What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-10 compared with 2024-06-11 · 186 added, 158 removed, 464 unchanged (43% of the section changed)

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Business Trends and Challenges

During the first quarter of Fiscal 2025, certain trends and conditions, including the following, continued to affect the environment in which we operate:

During the second quarter and first six months of Fiscal 2025, the following trends and conditions continued to affect the environment in which we operate:

• Macroeconomic environment:

During the first quarter of Fiscal 2025, the macroeconomic environment showed signs of stabilizing as the demand environment improved across a number of our offerings, resulting in overall net revenue growth.

While the demand environment improved, the pricing environment became increasingly competitive, which affected our ISG and CSG gross margin performance.

The macroeconomic environment continued to show signs of stabilizing as the demand environment improved primarily in our servers and networking offerings, which resulted in overall net revenue growth.

While overall net revenue grew, the pricing environment became increasingly competitive, which primarily affected our CSG gross margin performance.

• Advancements in artificial intelligence:

Our ISG business continued to benefit from increased demand for AI-optimized solutions due to the impact of AI advancements on customer spending behavior, as organizations look to integrate AI into their operations.

Demand for AI-optimized servers outpaced the supply of graphics processing units (“GPUs”) for these products, resulting in elevated backlog levels for such offerings as we exited the quarter.

As a result of continued strong demand for our AI-optimized servers, we maintained elevated backlog levels for such offerings as we exited the quarter.

• Supply chain:

Notwithstanding the elevated demand for AI-optimized solutions, our supply chain operated efficiently during the quarter.

We experienced a decline in input costs, which consist of both component and logistics costs.

We experienced a decline in input costs driven by favorability in component costs.

Input costs consist of both component and logistics costs.

• Broadcom’s acquisition of VMware:

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(“Broadcom”) completed its acquisition of VMware, leading to changes to our relationship with VMware as described below.

The changes continued to affect our other businesses net revenue for the first quarter of Fiscal 2025.

The changes continued to affect our other businesses net revenue.

We expect the demand environment will continue to improve throughout the remainder of Fiscal 2025 as the macroeconomic environment continues to stabilize.

While we anticipate the pricing environment will remain competitive throughout Fiscal 2025, we expect net revenue growth for the full fiscal year, driven primarily by net revenue attributable to ISG and, to a lesser extent, net revenue attributable to CSG.

We expect ISG net revenue to grow, driven by our AI-optimized servers and continued demand improvement for our traditional servers and storage offerings.

We expect CSG net revenue to grow, driven in part by the anticipated PC refresh cycle in the latter part of Fiscal 2025.

We expect a continued reduction of our other businesses’ net revenue as we will no longer act as a distributor of VMware’s standalone products and services.

We expect input costs to increase during Fiscal 2025, notably in the second half of the year, principally driven by anticipated inflation for component costs.

While we anticipate the pricing environment will remain competitive throughout Fiscal 2025, we expect net revenue growth for the full fiscal year primarily driven by ISG net revenue attributable to our AI-optimized servers and continued demand improvement for our traditional servers.

We expect modest CSG net revenue growth for the full fiscal year driven by the timing of the anticipated PC refresh cycle.

Additionally, we expect a continued reduction of our other businesses’ net revenue as we no longer act as a distributor of VMware’s standalone products and services.

We expect input costs to increase during the second half of Fiscal 2025, principally driven by anticipated inflation for component costs.

Input cost trends are dependent on the strength or weakness of actual end-user demand and supply dynamics, which will continue to fluctuate and ultimately impact our costs, pricing, and operating results.

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We look to balance profitability and growth while maintaining disciplined pricing as we navigate through competitive pricing pressures.

We continue to remain committed to disciplined cost management, including limitation of external hiring, employee reorganizations, and other actions to align our investments with our strategic priorities and customer needs.

Throughout the year, we will continue to advance our own capabilities to change the way we work and make decisions, improve business outcomes and the customer experience, and reduce costs by leveraging new technology to streamline our own systems and optimize business processes.

We continue to advance our own capabilities to change the way we work and make decisions, improve business outcomes and the customer experience, and reduce costs by leveraging new technology and optimizing business processes.

Throughout Fiscal 2025, we remain committed to disciplined cost management in coordination with our ongoing business transformation initiatives and will continue to take certain measures to reduce costs, including limitation of external hiring, employee reorganizations, and other actions to align our investments with our strategic priorities and customer needs.

We anticipate these actions will result in a continued reduction in our overall headcount.

We believe our unique operating advantages provide a foundation to foster growth, drive efficiencies, and continue to position us for long-term success.

Relationship with VMware — On November 22, 2023, VMware was acquired by Broadcom, and subsequently announced changes to its go-to-market approach for VMware offerings that impacted our commercial relationship with VMware.

On March 25, 2024, the Company terminated the Commercial Framework Agreement (“CFA”) with VMware, which provided the framework under which we and VMware continued our commercial relationship following our spin-off of VMware by means of a special stock dividend.

On March 25, 2024, we terminated our Commercial Framework Agreement with VMware, which provided the framework under which we and VMware continued our commercial relationship following our spin-off of VMware on November 1, 2021.

We no longer act as a distributor of VMware’s standalone products and services, though we will continue to support customers that have purchased resale offerings sold in prior periods.

The Company continues to integrate certain VMware products and services with select Dell Technologies’ offerings to end-users.

We continue to integrate certain VMware products and services with select Dell Technologies’ offerings to end-users.

The results of such offerings are reflected within CSG or ISG, depending upon the nature of the underlying offering sold.

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The acquisition terminated the preexisting related party relationship with VMware such that no related party relationship exists with either Broadcom or VMware effective as of November 22, 2023.

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

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

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

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We continue to focus on customer base expansion and the lifetime value of customer relationships.

We anticipate that ISG will continue to benefit from technology advances and customer interest in AI.

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

We anticipate that ISG will continue to benefit from technology advances and customer interest in AI and we are well-positioned to capture growth and support our customers’ needs.

We expect that growth in data will continue to generate long-term demand for our storage solutions and services.

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We anticipate that CSG will benefit from advances in AI over the long-term as customers will require PCs with the ability to run their complex AI workloads.

Competitive dynamics continue to be an important factor in our CSG business and continue to impact pricing and operating results.

We remain committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio.

We expect that the CSG demand environment will continue to be subject to seasonal trends.

Competitive dynamics remain an important factor in our CSG business and continue to impact pricing and operating results.

We are committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio.

We expect that the CSG demand environment will be subject to seasonal trends.

Recurring Revenue and Consumption Models — We expect that our flexible consumption models will further strengthen our customer relationships and provide a foundation for growth in recurring revenue.

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.

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 our business.

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.

In addition to these investments, we may also make disciplined acquisitions of businesses that advance our strategic objectives and accelerate our innovation agenda.

Foreign Currency Exposure — We manage our business on a U.S.

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 first quarter of Fiscal 2025 and Fiscal 2024.

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 and first six months of Fiscal 2025 and Fiscal 2024.

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

During both the first six months of Fiscal 2025 and Fiscal 2024, we recognized $0.4 billion of severance expense related to workforce reduction activities.

Transaction-related expenses typically consist of acquisition, integration, and divestitures related costs, primarily representing costs for legal, banking, consulting, and advisory services, and are expensed as incurred.

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• Aggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments described above and determined based on the tax jurisdictions where those adjustments were incurred, as well as an adjustment for discrete tax items.

During the first quarter of Fiscal 2025, the aggregate adjustment for income taxes included discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain statutes of limitations and $0.2 billion related to stock-based compensation.

During the first six months of Fiscal 2025, the aggregate adjustment for income taxes included discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain statutes of limitations and $0.2 billion related to stock-based compensation.

We exclude these benefits or charges for purposes of calculating non-GAAP net income due to the variability in recognition of discrete tax items from period to period.

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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

May 3, 2024 % Change May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 % Change August 4, 2023 August 2, 2024 % Change August 4, 2023

(in millions, except percentages)

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Non-GAAP operating expenses $ 3,430 (4) % $ 3,559 $ 6,903 (3) % $ 7,125

Three Months Ended

May 3, 2024 % Change May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 % Change August 4, 2023 August 2, 2024 % Change August 4, 2023

(in millions, except percentages and per share amounts)

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The following table presents a reconciliation of free cash flow and adjusted free cash flow to cash from operating activities for the periods indicated:

Three Months Ended

May 3, 2024 % Change May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 % Change August 4, 2023 August 2, 2024 % Change August 4, 2023

(in millions, except percentages)

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(b) Financing receivables represent the operating cash flow impact from the change in DFS financing receivables.

(c) Equipment under operating leases represents the net change of capital expenditures and depreciation expense for DFS leases and contractually embedded leases identified within flexible consumption arrangements.

(c) Equipment under operating leases represents the net impact of capital expenditures and depreciation expense for DFS leases and contractually embedded leases identified within flexible consumption arrangements.

RESULTS OF OPERATIONS

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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

May 3, 2024 May 5, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue Dollars % of Net Revenue % Change Dollars % of Net Revenue

(in millions, except percentages and per share amounts)

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Non-GAAP Financial Information

Three Months Ended

May 3, 2024 May 5, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue Dollars % of Net Revenue % Change Dollars % of Net Revenue

(in millions, except percentages and per share amounts)

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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 first quarter of Fiscal 2025, net revenue increased by 6%, driven by an increase in ISG net revenue, that was partially offset by a decrease in other businesses net revenue.

The increase in ISG net revenue was primarily attributable to growth in our AI-optimized server offerings.

Other businesses net revenue declined primarily due to a decrease in VMware Resale revenue driven by the change in our distributor relationship with VMware.

Operating income and non-GAAP operating income decreased by 14% to $0.9 billion and 8% to $1.5 billion, respectively, during the first quarter of Fiscal 2025.

The declines were primarily driven by a decrease in CSG operating income from our commercial offerings and, to a lesser extent, our consumer offerings.

During the first three months of Fiscal 2025, both operating income and non-GAAP operating income as a percentage of net revenue decreased 100 basis points to 4.1% and 6.6%, respectively.

These decreases reflected a decline in gross margin as a percentage of net revenue, as a result of a competitive pricing environment coupled with a shift in mix towards AI-optimized server offerings.

The decreases in operating income and non-GAAP operating income as a percentage of net revenue were offset by a decrease in operating expense rate that was driven by strong ISG net revenue growth coupled with continued disciplined cost management.

Cash provided by operating activities was $1.0 billion during the first three months of Fiscal 2025, and was primarily driven by profitability partially offset by annual incentive-based personnel-related payments.

Cash provided by operating activities was also impacted by other working capital dynamics, including strong cash collections performance, a shift in mix of the business, and timing of purchases and payments to vendors.

During the first three months of Fiscal 2024, cash provided by operating activities was $1.8 billion, which primarily reflected strong working capital performance as we reduced inventory and accounts receivable.

During the second quarter and first six months of Fiscal 2025, net revenue increased by 9% and 8%, respectively, driven by an increase in ISG net revenue that was partially offset by a decrease in other businesses net revenue and CSG net revenue.

The increase in ISG net revenue was driven by growth in our servers and networking offerings.

Other businesses net revenue declined primarily due to a decrease in VMware Resale revenue as we no longer act as a distributor of standalone VMware offerings.

The decline in CSG net revenue was primarily attributable to a decrease in sales of our consumer offerings.

During the second quarter of Fiscal 2025, operating income and non-GAAP operating income increased by 15% to $1.3 billion and 3% to $2.0 billion, respectively.

During the first six months of Fiscal 2025, operating income and non-GAAP operating income increased by 1% to $2.3 billion and decreased by 2% to $3.5 billion, respectively.

During both the second quarter and first six months of Fiscal 2025, operating income and non-GAAP operating income were impacted by an increase in ISG operating income driven by our servers and networking offerings and a decrease in CSG operating income primarily driven by our commercial offerings.

During the second quarter of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue increased 30 basis points to 5.4% and decreased 50 basis points to 8.1%, respectively.

During the first six months of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue decreased 30 basis points to 4.8% and 80 basis points to 7.4%, 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 2025 were impacted by a decline in gross margin as a percentage of net revenue as a result of a shift in mix towards AI-optimized server offerings and, to a lesser extent, a competitive CSG pricing environment.

The decline in gross margin as a percentage of net revenue was offset by the favorable impact of a decrease in operating expense rate that was driven by strong ISG net revenue growth coupled with continued disciplined cost management.

Cash provided by operating activities was $2.4 billion during the first six months of Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics primarily due to growth in our AI-optimized server offerings.

During the first six months of Fiscal 2024, cash provided by operating activities was $5.0 billion, which 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.

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

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

During the first quarter of Fiscal 2025, net revenue increased 6%, primarily driven by an increase in ISG net revenue that was partially offset by a decrease in other businesses net revenue.

During the second quarter and first six months of Fiscal 2025, net revenue increased 9% and 8%, respectively, primarily driven by an increase in ISG net revenue that was partially offset by a decrease in other businesses net revenue and CSG 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 first quarter of Fiscal 2025, product net revenue increased 7%, due to an increase in ISG product net revenue, partially offset by a decline in CSG and other businesses product net revenue.

ISG product net revenue increased due to growth in our AI-optimized server offerings.

CSG product net revenue decreased as the decline in our average selling prices of our CSG offerings outpaced the favorable impact of an increase in units sold.

Other businesses product net revenue declined driven by the change in our distributor relationship with VMware.

During the second quarter and first six months of Fiscal 2025, product net revenue increased 12% and 10%, respectively, due to an increase in ISG product net revenue, partially offset by a decline in CSG and other businesses product net revenue.

ISG product net revenue increased due to growth in our servers and networking offerings.

CSG product net revenue decreased primarily as a result of a decline in the average selling prices of our CSG offerings.

During the second quarter of Fiscal 2025, CSG product net revenue was also impacted by a decline in units sold.

Other businesses product net revenue declined as we no longer act as a distributor of standalone VMware offerings.

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

During the first quarter of Fiscal 2025, services net revenue increased 4%, driven primarily by growth within services net revenue attributable to CSG, partially offset by a decline in other businesses services net revenue.

The increase in CSG services net revenue was primarily attributable to third-party software support and maintenance and support and maintenance associated with products sold in prior periods.

Other businesses services net revenue declined driven by the change in our distributor relationship with VMware.

During the second quarter and first six months of Fiscal 2025, services net revenue increased 1% and 3%, respectively, driven primarily by growth within services net revenue attributable to CSG, partially offset by a decline in other businesses services net revenue.

The increase in CSG services net revenue was primarily attributable to third-party software support and maintenance and support and maintenance associated with products sold in prior periods within our commercial offerings.

Other businesses services net revenue declined as we no longer act as a distributor of standalone VMware offerings.

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 increased in the Americas and decreased in EMEA and APJ during the first quarter of Fiscal 2025.

During the first three months of Fiscal 2025, gross margin and non-GAAP gross margin both decreased 4% to $4.8 billion and $4.9 billion, respectively.

The declines in gross margin and non-GAAP gross margin were driven by a decrease in CSG gross margin that was primarily attributable to a competitive pricing environment.

The competitive pricing environment resulted in a decrease in the average selling prices of our CSG offerings that outpaced the favorable impact of an increase in units sold.

Gross margin and non-GAAP gross margin percentage decreased 240 basis points and 250 basis points to 21.6% and 22.2%, respectively, during the first three months of Fiscal 2025.

The decreases in gross margin percentage and non-GAAP gross margin percentage were driven by a competitive pricing environment coupled with a shift in mix towards AI-optimized server offerings.

• Product Gross Margin — During the first three months of Fiscal 2025, product gross margin and non-GAAP product gross margin decreased 11% and 12%, respectively, to $2.4 billion.

The decreases were primarily driven by a decline in CSG product gross margin, which was primarily attributable to the decline in the average selling prices of our CSG offerings as a result of a competitive pricing environment.

During the first three months of Fiscal 2025, product gross margin percentage and non-GAAP product gross margin percentage decreased 310 basis points and 330 basis points to 14.6% and 15.1%, respectively, due to a competitive pricing environment coupled with a decline in ISG product gross margin percentage due to a shift in mix towards AI-optimized server offerings.

• Services Gross Margin — During the first three months of Fiscal 2025, services gross margin and non-GAAP services gross margin both increased 4% to $2.4 billion and $2.5 billion, respectively.

The increases were primarily attributable to growth within CSG services gross margin that was driven by hardware and third-party software support and maintenance as well as support and maintenance associated with products sold in prior periods.

During the first three months of Fiscal 2025, services gross margin percentage remained flat at 40.0% and non-GAAP services gross margin percentage increased 20 basis points to 41.0%, primarily due to an increase in other businesses services gross margin percentage, which was offset by a decrease in CSG services gross margin percentage.

From a geographical perspective, net revenue increased in the Americas and, to a lesser extent, APJ, and decreased in EMEA during both the second quarter and first six months of Fiscal 2025.

During the second quarter of Fiscal 2025, both gross margin and non-GAAP gross margin decreased 1%, to $5.3 billion and $5.5 billion, respectively.

During the first six months of Fiscal 2025, gross margin and non-GAAP gross margin both decreased 3%, to $10.1 billion and $10.4 billion, respectively.

The declines in gross margin and non-GAAP gross margin during both the second quarter and first six months of Fiscal 2025 were driven by a decrease in CSG gross margin, partially offset by an increase in ISG gross margin.

The decrease in CSG gross margin was primarily attributable to a competitive pricing environment which resulted in a decrease in the average selling prices of our CSG offerings.

The increase in ISG gross margin was primarily attributable to growth in our AI-optimized server offerings.

During the second quarter of Fiscal 2025, both gross margin and non-GAAP gross margin percentage decreased 230 basis points, to 21.2% and 21.8%, respectively.

During the first six months of Fiscal 2025, gross margin and non-GAAP gross margin percentage decreased 230 basis points to 21.4% and 240 basis points to 22.0%, respectively.

The decreases in gross margin percentage and non-GAAP gross margin percentage during both the second quarter and first six months of Fiscal 2025 were driven by a shift in mix towards AI-optimized server offerings and, to a lesser extent, a competitive CSG pricing environment.

• Product Gross Margin — During the second quarter of Fiscal 2025, product gross margin and non-GAAP product gross margin decreased 2% to $2.9 billion and 3% to $3.0 billion, respectively.

During the first six months of Fiscal 2025, product gross margin and non-GAAP product gross margin decreased 6% to $5.2 billion and 7% to $5.4 billion, respectively.

The decreases during both the second quarter and first six months of Fiscal 2025 were primarily driven by a decline in CSG product gross margin, which was primarily attributable to the decline in the average selling prices of our CSG offerings as a result of a competitive pricing environment.

The decline in CSG product gross margin was partially offset by an increase in ISG product gross margin that was primarily attributable to growth in our AI-optimized server offerings.

During the second quarter of Fiscal 2025, product gross margin percentage and non-GAAP product gross margin percentage decreased 210 basis points to 15.2% and 230 basis points to 15.6%, respectively.

During the first six months of Fiscal 2025, product gross margin percentage and non-GAAP product gross margin percentage decreased 260 basis points to 14.9% and 270 basis points to 15.4%, respectively.

The declines during both the second quarter and first six months of Fiscal 2025 were primarily attributable to a shift in mix towards our AI-optimized server offerings and, to a lesser extent, a competitive CSG pricing environment.

• Services Gross Margin — During the second quarter of Fiscal 2025, services gross margin and non-GAAP services gross margin decreased 1% to $2.4 billion and remained flat at $2.5 billion, respectively.

During the first six months of Fiscal 2025, services gross margin and non-GAAP services gross margin increased 1% to $4.9 billion and 2% to $5.0 billion, respectively.

During both the second quarter and first six months of Fiscal 2025, services gross margin and non-GAAP services gross margin benefited from an increase in CSG services gross margin driven by hardware and third-party software support and maintenance as well as support and maintenance associated with products sold in prior periods.

Services gross margin and non-GAAP gross margin were also impacted by a decline in other businesses services net revenue as we no longer act as a distributor of standalone VMware offerings.

During the second quarter of Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage decreased 80 basis points to 40.1% and 40 basis points to 41.3%, respectively.

During the first six months of Fiscal 2025, services gross margin percentage decreased 50 basis points to 40.0% and non-GAAP services gross margin percentage remained flat at 41.2%.

During both the second quarter and first six months of Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage were impacted by a decrease in CSG services gross margin percentage and, to a lesser extent, 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 first quarter of Fiscal 2025 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 second quarter and first six months of Fiscal 2025 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

May 3, 2024 May 5, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue Dollars % of Net Revenue % Change Dollars % of Net Revenue

(in millions, except percentages)

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Total operating expenses $ 3,969 15.8 % (6) % $ 4,222 18.4 % $ 7,855 16.6 % (4) % $ 8,171 18.6 %

Three Months Ended

May 3, 2024 May 5, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

Dollars % of Net Revenue % Change Dollars % of Net Revenue Dollars % of Net Revenue % Change Dollars % of Net Revenue

(in millions, except percentages)

Non-GAAP operating expenses $ 3,430 13.7 % (4) % $ 3,559 15.5 % $ 6,903 14.6 % (3) % $ 7,125 16.2 %

During the first quarter of Fiscal 2025, total operating expenses decreased 2%, due to a decline in selling, general, and administrative expenses.

• Selling, General, and Administrative — During the first quarter of Fiscal 2025, selling, general, and administrative (“SG&A”) expenses decreased 4%, driven by a decrease in employee compensation and benefits expense, principally due to a decline in overall headcount and, to a lesser extent, a decrease in advertising expenses as a result of continued disciplined cost management.

During the second quarter and first six months of Fiscal 2025, total operating expenses decreased 6% and 4%, respectively, due to a decline in selling, general, and administrative expenses.

• Selling, General, and Administrative — During the second quarter and first six months of Fiscal 2025, selling, general, and administrative expenses decreased 9% and 7%, respectively, driven by a decrease in employee compensation and benefits expense, principally due to a decline in overall headcount.

• 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 11% during the first quarter of Fiscal 2025, principally due to an increase in R&D-related employee compensation and benefits expense.

As a percentage of net revenue, R&D expenses for the first three months of Fiscal 2025 and Fiscal 2024 were 3.4% and 3.3%, respectively.

The increase in R&D expenses as a percentage of net revenue was attributable to continued support of R&D initiatives.

During the first quarter of Fiscal 2025, non-GAAP operating expenses decreased 3%, driven by a decline in employee compensation and benefits expense, primarily resulting from a decline in overall headcount, and advertising expenses due to continued disciplined cost management, partially offset by continued support of R&D initiatives.

We continue to make strategic investments designed to enable growth, marketing, and R&D, while balancing our efforts to drive cost efficiencies in the business.

R&D expenses increased 11% during both the second quarter and first six months of Fiscal 2025, principally due to an increase in R&D-related employee compensation and benefits expense.

As a percentage of net revenue, R&D expenses for both the second quarter of Fiscal 2025 and Fiscal 2024 were 3.1% and for the first six months of Fiscal 2025 and Fiscal 2024 were 3.3% and 3.2%, respectively.

During the first six months of Fiscal 2025, the increase in R&D expenses as a percentage of net revenue was attributable to continued support of R&D initiatives.

During the second quarter and first six months of Fiscal 2025, non-GAAP operating expenses decreased 4% and 3%, respectively, driven by a decline in employee compensation and benefits expense, primarily resulting from a decline in overall headcount.

The decline in employee compensation and benefits expense was partially offset by continued support of R&D initiatives.

We continue to make strategic investments designed to enable growth and innovation, while balancing our efforts to drive cost efficiencies in the business.

We also expect to continue making investments in support of our own digital transformation which aims to streamline and optimize our business processes.

Operating Income

Operating income and non-GAAP operating income decreased by 14% to $0.9 billion and 8% to $1.5 billion, respectively, during the first quarter of Fiscal 2025.

The declines were primarily driven by a decrease in CSG operating income from our commercial offerings and, to a lesser extent, our consumer offerings.

During the first three months of Fiscal 2025, both operating income and non-GAAP operating income as a percentage of net revenue decreased 100 basis points to 4.1% and 6.6%, respectively.

These decreases reflected a decline in gross margin as a percentage of net revenue, as a result of a competitive pricing environment coupled with a shift in mix towards AI-optimized server offerings.

During the second quarter of Fiscal 2025, operating income and non-GAAP operating income increased by 15% to $1.3 billion and 3% to $2.0 billion, respectively.

During the first six months of Fiscal 2025, operating income and non-GAAP operating income increased by 1% to $2.3 billion and decreased by 2% to $3.5 billion, respectively.

During the first six months of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue decreased 30 basis points to 4.8% and 80 basis points to 7.4%, respectively.

Interest and Other, Net

The following table presents information regarding interest and other, net for the periods indicated:

Three Months Ended

May 3, 2024 May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

(in millions)

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Investment income, primarily interest $ 38 $ 66 $ 92 $ 125

Loss on investments, net (30) (15)

Gain (loss) on investments, net 5 (29) (25) (44)

Interest expense (387) (352) (730) (757)

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Total interest and other, net $ (353) $ (451) $ (726) $ (815)

The change in interest and other, net was unfavorable, primarily as a result of an increase in debt extinguishment fees coupled with the impact of fair value adjustments on our non-marketable strategic investments portfolio during the first quarter of Fiscal 2025.

Unfavorable impacts within interest and other, net were partially offset by a reduction in interest expense.

During the second quarter of Fiscal 2025, the change in interest and other, net was favorable, primarily as a result of the favorable impact in the Other category coupled with reduced foreign exchange impacts.

During the first six months of Fiscal 2025, the change in interest and other, net was favorable, primarily due to reduced foreign exchange impacts and a reduction in interest expense.

Income and Other Taxes

The following table presents information regarding our income and other taxes for the periods indicated:

Three Months Ended

May 3, 2024 May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 August 4, 2023 August 2, 2024 August 4, 2023

(in millions, except percentages)

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Effective income tax rate 15.0 % 36.3 % (16.9) % 27.2 %

For the first three months of Fiscal 2025 and Fiscal 2024, our effective income tax rate was (74.6)% and 18.0%, respectively.

The change in our effective income tax rate was primarily attributable to discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain statutes of limitations and $0.2 billion related to stock-based compensation.

For the second quarter of Fiscal 2025 and Fiscal 2024, our effective income tax rate was 15.0% and 36.3%, respectively.

For the first six months of Fiscal 2025 and Fiscal 2024, our effective income tax rate was (16.9)% and 27.2%, respectively.

The changes in our effective income tax rate were primarily driven by discrete tax items.

For the first six months of Fiscal 2025, we recorded discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain statutes of limitations and $0.2 billion related to stock-based compensation.

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.

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Many of these tax holidays and reduced tax rates may be extended when certain conditions are met or may be terminated early if certain conditions are not met or as a result of changes in tax legislation.

As of May 3, 2024, we were not aware of any matters of non-compliance or enacted tax legislative changes affecting these tax holidays.

Many countries have enacted or are in the process of enacting laws based on the Pillar Two proposal relating to global minimum tax issued by the Organisation for Economic Co-operation and Development (“OECD”).

While we expect our effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, we do not expect it will have a material impact to our Fiscal 2025 consolidated results of operations.

As of August 2, 2024, we were not aware of any matters of non-compliance or enacted tax legislative changes affecting these tax holidays.

Many countries have enacted or are in the process of enacting laws based on the Pillar Two proposal relating to a global minimum tax issued by the Organisation for Economic Co-operation and Development (“OECD”).

While we expect our effective income tax rate and cash income tax payments could increase in future years as a result of the global minimum tax, we do not expect the tax will have a material impact to our Fiscal 2025 consolidated results of operations.

Our assessment could be affected by legislative guidance and future enactment of additional provisions within the Pillar Two framework, particularly in countries in which we have tax holidays and incentives.

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.

During the first quarter of Fiscal 2025, net income increased 65% to $1.0 billion, driven primarily by the impact of an income tax benefit, which was partially offset by a decline in operating income.

During the first quarter of Fiscal 2025, non-GAAP net income decreased 4% to $0.9 billion, driven by a decline in operating income, which was partially offset by a decline in income tax expense.

During the second quarter of Fiscal 2025, net income and non-GAAP net income increased 85% to $0.8 billion and 7% to $1.4 billion, respectively, due to an increase in operating income and, to a lesser extent, the favorable impact of a decline in income tax expense.

During the first six months of Fiscal 2025, net income and non-GAAP net income increased 74% to $1.8 billion and 2% to $2.3 billion, respectively.

Net income increased primarily due to the impact of an income tax benefit.

Non-GAAP net income increased primarily due to the impact of a decline in income tax expense.

Business Unit Results

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

Three Months Ended

May 3, 2024 % Change May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 % Change August 4, 2023 August 2, 2024 % Change August 4, 2023

(in millions, except percentages)

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% of segment net revenue 11.0 % 12.4 % 9.7 % 11.1 %

Net Revenue — During the first quarter of Fiscal 2025, ISG net revenue increased 22% driven by strength in our servers and networking offerings.

Revenue from sales of servers and networking increased 42% and storage revenue remained flat during the first quarter of Fiscal 2025.

The increase in servers and networking revenue was driven by growth in our AI-optimized server offerings.

From a geographical perspective, net revenue attributable to ISG increased most notably in the Americas and, to a lesser extent, in APJ, and decreased in EMEA during the first quarter of Fiscal 2025.

Operating Income — During the first quarter of Fiscal 2025, ISG operating income as a percentage of net revenue decreased 170 basis points to 8.0%, principally due to a decrease in gross margin rate as a percentage of net revenue.

Gross margin rate decreased as a result of a competitive pricing environment coupled with a shift in mix towards AI-optimized server offerings.

The decrease in gross margin as a percentage of net revenue was offset by a decrease in operating expense as a percentage of net revenue primarily due to continued disciplined cost management.

Net Revenue — During the second quarter and first six months of Fiscal 2025, ISG net revenue increased 38% and 30%, respectively, driven by strength in our servers and networking offerings.

Revenue from sales of servers and networking increased 80% and 62%, respectively during the second quarter and first six months of Fiscal 2025.

The increase in servers and networking revenue was driven by growth in our AI-optimized server offerings and, to a lesser extent, our traditional server and networking offerings.

Storage revenue decreased 5% and 3%, respectively, during the second quarter and first six months of Fiscal 2025, primarily due to a decline in net revenue of our converged and hyper-converged infrastructure offerings.

From a geographical perspective, net revenue attributable to ISG increased in the Americas and, to a lesser extent, in APJ and EMEA during the second quarter and first six months of Fiscal 2025.

Operating Income — During both the second quarter and first six months of Fiscal 2025, ISG operating income as a percentage of net revenue decreased 140 basis points to 11.0% and 9.7%, respectively, principally due to a decrease in gross margin rate as a percentage of net revenue.

Gross margin rate decreased primarily as the result of a shift in mix towards AI-optimized server offerings, partially offset by a decline in input costs.

The decrease in gross margin as a percentage of net revenue was partially offset by a decrease in operating expense as a percentage of net revenue primarily due to strong ISG net revenue growth coupled with continued disciplined cost management.

Client Solutions Group

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

Three Months Ended

May 3, 2024 % Change May 5, 2023

Three Months Ended Six Months Ended

August 2, 2024 % Change August 4, 2023 August 2, 2024 % Change August 4, 2023

(in millions, except percentages)

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% of segment net revenue 6.2 % 7.5 % 6.1 % 7.5 %

Net Revenue — During the first quarter of Fiscal 2025, CSG net revenue was flat as the impact of an increase in units sold was offset by a decrease in the average selling prices of our offerings due to a competitive pricing environment.

Commercial net revenue increased 3% during the first quarter of Fiscal 2025.

The increase was primarily due to an increase in units sold which was partially offset by the decrease in the average selling prices of our commercial offerings.

Consumer net revenue decreased 15% during the first quarter of Fiscal 2025, principally due to a decline in the average selling price of our consumer offerings.

From a geographical perspective, net revenue attributable to CSG decreased in APJ, and increased in EMEA and the Americas during the first quarter of Fiscal 2025.

Operating Income — During the first three months of Fiscal 2025, CSG operating income as a percentage of net revenue decreased 130 basis points to 6.1%, primarily due to a decrease in the average selling prices of our offerings as a result of a competitive pricing environment.

The impact of these factors was offset by a decrease in operating expenses as a percentage of net revenue, which declined as a result of continued disciplined cost management.

Net Revenue — During the second quarter of Fiscal 2025, CSG net revenue decreased 4% primarily due to a decrease in units sold.

During the first six months of Fiscal 2025, CSG net revenue decreased 2% as the result of a decrease in the average selling prices of our offerings due to a competitive pricing environment.

Commercial net revenue remained flat and increased 1%, respectively, during the second quarter and first six months of Fiscal 2025.

During both the second quarter and first six months of Fiscal 2025, commercial net revenue was impacted by an increase in units sold and a decrease in the average selling prices of our commercial offerings.

Consumer net revenue decreased 22% and 19%, respectively, during the second quarter and first six months of Fiscal 2025, principally due to a decline in units sold and, to a lesser extent, a decline in the average selling price of our consumer offerings.

From a geographical perspective, net revenue attributable to CSG decreased across all regions during the second quarter of Fiscal 2025.

During the first six months of Fiscal 2025, net revenue attributable to CSG increased in EMEA and decreased in the Americas and APJ.

Operating Income — During the second quarter and first six months of Fiscal 2025, CSG operating income as a percentage of net revenue decreased 130 basis points to 6.2% and 140 basis points to 6.1%, respectively, primarily due to a decline in gross margin rate, partially offset by a decrease in operating expenses as a percentage of net revenue.

The decline in gross margin rate was primarily due to a decrease in the average selling prices of our offerings as a result of a competitive pricing environment.

The decline in operating expenses as a percentage of net revenue was due to continued disciplined cost management.

OTHER BALANCE SHEET ITEMS

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We sell products and services directly to customers and through a variety of sales channels, including retail distribution.

Our accounts receivable, net, was $8.6 billion and $9.3 billion as of May 3, 2024 and February 2, 2024, respectively.

The reduction in accounts receivable, net, was driven primarily by strong cash collections performance.

Our accounts receivable, net, was $11.4 billion and $9.3 billion as of August 2, 2024 and February 2, 2024, respectively.

The increase in accounts receivable, net, was driven primarily by an increase in revenue.

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 its reasonable and supportable expectation of future conditions, as well as specific identifiable customer accounts that are deemed at risk.

As of May 3, 2024 and February 2, 2024, the allowance for expected credit losses was $66 million and $71 million, respectively.

As of August 2, 2024 and February 2, 2024, the allowance for expected credit losses was $78 million and $71 million, respectively.

Based on our assessment, we believe that we are adequately reserved for expected credit losses.

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We further strengthen customer relationships through flexible consumption models, including utility, subscription, and as-a-Service models, which enable our customers the option to pay over time to provide them with financial and operational flexibility.

New financing originations were $1.9 billion and $1.8 billion for the first quarter of Fiscal 2025 and Fiscal 2024, respectively.

New financing originations were $2.4 billion for both the second quarter of Fiscal 2025 and Fiscal 2024, and $4.3 billion and $4.2 billion for first six months of Fiscal 2025 and Fiscal 2024, respectively.

Our leases are generally classified as sales-type leases or operating leases.

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We recognize product revenue and depreciation expense, classified as cost of net revenue, over the contract term.

As of May 3, 2024 and February 2, 2024, our financing receivables, net were $10.6 billion and $10.5 billion, respectively .

We maintain an allowance to cover expected financing receivable credit losses and evaluate credit loss expectations based on our total portfolio.

For the first quarter of Fiscal 2025 and Fiscal 2024, the principal charge-off rate for our financing receivables portfolio was 0.3% and 0.5%, respectively.

As of August 2, 2024 and February 2, 2024, our financing receivables, net were $11.1 billion and $10.5 billion, respectively .

We maintain an allowance to cover expected financing receivables credit losses and evaluate credit loss expectations based on our total portfolio.

The principal charge-off rate for our financing receivables portfolio was 0.7% and 0.6% for the second quarter of Fiscal 2025 and Fiscal 2024, respectively, and 0.5% and 0.6% for the first six months of Fiscal 2025 and Fiscal 2024, respectively.

The credit quality of our financing receivables remains strong due to the mix of high-quality commercial accounts in our portfolio.

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We retain a residual interest in equipment leased under our lease programs.

As of May 3, 2024 and February 2, 2024, the residual interest recorded as part of financing receivables was $163 million and $157 million, respectively.

As of August 2, 2024 and February 2, 2024, the residual interest recorded as part of financing receivables was $166 million and $157 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.

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Further, the lease agreement defines applicable return conditions and remedies for non-compliance to ensure that the leased equipment will be in good operating condition upon return.

No expected losses were recorded related to residual assets during the first quarter of Fiscal 2025 and Fiscal 2024.

As of May 3, 2024 and February 2, 2024, equipment under operating leases, net was $2.1 billion and $2.2 billion, respectively.

No expected losses were recorded related to residual assets during the second quarter and first six months of Fiscal 2025 and Fiscal 2024.

As of both August 2, 2024 and February 2, 2024, equipment under operating leases, net was $2.2 billion.

We assess the carrying amount of the equipment under operating leases for impairment whenever events or circumstances may indicate that an impairment has occurred.

No material impairment losses were recorded related to such equipment during the first quarter of Fiscal 2025 and Fiscal 2024.

No material impairment losses were recorded related to such equipment during the second quarter and first six months of Fiscal 2025 and Fiscal 2024.

DFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with asset-backed financing.

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

May 3, 2024 February 2, 2024

August 2, 2024 February 2, 2024

(in millions)

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Total cash and cash equivalents, and available borrowings $ 10,549 $ 13,365

During the first three months of Fiscal 2025, cash and cash equivalents decreased by $1.5 billion primarily due to the return of capital to our stockholders, capital expenditures, payments to settle employee tax withholdings, and net repayment of DFS debt, the effect of which was partially offset by cash flows from operations.

As of May 3, 2024, our revolving credit facility had a maximum capacity of $6.0 billion.

During the first six months of Fiscal 2025, cash and cash equivalents decreased by $2.8 billion primarily due to the return of capital to our stockholders, net repayment of Senior Notes and DFS debt, capital expenditures, and payments to settle employee tax withholdings on stock-based compensation, the effect of which was partially offset by cash flows from operations.

As of August 2, 2024, our revolving credit facility had a maximum capacity of $6.0 billion.

Available borrowings under this facility are reduced by draws on the facility and outstanding letters of credit.

As of May 3, 2024, there were no borrowings outstanding under the facility and remaining available borrowings totaled approximately $6.0 billion.

As of August 2, 2024, there were no borrowings outstanding under the facility and remaining available borrowings totaled approximately $6.0 billion.

The revolving credit facility also acts as a backstop to provide liquidity support for our commercial paper program.

We maintain a commercial paper program under which we may issue unsecured notes in a maximum aggregate face amount of $5.0 billion outstanding at any time, with maturities up to 397 days from the date of issue.

As of May 3, 2024, we had no outstanding issuances under the program.

We may regularly use our available borrowings from the revolving credit facility and issuances under the commercial paper program on a short-term basis for general corporate purposes.

As of August 2, 2024, we had no outstanding issuances under the program.

We may regularly use our available borrowings from the revolving credit facility and issuances under the commercial paper program, generally on a short-term basis, for general corporate purposes.

See the following discussion for additional information about our debt.

The following table presents our outstanding debt as of the dates indicated:

May 3, 2024 Change February 2, 2024

August 2, 2024 Change February 2, 2024

(in millions)

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Total debt, carrying value $ 24,522 $ (1,472) $ 25,994

The outstanding principal amount of our debt decreased $0.5 billion to $25.7 billion as of May 3, 2024, driven primarily by net repayments on DFS debt.

The outstanding principal amount of our debt decreased $1.5 billion to $24.7 billion as of August 2, 2024, driven primarily by net repayments of our Senior Notes and DFS debt.

We define core debt as the total principal amount of our debt, less DFS related debt and other debt.

Our core debt was $14.5 billion and $14.9 billion as of May 3, 2024 and February 2, 2024, respectively.

Our core debt was $13.0 billion and $14.9 billion as of August 2, 2024 and February 2, 2024, respectively.

See Note 6 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information about our debt.

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

Three Months Ended

May 3, 2024 May 5, 2023

Six Months Ended

August 2, 2024 August 4, 2023

(in millions)

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Change in cash, cash equivalents, and restricted cash $ (2,836) $ (244)

Operating Activities — Cash provided by operating activities was $1.0 billion during the first three months of Fiscal 2025, and was primarily driven by profitability, partially offset by annual incentive-based personnel-related payments.

The impact of strong working capital performance was partially offset by the effect of a decline in revenue and annual incentive-based personnel-related payments.

Operating Activities — Cash provided by operating activities was $2.4 billion during the first six months of Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics primarily due to growth in our AI-optimized server offerings.

Cash provided by operating activities also reflected the impact of the $0.9 billion net payment to settle the Class V transaction litigation.

Investing Activities — Investing activities primarily consist of cash used to fund capital expenditures for property, plant, and equipment inclusive of equipment under DFS operating leases and equipment used to support our as-a-Service offerings, which we refer to collectively as assets in a customer contract.

Additional activities may include capitalized software development costs, acquisitions and divestitures, and the maturities, sales, and purchases of investments.

Cash used in investing activities was $0.5 billion and $0.7 billion during the first three months of Fiscal 2025 and Fiscal 2024, respectively, and was primarily applied to capital expenditures.

Cash used in investing activities was $1.0 billion and $1.3 billion during the first six months of Fiscal 2025 and Fiscal 2024, respectively, and was primarily applied to capital expenditures.

Financing Activities — Financing activities primarily consist of the proceeds and repayments of debt and return of capital to our stockholders.

Cash used in financing activities was $2.1 billion during the first three months of Fiscal 2025 and primarily consisted of repurchases of common stock, inclusive of payments to settle employee tax withholdings on stock-based compensation, net repayments on DFS debt, and the payment of quarterly dividends.

During the first three months of Fiscal 2024, cash used in financing activities was $2.0 billion and primarily consisted of principal repayments of our senior notes, repurchases of common stock, inclusive of payments to settle employee tax withholdings on stock-based compensation, and the payment of quarterly dividends.

Cash used in financing activities was $4.1 billion during the first six months of Fiscal 2025 and primarily consisted of repurchases of common stock, inclusive of payments to settle employee tax withholdings on stock-based compensation, net repayments of our Senior Notes and DFS debt, and the payment of quarterly dividends.

During the first six months of Fiscal 2024, cash used in financing activities was $3.8 billion and primarily consisted of principal repayments of our Senior Notes, repurchases of common stock, inclusive of payments to settle employee tax withholdings on stock-based compensation, and the payment of quarterly dividends.

DFS Cash Flow Impacts — DFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with asset-backed financing.

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For operating leases, the initial funding is classified as a capital expenditure and reflected as cash flows used in investing activities.

DFS new financing originations were $1.9 billion and $1.8 billion during the first three months of Fiscal 2025 and Fiscal 2024, respectively.

As of May 3, 2024, we had $10.6 billion of total net financing receivables and $2.1 billion of equipment under operating leases, net.

DFS new financing originations were $4.3 billion and $4.2 billion during the first six months of Fiscal 2025 and Fiscal 2024, respectively.

As of August 2, 2024, we had $11.1 billion of total net financing receivables and $2.2 billion of equipment under operating leases, net.

Supply Chain Finance Program — We maintain a Supply Chain Finance Program (the “SCF Program”) that enables eligible suppliers to sell receivables due from us to a third-party financial institution at the suppliers’ sole discretion.

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Capital Commitments and Other Cash Requirements

Capital Expenditures — We spent $0.6 billion and $0.7 billion during the first three months of Fiscal 2025 and Fiscal 2024, respectively, on property, plant, and equipment and capitalized software development costs.

Of total expenditures incurred, funding of assets in a customer contract totaled $0.3 billion during both the first three months of Fiscal 2025 and Fiscal 2024.

Capital Expenditures — We spent $1.3 billion during both the first six months of Fiscal 2025 and Fiscal 2024, respectively, on property, plant, and equipment and capitalized software development costs.

Of total expenditures incurred, funding of assets in a customer contract totaled $0.7 billion and $0.5 billion during the first six months of Fiscal 2025 and Fiscal 2024, respectively.

Product demand, product mix, the use of contract manufacturers, and ongoing investments in operating and information technology infrastructure influence the level and prioritization of our capital expenditures.

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Following the additional approval, we had approximately $5.7 billion in cumulative authorized amount remaining under the stock repurchase program.

During the first three months of Fiscal 2025, we repurchased approximately 6.7 million shares of Class C Common Stock for a total purchase price of approximately $0.7 billion.

During the first three months of Fiscal 2024, we repurchased approximately 6.1 million shares of Class C Common Stock for a total purchase price of approximately $0.3 billion.

During the first six months of Fiscal 2025, we repurchased approximately 12 million shares of Class C Common Stock for a total purchase price of approximately $1.4 billion.

During the first six months of Fiscal 2024, we repurchased approximately 11 million shares of Class C Common Stock for a total purchase price of approximately $0.5 billion.

Dividend Payments — On February 29, 2024, we announced that the Board of Directors approved a 20% increase in the dividend rate to $0.445 per share per fiscal quarter beginning in the first quarter of Fiscal 2025.

During both the first three months of Fiscal 2025 and Fiscal 2024, the Company paid $0.3 billion, in dividends and dividend equivalents at a rate of $0.445 and $0.37 per share per fiscal quarter, respectively.

During the first six months of Fiscal 2025 and Fiscal 2024, the Company paid $0.7 billion and $0.5 billion in dividends and dividend equivalents at a rate of $0.445 and $0.37 per share per fiscal quarter, respectively.

Purchase Obligations — Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on us.

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Purchase orders are not included in purchase obligations, as they typically represent our authorization to purchase rather than binding purchase obligations.

As of August 2, 2024, the Company had purchase obligations of $7.2 billion, of which $6.0 billion was payable within 12 months.

Market Conditions

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The following table presents summarized results of operations information for the Obligor Group for the period indicated:

Three Months Ended

Six Months Ended

August 2, 2024

(in millions)

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____________________

(a) Includes net revenue from services provided to Non-Obligor Subsidiaries of $197 million.

(a) Includes net revenue from Non-Obligor Subsidiaries of $37 million.

(b) Includes cost of net revenue from the resale of solutions purchased from Non-Obligor Subsidiaries of $522 million.

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The following table presents summarized balance sheet information for the Obligor Group as of the dates indicated:

May 3, 2024 February 2, 2024

August 2, 2024 February 2, 2024

(in millions)

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis