines in the demand environment.

During Fiscal 2024, while our supply chain has operated efficiently at standard lead times, demand for AI-optimized servers has outpaced supply of graphics processing units (“GPUs”) and, as such, backlog for such offerings has increased.

Business Trends and Challenges

During the first half of Fiscal 2024, the effects of the evolving macroeconomic environment continued to impact our net revenue performance when compared to the first half of Fiscal 2023.

Within CSG, our first half Fiscal 2024 net revenue performance was impacted by industry-wide declines in demand that began in the second quarter of Fiscal 2023.

Within ISG, our first half Fiscal 2024 net revenue performance was impacted as certain customers remained cautious and were measured in their IT spending.

During the second quarter of Fiscal 2024, while net revenue declined, we experienced sequential growth in the demand for our offerings as certain customers responded to early signs of macroeconomic stabilization.

Despite some indicators of a stabilizing environment, we currently anticipate a decline in net revenue for the second half of Fiscal 2024 relative to the net revenue we achieved in the second half of Fiscal 2023, driven primarily by net revenue attributable to ISG.

We anticipate the decline in net revenue will, in part, be attributable to the continued impact of macroeconomic conditions on demand and increasing competitive pricing pressure.

We expect that the decline in net revenue will be partially offset by disciplined cost management measures as we continue to make prudent decisions to navigate this environment.

Despite continued near-term challenges, we believe our durable competitive advantages continue to position us for long-term success.

During the first nine months of Fiscal 2024, the effects of the evolving macroeconomic environment on demand persisted and, as a result, continued to impact our net revenue performance when compared to the first nine months of Fiscal 2023.

Our CSG net revenue performance was impacted by industry-wide declines in demand that began in the second quarter of Fiscal 2023.

Within ISG, our net revenue performance was impacted as certain customers, most notably enterprise and large corporate customers, remained cautious and measured in their IT spending.

We anticipate that the continued impact of these dynamics, coupled with increasing competitive pricing pressure, will result in a decline in net revenue for both CSG and ISG for the remainder of Fiscal 2024 compared to the fourth quarter of Fiscal 2023.

Further, we anticipate that the impact of Broadcom’s acquisition of VMware will result in a decrease in our other businesses net revenue beginning in the fourth quarter of Fiscal 2024.

We will continue to execute disciplined cost management measures as we make prudent decisions to navigate this environment.

Despite continued near-term challenges, we are observing early signs of macroeconomic stabilization which we expect to continue and result in net revenue growth in Fiscal 2025.

We believe our unique operational advantages continue to position us for long-term success.

Supply Chain — Dell Technologies maintains single-source and limited-source supplier relationships for certain components because the relationships are advantageous in the areas of performance, quality, support, delivery, capacity, and price considerations.

During the second quarter of Fiscal 2024, our supply chain continued to operate efficiently at standard lead times for our customers and we experienced declines in both component and logistics costs, which we refer to as input costs.

We expect component cost deflation to moderate during the second half of Fiscal 2024.

During the third quarter and first nine months of Fiscal 2024, our supply chain operated efficiently at standard lead times for our customers and we experienced declines in both component and logistics costs, which we refer to as input costs.

We expect component cost deflation to moderate during the remainder of Fiscal 2024 and to turn inflationary in Fiscal 2025.

Component cost trends 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.

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dollar basis.

However, we have a large global presence, generating approximately half of our net revenue from sales to customers outside of the United States during the second quarter of Fiscal 2024 and Fiscal 2023.

However, we have a large global presence, generating approximately half of our net revenue from sales to customers outside of the United States during the third quarter and first nine months of Fiscal 2024 and Fiscal 2023.

As a result, our operating results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates.

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ISG — We expect that ISG will continue to be impacted by the changing nature of the IT infrastructure market and competitive environment.

With our scale and strong solutions portfolio, we believe we are well-positioned to respond to ongoing competitive dynamics.

With our scale and strong solutions portfolio, we believe we are well-positioned to respond to ongoing competitive dynamics and trends in workloads and usage patterns.

Through our collaborative, customer-focused approach to innovation, we strive to deliver new and relevant solutions and software to our customers quickly and efficiently.

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These service providers turn to Dell Technologies for our advanced solutions that enable efficient infrastructure and service delivery at cloud scale.

While we anticipate challenges in the demand environment as customers re-prioritize and exercise caution in response to macroeconomic conditions, we expect that data growth will continue to generate long-term demand for our storage solutions and services.

While we anticipate challenges in the demand environment as customers re-prioritize and continue to exercise caution in response to macroeconomic conditions, we expect that data growth will continue to generate long-term demand for our storage solutions and services.

Cloud native applications are expected to continue to be a key trend in the infrastructure market.

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We anticipate that ISG will benefit from the continued expansion of, and advances in, AI.

Through our server and storage offerings, as well as our Dell-validated AI solutions, we are well positioned to capture growth and support our customers needs.

Through our server and storage offerings, including our AI optimized solutions, we are well positioned to capture growth and support our customers needs.

As demonstrated by our PowerEdge XE servers, we continue to optimize and enhance our offerings to run high value and transformational workloads, such as AI.

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Recurring Revenue and Consumption Models — Our customers are seeking new and innovative models that address how they consume our solutions.

In part, customers are looking for predictable cost models and to reduce complexity, align solutions offerings to their business needs, and provide consistent operations throughout their IT enterprise.

In part, customers are looking for predictable cost models and to reduce complexity, align solutions offerings with their business needs, and provide consistent operations throughout their IT enterprise.

We offer options including leases, loans, immediate pay, as-a-Service, subscription, and utility models designed to match customers' consumption and financing preferences.

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We define recurring revenue as revenue recognized that is primarily related to hardware and software maintenance as well as operating leases, subscription, as-a-Service, and usage-based offerings.

Ukraine War — We are monitoring and responding to effects of the ongoing war in Ukraine.

When Russia invaded Ukraine, we made the decision to not sell, service, or support products in Russia, Belarus, and restricted regions of Ukraine.

We have resumed product sales to non-sanctioned areas in Ukraine.

We are focused on providing products and support to Ukrainian customers as they rebuild infrastructure and restore businesses and the financial sector.

Other Macroeconomic Risks and Uncertainties — The impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility (including ongoing military conflicts in Ukraine and the Middle East), and global macroeconomic challenges (including those in China), may affect our ability to conduct business in some non-U.S.

We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.

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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 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.

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 investments and an aggregate adjustment for income taxes.

As the excluded items may 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.

Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below.

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by Dell Technologies Inc., referred to as the “going-private transaction,” all of the tangible and intangible assets and liabilities of EMC and Dell Inc.

and its consolidated subsidiaries, respectively, were accounted for and recognized at fair value on the transaction dates.

and their consolidated subsidiaries, respectively, were accounted for and recognized at fair value on the transaction dates.

Accordingly, for the periods presented, amortization of intangible assets primarily represents amortization associated with intangible assets recognized in connection with the EMC merger transaction and the going-private transaction.

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• Impact of Purchase Accounting — The impact of purchase accounting includes purchase accounting adjustments primarily related to the EMC merger transaction recorded under the acquisition method of accounting in accordance with the accounting guidance for business combinations.

In accordance with such guidance, all of the assets and liabilities acquired were accounted for and recognized at fair value as of the respective transaction dates, and the fair value adjustments continue to amortize over the estimated useful lives in the periods following the transactions.

In accordance with such guidance, all of the assets and liabilities acquired were accounted for and recognized at fair value as of the transaction date, and the fair value adjustments continue to amortize over the estimated useful lives in the periods following the transactions.

The fair value adjustments that are still amortizing primarily relate to property, plant, and equipment.

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• Other Corporate Expenses — Other corporate expenses consist of impairment charges, incentive charges related to equity investments, severance, facility action, payroll taxes associated with stock-based compensation, and other costs.

During the first nine months of Fiscal 2024, we recognized $0.4 billion of severance expense related to workforce reduction activities.

Severance costs are primarily related to severance and benefits for employees terminated pursuant to cost savings initiatives.

During the second quarter of Fiscal 2024, we recognized $364 million of severance expense related to workforce reduction activities.

During the second quarter of Fiscal 2023, we recognized $189 million in costs associated with exiting our business in Russia, primarily related to asset impairments and other exit related costs.

During the third quarter of Fiscal 2023, other corporate expenses includes $1.0 billion of expense recognized within interest and other, net, in connection with an agreement to settle the Class V transaction litigation.

See Note 10 of the Notes to the Condensed Consolidated Financial Statements included in this report for information about this matter.

During the first nine months of Fiscal 2023, we recognized $0.2 billion in costs associated with exiting our business in Russia, primarily related to asset impairments and other exit related costs.

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 an enhanced understanding of our current operating performance and provides more meaningful period to period comparisons.

• Fair Value Adjustments on Equity Investments — Fair value adjustments on equity investments primarily consist 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 any potential impairments.

• Fair Value Adjustments on Equity Investments — Fair value adjustments on equity investments primarily consist of the gain (loss) on strategic investments, which includes 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 any potential impairments.

See Note 3 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information on our strategic investment activity.

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The following table 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

2023 % Change July 29,

2022 August 4,

2023 % Change July 29,

Three Months Ended Nine Months Ended

2023 % Change October 28,

2022 November 3,

2023 % Change October 28,

(in millions, except percentages)

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Non-GAAP operating expenses $ 3,312 (5) % $ 3,485 $ 10,437 (5) % $ 10,989

Three Months Ended Six Months Ended

2023 % Change July 29,

2022 August 4,

2023 % Change July 29,

Three Months Ended Nine Months Ended

2023 % Change October 28,

2022 November 3,

2023 % Change October 28,

(in millions, except percentages)

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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, impairment charges, and 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.

Adjusted EBITDA excludes stock-based compensation expense, transaction-related expenses, and other corporate expenses, as defined above.

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.

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

Three Months Ended Six Months Ended

2023 % Change July 29,

2022 August 4,

2023 % Change July 29,

Three Months Ended Nine Months Ended

2023 % Change October 28,

2022 November 3,

2023 % Change October 28,

(in millions, except percentages)

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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

August 4, 2023 July 29, 2022 August 4, 2023 July 29, 2022

Three Months Ended Nine Months Ended

November 3, 2023 October 28, 2022 November 3, 2023 October 28, 2022

Net Revenue %

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Non-GAAP Financial Information

Three Months Ended Six Months Ended

August 4, 2023 July 29, 2022 August 4, 2023 July 29, 2022

Three Months Ended Nine Months Ended

November 3, 2023 October 28, 2022 November 3, 2023 October 28, 2022

Net Revenue %

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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.

During the second quarter and first six months of Fiscal 2024, net revenue decreased by 13% and 17%, respectively, driven by declines in both CSG and ISG net revenue, which reflected the impact of challenging global macroeconomic conditions.

The decline in CSG net revenue was primarily attributable to a decrease in units sold, partially offset by an increase in average selling prices.

ISG net revenue decreased primarily as a result of a reduction in net revenue attributable to servers and networking and, to a lesser extent, a decline in storage net revenue.

During the second quarter of Fiscal 2024, operating income and non-GAAP operating income decreased by 8% to $1.2 billion and increased 1% to $2.0 billion, respectively.

The decline in operating income was driven by a decrease in net revenue coupled with an increase in other corporate expenses.

Non-GAAP operating income remained effectively flat as the impact of a decrease in net revenue was largely offset by a decline in input costs and by the impact of cost management measures.

During the first six months of Fiscal 2024, operating income and non-GAAP operating income decreased by 21% to $2.2 billion and 13% to $3.6 billion, respectively.

The declines were primarily attributable to a reduction in both ISG and CSG operating income as a result of a decrease in net revenue which was partially offset by the impact of disciplined cost management measures.

The decline in ISG operating income was primarily attributable to decreases in storage and, to a lesser extent, servers and networking.

The decline in CSG operating income was driven by decreases in both commercial and consumer.

The decrease in operating income was also impacted by an increase in other corporate expenses.

During the second quarter and first six months of Fiscal 2024, operating income as a percentage of net revenue increased 30 basis points to 5.1% and decreased 30 basis points to 5.1%, respectively.

Non-GAAP operating income as a percentage of net revenue increased 120 basis points to 8.6% and 40 basis points to 8.2% during the second quarter and first six months of Fiscal 2024, respectively.

Operating income and non-GAAP operating income as a percentage of net revenue during both the second quarter and first six months of Fiscal 2024 benefited from growth in gross margin as a percentage of net revenue, which increased primarily due to the impacts of an overall decrease in input costs coupled with an increase in average selling prices.

The impact of increases in gross margin as a percentage of net revenue was offset by increases in operating expense as a percentage of net revenue that were driven by a decline in net revenue which outpaced the impact of continued cost management measures.

Operating income as a percentage of net revenue during both periods was further impacted by an increase in other corporate expenses.

Cash provided by operating activities was $5.0 billion and $0.5 billion during the first six months of Fiscal 2024 and Fiscal 2023, respectively.

Cash provided by operating activities during the first six months of Fiscal 2024 was primarily driven by profitability and working capital management as we reduced inventory, demonstrated strong cash collections performance, and benefited from the timing of purchases and payments to vendors.

Cash provided by operating activities during the first six months of Fiscal 2023 reflected profitability, partially offset by the impact of working capital dynamics.

During the third quarter and first nine months of Fiscal 2024, net revenue decreased by 10% and 14%, respectively, driven by declines in CSG net revenue and, to a lesser extent, ISG net revenue, which reflected the continued impact of global macroeconomic conditions on demand.

The decline in CSG net revenue was primarily attributable to a decrease in units sold within both commercial and consumer offerings which, during the first nine months of Fiscal 2024, was partially offset by an increase in average selling prices of our commercial offerings.

ISG net revenue decreased as a result of a reduction in net revenue attributable to both servers and networking and storage.

During the first nine months of Fiscal 2024, the decline in ISG net revenue was most notable in servers and networking.

During the third quarter and first nine months of Fiscal 2024, operating income decreased by 16% to $1.5 billion and 19% to $3.7 billion, respectively.

Non-GAAP operating income decreased 17% to $2.0 billion and 14% to $5.5 billion, during the third quarter and first nine months of Fiscal 2024, respectively.

The decline in operating income and non-GAAP operating income during both periods was driven by decreases in ISG operating income and, to a lesser extent, CSG operating income which both declined primarily as a result of a decrease in net revenue that outpaced the favorable impacts of a decline in input costs and cost management measures.

The decline in ISG operating income was primarily attributable to servers and networking and, to a lesser extent, storage.

The decline in CSG operating income was driven by decreases in both commercial and consumer offerings.

During the third quarter of Fiscal 2024, operating income and non-GAAP operating income as a percentage of net revenue decreased 40 basis points to 6.7% and 80 basis points to 8.8%, respectively.

During the first nine months of Fiscal 2024, operating income and non-GAAP operating income as a percentage of net revenue decreased 30 basis points to 5.6% and remained flat at 8.4%, respectively.

During both periods, operating income and non-GAAP operating income as a percentage of net revenue was impacted by an increase in operating expense as a percentage of net revenue, principally within ISG, that was attributable to a decrease in net revenue which outpaced the impact of continued cost management measures and, to a lesser extent, continued investment in research and development.

For the first nine months of Fiscal 2024, non-GAAP operating income as a percentage of net revenue remained flat as the impact of an increase in non-GAAP operating expense as a percentage of net revenue was fully offset by an increase in non-GAAP gross margin as a percentage of net revenue.

Cash provided by operating activities was $7.1 billion during the first nine months of Fiscal 2024, and was primarily driven by profitability and working capital management as we reduced inventory, demonstrated strong cash collections performance, and benefited from the timing of purchases and payments to vendors.

During the first nine months of Fiscal 2023, cash provided by operating activities was $0.9 billion, which primarily reflected profitability that was partially offset by the impact of working capital dynamics.

See “Liquidity, Cash Requirements, and Market Conditions” for additional information about our cash flow metrics.

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We have demonstrated our ability to adjust to changing market conditions with complementary solutions and innovation across both segments of our business, an agile workforce, and the strength of our global supply chain.

As we continue to innovate and modernize our core offerings, we believe that Dell Technologies is well-positioned for long-term profitable growth.

During the second quarter and first six months of Fiscal 2024, net revenue decreased 13% and 17%, respectively, primarily driven by declines in both CSG and ISG net revenue.

As we continue to innovate and modernize our offerings, we believe that Dell Technologies is well-positioned for long-term profitable growth.

During the third quarter and first nine months of Fiscal 2024, net revenue decreased 10% and 14%, respectively, primarily driven by declines in CSG net revenue and, to a lesser extent, ISG net revenue.

See “Business Unit Results” for further information.

• 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 2024, product net revenue decreased 19% and 23%, respectively, due to declines in both CSG and ISG product net revenue.

CSG product net revenue decreased primarily as a result of a decline in units sold, which impacted both our commercial and consumer offerings, partially offset by an increase in average selling prices.

The decline in ISG product net revenue was primarily attributable to a decrease in product net revenue for servers and networking, driven by a decrease in units sold, and, to a lesser extent, a decline in our product net revenue for storage offerings.

During the third quarter and first nine months of Fiscal 2024, product net revenue decreased 14% and 20%, respectively, due to declines in CSG product net revenue and, to a lesser extent, ISG product net revenue.

During both periods, CSG product net revenue decreased primarily as a result of a decline in units sold, which impacted both our commercial and consumer offerings.

During the first nine months of Fiscal 2024, the impact of a decline in CSG units sold was partially offset by an increase in average selling prices of our commercial offerings.

During the third quarter of Fiscal 2024, the decline in ISG product net revenue was attributable to a decrease in product net revenue for both servers and networking and storage.

For the first nine months of Fiscal 2024, the decline in ISG product net revenue was primarily attributable to a decrease in product net revenue attributable to servers and networking, and, to a lesser extent, a decline in our product net revenue attributable to storage offerings.

The decline in product net revenue attributable to servers and networking for both periods was driven by a decrease in units sold.

• Services Net Revenue — Services net revenue includes revenue from our services offerings and support services related to hardware products and software licenses.

During the second quarter and first six months of Fiscal 2024, services net revenue increased 7% and 5%, respectively, driven primarily by growth within other businesses, which was principally attributable to VMware Resale, as well as third-party software support and maintenance within CSG and strength in hardware support and maintenance in both CSG and ISG.

During the third quarter and first nine months of Fiscal 2024, services net revenue increased 4% and 5%, respectively, driven primarily by growth within services net revenue attributable to CSG and other businesses.

The increases in services net revenue attributable to CSG were driven primarily by third-party software support and maintenance and hardware support and maintenance.

The increases in services net revenue attributable to other businesses were driven primarily by VMware Resale.

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 growth rates for services net revenue will be different than reported growth rates for product net revenue.

From a geographical perspective, net revenue decreased in the Americas, EMEA, and APJ regions during both the second quarter and first six months of Fiscal 2024.

During the second quarter of Fiscal 2024, gross margin and non-GAAP gross margin decreased 1% to $5.4 billion and 2% to $5.5 billion, respectively.

During the first six months of Fiscal 2024, gross margin and non-GAAP gross margin decreased 7% to $10.4 billion and 8% to $10.7 billion, respectively.

The declines were by driven by decreases in CSG and, to a lesser extent, ISG gross margin that were primarily attributable to decreases in net revenue, the effect of which was partially offset by lower input costs.

During the second quarter of Fiscal 2024, gross margin and non-GAAP gross margin percentage increased 290 basis points to 23.5% and 270 basis points to 24.1%, respectively.

During the first six months of Fiscal 2024, both gross margin and non-GAAP gross margin percentage increased 230 basis points to 23.7% and 24.4%, respectively.

From a geographical perspective, net revenue decreased in the Americas, EMEA, and APJ during both the third quarter and first nine months of Fiscal 2024, with the greatest decrease occurring in APJ.

During the third quarter of Fiscal 2024, gross margin and non-GAAP gross margin both decreased 10% to $5.1 billion and $5.3 billion, respectively.

During the first nine months of Fiscal 2024, gross margin and non-GAAP gross margin both decreased 8% to $15.6 billion and $16.0 billion, respectively.

The declines were driven by decreases in both CSG and ISG gross margin that were primarily attributable to a decrease in net revenue, the effect of which was partially offset by lower input costs.

During the third quarter of Fiscal 2024, gross margin and non-GAAP gross margin percentage remained flat at 23.1% and 23.7%, respectively.

Both gross margin and non-GAAP gross margin percentage benefited from an increase in ISG gross margin as a percentage of net revenue, which increased primarily as a result of an overall decline in input costs coupled with disciplined pricing.

The impact of an increase in ISG gross margin as a percentage of net revenue was offset by a shift in the mix of net revenue towards lower margin offerings.

During the first nine months of Fiscal 2024, both gross margin and non-GAAP gross margin percentage increased 160 basis points to 23.5% and 24.2%, respectively.

The increases were primarily attributable to the impacts of an overall decline in input costs coupled with an increase in average selling price across many of our offerings as we maintained strong pricing discipline.

• Product Gross Margin — During the second quarter of Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 7% to $2.9 billion and $3.0 billion, respectively.

During the first six months of Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 15% to $5.6 billion and $5.8 billion, respectively.

The decreases were primarily driven by declines in both CSG and ISG product gross margin, which were largely attributable to declines in product net revenue.

During the second quarter of Fiscal 2024, both product gross margin percentage and non-GAAP product gross margin percentage increased 220 basis points to 17.3% and 17.9%, respectively, while during the first six months of Fiscal 2024, both product gross margin percentage and non-GAAP product gross margin percentage increased 150 basis points to 17.5% and 18.1%, respectively.

• Product Gross Margin — During the third quarter of Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 19% to $2.7 billion and $2.8 billion, respectively.

During the first nine months of Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 17% to $8.3 billion and $8.6 billion, respectively.

The decreases were primarily driven by declines in both ISG and CSG product gross margin, which were largely attributable to declines in product net revenue.

During the third quarter of Fiscal 2024, product gross margin percentage and non-GAAP product gross margin percentage decreased 100 basis points to 16.6% and 110 basis points to 17.1%, respectively.

The declines were driven primarily by a decrease in ISG product gross margin percentage and, to a lesser extent, CSG product gross margin percentage.

ISG product gross margin percentage declined primarily as a result of a shift in the mix of ISG product net revenue recognized towards offerings with lower product gross margin percentages.

CSG product gross margin percentage declined primarily as a result of increasing competitive pricing pressure.

During the first nine months of Fiscal 2024, both product gross margin percentage and non-GAAP product gross margin percentage increased 70 basis points to 17.2% and 17.8%, respectively.

The increases were driven primarily by the impacts of an overall decline in input costs coupled with an increase in average selling price across many of our offerings as we maintained strong pricing discipline.

• Services Gross Margin — During the second quarter of Fiscal 2024, services gross margin and non-GAAP services gross margin increased 7% to $2.5 billion and 5% to $2.5 billion, respectively.

During the first six months of Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $4.8 billion and 3% to $4.9 billion, respectively.

The increases were primarily attributable to growth within ISG services gross margin driven by support and maintenance associated with products sold in prior periods.

During the second quarter and first six months of Fiscal 2024, services gross margin percentage decreased 10 basis points to 40.9% and 60 basis points to 40.5%, respectively.

The decreases were driven by a decline in services gross margin percentage for CSG, due to a shift in mix of CSG services delivered, partially offset by an increase in ISG services gross margin percentage coupled with the impact of asset impairment costs associated with exiting our Russia business in Fiscal 2023.

During the second quarter and first six months of Fiscal 2024, non-GAAP services gross margin percentage decreased 70 basis points to 41.7% and 90 basis points to 41.2%, respectively.

• Services Gross Margin — During the third quarter of Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $2.5 billion and 3% to $2.5 billion, respectively.

During the first nine months of Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $7.3 billion and 3% to $7.4 billion, respectively.

The increases were primarily attributable to growth within ISG services gross margin and, to a lesser extent CSG services gross margin, that was driven by support and maintenance associated with products sold in prior periods.

During the third quarter of Fiscal 2024, services gross margin percentage and non-GAAP services gross margin percentage decreased 10 basis points to 40.9% and 30 basis points to 41.4%, respectively.

During the first nine months of Fiscal 2024, services gross margin percentage decreased 40 basis points to 40.6% and non-GAAP services gross margin percentage decreased 70 basis points to 41.3%, respectively.

The decreases were driven primarily by a shift in mix of services delivered, partially offset by an increase in ISG services gross margin percentage.

Vendor Programs

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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 2024 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.

Our gross margins for the third quarter and first nine months of Fiscal 2024 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 our vendor rebate programs that will materially impact our results in the near term.

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The following table presents information regarding our operating expenses for the periods indicated:

Three Months Ended Six Months Ended

August 4, 2023 July 29, 2022 August 4, 2023 July 29, 2022

Three Months Ended Nine Months Ended

November 3, 2023 October 28, 2022 November 3, 2023 October 28, 2022

Dollars % of Net Revenue %

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Total operating expenses $ 3,662 16.4 % (7) % $ 3,945 16.0 % $ 11,833 17.9 % (4) % $ 12,348 16.0 %

Three Months Ended Six Months Ended

August 4, 2023 July 29, 2022 August 4, 2023 July 29, 2022

Three Months Ended Nine Months Ended

November 3, 2023 October 28, 2022 November 3, 2023 October 28, 2022

Dollars % of Net Revenue %

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Non-GAAP operating expenses $ 3,312 14.9 % (5) % $ 3,485 14.1 % $ 10,437 15.8 % (5) % $ 10,989 14.2 %

During the second quarter of Fiscal 2024, total operating expenses increased 1%, driven by growth in research and development expenses.

During the first six months of Fiscal 2024, total operating expenses decreased 3% due to a decline in selling, general, and administrative expenses.

• Selling, General, and Administrative — Selling, general, and administrative (“SG&A”) expenses decreased 1% and 4%, respectively, during the second quarter and first six months of Fiscal 2024.

These decreases were attributable to continued disciplined cost management which resulted in a reduction in outside services and advertising expenses, among other items, partially offset by an increase in employee compensation and benefits expense.

Employee compensation and benefits expense increased primarily as a result of costs incurred in connection with workforce reductions.

During the third quarter and first nine months of Fiscal 2024, total operating expenses decreased 7% and 4%, respectively, due to a decline in selling, general, and administrative expenses, which was partially offset by an increase in research and development expenses.

• Selling, General, and Administrative — During the third quarter and first nine months of Fiscal 2024, selling, general, and administrative (“SG&A”) expenses decreased 9% and 6%, respectively, principally due to continued disciplined cost management.

During the third quarter of Fiscal 2024, the decline in SG&A expenses was driven primarily by a decrease in employee compensation and benefits expense principally as a result of a reduction in overall headcount.

During the first nine months of Fiscal 2024, the decline in SG&A expenses was driven primarily by decreases in advertising and outside services expense, partially offset by the impact of costs incurred in connection with workforce reductions.

• Research and Development — Research and development (“R&D”) expenses are primarily composed of personnel-related expenses incurred in connection with product development.

R&D expenses increased 13% and 7%, respectively, during the second quarter and first six months of Fiscal 2024 driven by an increase in employee compensation and benefits expense.

As a percentage of net revenue, R&D expenses for the second quarter of Fiscal 2024 and Fiscal 2023 were 3.1% and 2.4%, respectively, and for the first six months of Fiscal 2024 and Fiscal 2023 were 3.2% and 2.5%, respectively.

R&D expenses increased 2% and 5%, respectively, during the third quarter and first nine months of Fiscal 2024 principally due to an increase in employee compensation and benefits expense.

As a percentage of net revenue, R&D expenses for the third quarter of Fiscal 2024 and Fiscal 2023 were 3.1% and 2.7%, respectively, and for the first nine months of Fiscal 2024 and Fiscal 2023 were 3.2% and 2.6%, respectively.

The increases in R&D expenses as a percentage of net revenue were attributable to continued R&D investments as we support R&D initiatives to innovate and introduce new and enhanced solutions into the market.

During the second quarter and first six months of Fiscal 2024, non-GAAP operating expenses decreased 4% and 5%, respectively, principally due to continued disciplined cost management which resulted in a decline in outside services and advertising expenses, among other items.

During both the third quarter and first nine months of Fiscal 2024, non-GAAP operating expenses decreased 5%, principally due to continued disciplined cost management which resulted in a decline in outside services, employee compensation and benefits, and advertising expenses, among other items.

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.

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Operating Income