What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-12-10 compared with 2024-09-10 · 183 added, 176 removed, 474 unchanged (43% of the section changed)

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(“Secureworks”).

These businesses are not classified as reportable segments, either individually or collectively.

In October 2024, Secureworks announced that it has entered into a definitive agreement pursuant to which Sophos Inc., an affiliate of Thoma Bravo, L.P., a private equity and growth capital firm, will acquire Secureworks in an all-cash transaction for approximately $0.9 billion, subject to certain closing adjustments.

The transaction is expected to close in early 2025, subject to customary closing conditions.

Our other businesses are not classified as reportable segments, either individually or collectively.

For further discussion regarding our current reportable segments, see “Results of Operations — Business Unit Results” and Note 16 of the Notes to the Condensed Consolidated Financial Statements included in this report.

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Business Trends and Challenges

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:

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

• Macroeconomic environment:

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.

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.

The demand environment continued to remain strong for our servers and networking offerings, which resulted in overall net revenue growth.

Additionally, we began to see modest demand improvement for our commercial offerings.

• Demand for AI-optimized solutions:

Our ISG business continued to benefit from increased demand for AI-optimized solutions as customers continue to adopt and further integrate AI into their operations.

As a result of the continued strong demand for our AI-optimized servers, backlog levels for such offerings remained elevated 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 driven by favorability in component costs.

Input costs consist of both component and logistics costs.

Notwithstanding the increased demand for AI-optimized solutions, our supply chain continued to operate efficiently.

We experienced an increase in input costs primarily driven by higher logistics costs, the effect of which was partially offset by favorability in component costs.

Compared to the prior quarter, we began to observe an inflationary environment.

Input costs primarily 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.

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 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.

We expect the demand environment will continue to remain strong in our servers and networking offerings, which we expect will result in ISG net revenue growth across our AI-optimized and traditional servers for the fourth quarter of Fiscal 2025.

We expect modest CSG net revenue growth for the fourth quarter of Fiscal 2025 depending on the timing of the anticipated PC refresh cycle and a competitive pricing environment.

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.

We expect input costs to increase during the fourth quarter 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 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 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.

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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.

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

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

We continue to integrate and embed certain VMware products and services with select Dell Technologies’ offerings to end-users, such as through our VxRail solution.

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

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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 and we are well-positioned to capture growth and support our customers’ needs.

We anticipate that ISG will continue to benefit from technology advancements 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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Our storage business is subject to seasonal trends, which may continue to impact ISG results.

CSG — We participate in all segments of the PC market but focus on commercial and high-end consumer computing devices, as we believe they represent the most stable and profitable markets.

CSG — We participate in all segments of the PC market with a focus on commercial and high-end consumer computing devices, as we believe they represent the most stable and profitable markets.

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.

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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.

We expect that the CSG demand environment will be subject to seasonal trends as well as the timing of the anticipated PC refresh cycle.

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.

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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 and first six months 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 third quarter and first nine 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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Although stock-based compensation is an important aspect of the compensation of our employees and executives, we exclude such expense because the fair value of the stock-based awards may fluctuate based on factors unrelated to the operating performance of the business and may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards.

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

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

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.

During the first nine months of Fiscal 2025 and Fiscal 2024, we recognized $0.6 billion and $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 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.

During the first nine 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 Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 % Change November 3, 2023 November 1, 2024 % Change November 3, 2023

(in millions, except percentages)

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Non-GAAP operating expenses $ 3,238 (2) % $ 3,312 $ 10,141 (3) % $ 10,437

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 % Change November 3, 2023 November 1, 2024 % Change November 3, 2023

(in millions, except percentages and per share amounts)

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In addition to the above measures, we use free cash flow and adjusted free cash flow as non-GAAP liquidity measures to evaluate our performance.

As presented in the following table, we define free cash flow to consist of cash flow from operations after excluding capital expenditures and capitalized software costs, net.

As presented in the following table, we define free cash flow as cash flow from operations after excluding capital expenditures and capitalized software costs, net.

To measure adjusted free cash flow, we exclude the impact of financing receivables and equipment under operating leases from free cash flow, as the initial funding of these DFS offerings at the time of origination is largely subsequently replaced with cash inflows from our DFS debt, the majority of which is asset-backed.

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Further, we believe free cash flow and adjusted free cash flow are useful measures to management and investors because they reflect cash that we can use, among other purposes, to repurchase common stock, pay dividends on our common stock, invest in our business, pay down debt, and make strategic acquisitions.

As is the case with the non-GAAP measures presented above, users should consider the limitations of using free cash flow and adjusted free cash flow, including the fact that those measures do not provide a complete measure of our cash flows for any period.

As is the case with the other non-GAAP measures presented above, users should consider the limitations of using free cash flow and adjusted free cash flow, including the fact that those measures do not provide a complete measure of our cash flows for any period.

Free cash flow and adjusted free cash flow do not purport to be alternatives to cash flows from operating activities as a measure of liquidity.

In particular, free cash flow and adjusted free cash flow are not intended to be a measure of cash flow available for management’s discretionary use, as these measures do not reflect certain cash requirements, such as debt service requirements and other contractual commitments.

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 Six Months Ended

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

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

Three Months Ended Nine Months Ended

November 1, 2024 % Change November 3, 2023 November 1, 2024 % Change November 3, 2023

(in millions, except percentages)

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____________________

(a) Capital expenditures and capitalized software development costs, net include proceeds from sales of facilities, land, and other assets.

(a) Capital expenditures and capitalized software development costs, net includes proceeds from sales of facilities, land, and other assets.

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

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

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

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Non-GAAP Financial Information

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

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

During the third quarter and first nine months of Fiscal 2025, net revenue increased by 10% and 8%, respectively, driven by an increase in ISG net revenue that was partially offset by a decrease in other businesses net revenue and, to a lesser extent, 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 CSG net revenue was attributable to a decrease in sales of our consumer offerings.

During the third quarter of Fiscal 2025, both operating income and non-GAAP operating income increased by 12%, to $1.7 billion and $2.2 billion, respectively.

During the first nine months of Fiscal 2025, operating income and non-GAAP operating income increased by 6% to $3.9 billion and 3% to $5.7 billion, respectively.

During both the third quarter and first nine months of Fiscal 2025, the increases in operating income and non-GAAP operating income were primarily attributable to an increase in ISG operating income driven by our servers and networking offerings, which was largely offset by a decrease in CSG operating income.

During the third quarter of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue increased 10 basis points to 6.8% and increased 20 basis points to 9.0%, respectively.

During the first nine months of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue decreased 10 basis points to 5.5% and 40 basis points to 8.0%, respectively.

Operating income and non-GAAP operating income as a percentage of net revenue during both the third quarter and first nine months of Fiscal 2025 were impacted by a decline in gross margin as a percentage of net revenue due to a shift in mix towards AI-optimized server offerings and 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.

Cash provided by operating activities was $3.9 billion during the first nine months of Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics.

Working capital was primarily impacted by AI dynamics, which led to higher inventory, accounts receivable, and accounts payable levels.

During the first nine months of Fiscal 2024, cash provided by operating activities was $7.1 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.

Cash provided by operating activities also reflected the impact of the $0.9 billion net payment to settle the Class V transaction litigation and $0.4 billion in proceeds from the sale of our U.S.

consumer revolving customer receivables portfolio.

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 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.

During the third quarter and first nine months of Fiscal 2025, net revenue increased 10% 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, to a lesser extent, 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 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.

During the third quarter of Fiscal 2025, product net revenue increased 13% due to an increase in ISG product net revenue driven by growth in our servers and networking offerings.

The increase was partially offset by a decline in CSG product net revenue as a result of a decrease in units sold within our consumer offerings, as well as a decline in other businesses product net revenue as we no longer act as a distributor of standalone VMware offerings.

During the first nine months of Fiscal 2025, product net revenue increased 11% due to an increase in ISG product net revenue driven by growth in our servers and networking offerings.

The increase was partially offset by a decrease in CSG product net revenue as a result of a decrease in the average selling prices of our CSG offerings and, to a lesser extent, a decline in units sold within our consumer offerings, as well as a decline in other businesses product net revenue 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 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.

During the third quarter and first nine months of Fiscal 2025, services net revenue increased 1% and 2%, respectively, driven primarily by growth within services net revenue attributable to CSG and, to a lesser extent, services net revenue attributable to ISG, partially offset by a decline in other businesses services net revenue.

The increase in services net revenue was primarily attributable to CSG third-party software support and maintenance and, to a lesser extent, support and maintenance associated with products sold in prior periods within both ISG and CSG.

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, 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.

From a geographical perspective, net revenue increased in the Americas and, to a lesser extent, the Asia Pacific and Japan (“APJ”) and Europe, the Middle East and Africa (“EMEA”) regions during the third quarter of Fiscal 2025.

Net revenue increased in both the Americas and APJ and decreased in EMEA during the first nine months of Fiscal 2025.

During the third quarter of Fiscal 2025, both gross margin and non-GAAP gross margin increased 3%, to $5.3 billion and $5.4 billion, respectively, driven by an increase in ISG gross margin that was largely offset by a decrease in CSG gross margin.

During the first nine months of Fiscal 2025, both gross margin and non-GAAP gross margin decreased 1%, to $15.4 billion and $15.8 billion, respectively, driven by a decrease in CSG gross margin that was largely offset by an increase in ISG gross margin.

The increase in ISG gross margin during both the third quarter and first nine months of Fiscal 2025 was primarily attributable to growth in our AI-optimized server offerings.

The decrease in CSG gross margin during both the third quarter and first nine months of Fiscal 2025 was primarily attributable to a competitive pricing environment.

During the third quarter of Fiscal 2025, gross margin and non-GAAP gross margin percentage decreased 130 basis points to 21.8% and 140 basis points to 22.3%, respectively.

During the first nine months of Fiscal 2025, gross margin and non-GAAP gross margin percentage decreased 200 basis points to 21.5% and 210 basis points to 22.1%, respectively.

The decreases in gross margin percentage and non-GAAP gross margin percentage during both the third quarter and first nine months of Fiscal 2025 were primarily driven by a shift in mix towards AI-optimized server offerings and a competitive CSG pricing environment.

• Product Gross Margin — During the third quarter of Fiscal 2025, both product gross margin and non-GAAP product gross margin increased 2%, to $2.7 billion and $2.8 billion, respectively, primarily driven by an increase in ISG product gross margin that was largely offset by a decrease in CSG product gross margin.

During the first nine months of Fiscal 2025, both product gross margin and non-GAAP product gross margin decreased 4% to $8.0 billion and $8.2 billion, respectively, primarily driven by a decrease in CSG product gross margin that was partially offset by an increase in ISG product gross margin.

The increase in ISG product gross margin during both the third quarter and first nine months of Fiscal 2025 was primarily attributable to growth in our AI-optimized server offerings.

The decline in CSG product gross margin during both the third quarter and first nine months of Fiscal 2025 was primarily attributable to a competitive pricing environment.

During the third quarter of Fiscal 2025, both product gross margin percentage and non-GAAP product gross margin percentage decreased 160 basis points, to 15.0% and 15.5%, respectively.

During the first nine months of Fiscal 2025, product gross margin percentage and non-GAAP product gross margin percentage decreased 220 basis points to 15.0% and 240 basis points to 15.4%, respectively.

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

• Services Gross Margin — During the third quarter of Fiscal 2025, services gross margin and non-GAAP services gross margin increased 4% to $2.6 billion and 5% to $2.6 billion, respectively.

During the first nine months of Fiscal 2025, services gross margin and non-GAAP services gross margin increased 2% to $7.4 billion and 3% to $7.6 billion, respectively.

During both the third quarter and first nine months of Fiscal 2025, services gross margin and non-GAAP services gross margin benefited from an increase in support and maintenance associated with products sold in prior periods within both ISG and CSG and, to a lesser extent, an increase CSG third-party software support and maintenance.

During the third quarter of Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage increased 120 basis points to 42.1% and 160 basis points to 43.0%, respectively.

During the first nine months of Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage increased 10 basis points to 40.7% and 50 basis points to 41.8%, respectively.

The increases in services gross margin percentage and non-GAAP services gross margin percentage were primarily driven by a shift in mix as we no longer act as a distributor of standalone VMware offerings.

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 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 third quarter and first nine 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 Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

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

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Total operating expenses $ 3,639 15.0 % (1) % $ 3,662 16.4 % $ 11,494 16.0 % (3) % $ 11,833 17.9 %

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

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

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Non-GAAP operating expenses $ 3,238 13.3 % (2) % $ 3,312 14.9 % $ 10,141 14.1 % (3) % $ 10,437 15.8 %

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.

During the third quarter and first nine months of Fiscal 2025, total operating expenses decreased 1% and 3%, respectively, due to a decline in selling, general, and administrative expenses.

• Selling, General, and Administrative — During the third quarter and first nine months of Fiscal 2025, selling, general, and administrative expenses decreased 3% and 6%, 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 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.

R&D expenses increased 8% and 10%, respectively, during the third quarter and first nine 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 third quarter of Fiscal 2025 and Fiscal 2024 were 3.1% and for both the first nine months of Fiscal 2025 and Fiscal 2024 were 3.2%.

We continue to support R&D initiatives to innovate and introduce new and enhanced solutions into the market.

During the third quarter and first nine months of Fiscal 2025, non-GAAP operating expenses decreased 2% 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.

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Operating Income

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.

During the third quarter of Fiscal 2025, both operating income and non-GAAP operating income increased by 12%, to $1.7 billion and $2.2 billion, respectively.

During the first nine months of Fiscal 2025, operating income and non-GAAP operating income increased by 6% to $3.9 billion and 3% to $5.7 billion, respectively.

During the first nine months of Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue decreased 10 basis points to 5.5% and 40 basis points to 8.0%, respectively.

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

(in millions)

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Total interest and other, net $ (276) $ (306) $ (1,002) $ (1,121)

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.

During both the third quarter and first nine months of Fiscal 2025, the change in interest and other, net was favorable, primarily due to a reduction in interest expense and gains recognized within our strategic investments portfolio, partially offset by a decline in interest income on investments.

Income and Other Taxes

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 November 3, 2023 November 1, 2024 November 3, 2023

(in millions, except percentages)

Income before income taxes $ 1,392 $ 1,180 $ 2,928 $ 2,599

Income tax expense (benefit) $ 148 $ 259 $ (260) $ 386

Income tax expense $ 265 $ 176 $ 5 $ 562

Effective income tax rate 19.0 % 14.9 % 0.2 % 21.6 %

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.

For the third quarter of Fiscal 2025 and Fiscal 2024, our effective income tax rate was 19.0% and 14.9%, respectively.

For the first nine months of Fiscal 2025 and Fiscal 2024, our effective income tax rate was 0.2% and 21.6%, 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.

For the first nine 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 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.

As of November 1, 2024, we were not aware of any matters of non-compliance.

Many countries, including Singapore, a country in which we have a tax holiday, 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 will increase in future years as a result of the global minimum tax, we do not expect the tax will have a material impact on 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.

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 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.

During the third quarter of Fiscal 2025, net income and non-GAAP net income increased 12% to $1.1 billion and 11% to $1.5 billion, respectively, due to an increase in operating income.

During the first nine months of Fiscal 2025, net income and non-GAAP net income increased 43% to $2.9 billion and 5% to $3.8 billion, respectively.

Net income increased primarily due to a reduction in income tax expense and, to a lesser extent, an increase in operating income.

Non-GAAP net income increased primarily due to an increase in operating income.

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 Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 % Change November 3, 2023 November 1, 2024 % Change November 3, 2023

(in millions, except percentages)

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% of segment net revenue 13.3 % 12.6 % 10.9 % 11.6 %

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.

Net Revenue — During the third quarter and first nine months of Fiscal 2025, ISG net revenue increased 34% and 31%, respectively, driven by strength in our servers and networking offerings.

Net revenue from sales of servers and networking increased 58% and 61%, respectively, during the third quarter and first nine months of Fiscal 2025.

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

Storage net revenue increased 4% and remained flat, respectively, during the third quarter and first nine months of Fiscal 2025.

During the third quarter of Fiscal 2025, storage net revenue increased primarily due to an increase in net revenue of our 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 third quarter and first nine months of Fiscal 2025.

Operating Income — During the third quarter of Fiscal 2025, ISG operating income as a percentage of net revenue increased 70 basis points to 13.3%, due to a decline in operating expense as a percentage of net revenue that outpaced the decline in gross margin rate.

Operating expense as a percentage of net revenue declined due to strong ISG net revenue growth coupled with continued disciplined cost management.

Gross margin rate decreased primarily as the result of a shift in mix towards AI-optimized server offerings.

During the first nine months of Fiscal 2025, ISG operating income as a percentage of net revenue decreased 70 basis points to 10.9%, due to a decline in gross margin rate that outpaced the decline in operating expense as a percentage of net revenue.

Gross margin rate decreased primarily as the result of a shift in mix towards AI-optimized server offerings.

Operating expense as a percentage of net revenue declined 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 Six Months Ended

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

Three Months Ended Nine Months Ended

November 1, 2024 % Change November 3, 2023 November 1, 2024 % Change November 3, 2023

(in millions, except percentages)

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% of segment net revenue 5.7 % 7.5 % 6.0 % 7.5 %

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.

Net Revenue — During the third quarter of Fiscal 2025, CSG net revenue declined 1% primarily due to a decrease in units sold, partially offset by an increase in the average selling prices of our offerings.

During the first nine months of Fiscal 2025, CSG net revenue declined 2% principally due to a decrease in units sold and, to a lesser extent, a decline in the average selling prices of our offerings.

Commercial net revenue increased 3% and 2%, respectively, during the third quarter and first nine months of Fiscal 2025, principally due to an increase in units sold.

Consumer net revenue decreased 18% and 19%, respectively, during the third quarter and first nine months of Fiscal 2025, principally due to a decline in units sold.

During the first nine months of Fiscal 2025, consumer net revenue also declined as a result of a decline in the average selling prices of our consumer offerings.

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

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

Operating Income — During the third quarter and first nine months of Fiscal 2025, CSG operating income as a percentage of net revenue decreased 180 basis points to 5.7% and 150 basis points to 6.0%, 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 the result of a competitive pricing environment.

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

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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 $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.

Our accounts receivable, net, was $11.2 billion and $9.3 billion as of November 1, 2024 and February 2, 2024, respectively.

Accounts receivable, net, was elevated due to growth in our AI-optimized server offerings and the timing of cash receipts.

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

As of November 1, 2024 and February 2, 2024, the allowance for expected credit losses was $62 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 offer or arrange various financing options and services for our customers globally, including through captive financing operations.

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

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

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 $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.

New financing originations were $1.6 billion and $1.8 billion for the third quarter of Fiscal 2025 and Fiscal 2024, respectively, and $5.9 billion and $6.0 billion for first nine months of Fiscal 2025 and Fiscal 2024, respectively.

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

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Interest income is recognized as net product revenue over the term of the lease.

Upon origination of operating leases, we record equipment under operating leases, classified as property, plant, and equipment.

Upon origination of operating leases, we record equipment under operating leases, classified as property, plant, and equipment, net.

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

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

As of November 1, 2024 and February 2, 2024, our financing receivables, net were $10.9 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 principal charge-off rate for our financing receivables portfolio was 1.4% and 0.6% for the third quarter of Fiscal 2025 and Fiscal 2024, respectively, and 0.8% and 0.6% for the first nine 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 August 2, 2024 and February 2, 2024, the residual interest recorded as part of financing receivables was $166 million and $157 million, respectively.

As of November 1, 2024 and February 2, 2024, the residual interest recorded as part of financing receivables was $169 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 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.

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

As of both November 1, 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 second quarter and first six months of Fiscal 2025 and Fiscal 2024.

No material impairment losses were recorded related to such equipment during the third quarter and first nine 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:

August 2, 2024 February 2, 2024

November 1, 2024 February 2, 2024

(in millions)

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Total cash and cash equivalents, and available borrowings $ 11,224 $ 13,365

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.

During the first nine months of Fiscal 2025, cash and cash equivalents decreased by $2.1 billion primarily due to the return of capital to our stockholders, capital expenditures, net repayment of Senior Notes and DFS debt, 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 November 1, 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 August 2, 2024, there were no borrowings outstanding under the facility and remaining available borrowings totaled approximately $6.0 billion.

As of November 1, 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 August 2, 2024, we had no outstanding issuances under the program.

As of November 1, 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.

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

August 2, 2024 Change February 2, 2024

November 1, 2024 Change February 2, 2024

(in millions)

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Total debt, carrying value $ 25,022 $ (972) $ 25,994

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.

The outstanding principal amount of our debt decreased $1.0 billion to $25.3 billion as of November 1, 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 $13.0 billion and $14.9 billion as of August 2, 2024 and February 2, 2024, respectively.

Our core debt was $13.8 billion and $14.9 billion as of November 1, 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:

Six Months Ended

August 2, 2024 August 4, 2023

Nine Months Ended

November 1, 2024 November 3, 2023

(in millions)

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Change in cash, cash equivalents, and restricted cash $ (2,103) $ (446)

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.

Operating Activities — Cash provided by operating activities was $3.9 billion during the first nine months of Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics.

Working capital was primarily impacted by AI dynamics, which led to higher inventory, accounts receivable, and accounts payable levels.

Cash provided by operating activities also reflected the impact of the $0.9 billion net payment to settle the Class V transaction litigation and $0.4 billion in proceeds from the sale of our U.S.

consumer revolving customer receivables portfolio.

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 $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.

Cash used in investing activities was $1.5 billion and $2.1 billion during the first nine 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 $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.

Cash used in financing activities was $4.4 billion during the first nine 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 nine months of Fiscal 2024, cash used in financing activities was $5.3 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 $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.

DFS new financing originations were $5.9 billion and $6.0 billion during the first nine months of Fiscal 2025 and Fiscal 2024, respectively.

As of November 1, 2024, we had $10.9 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 $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.

Capital Expenditures — We spent $1.9 billion and $2.0 billion during the first nine 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 $1.0 billion and $0.9 billion during the first nine 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.

Repurchases of Common Stock — Effective as of September 23, 2021, our Board of Directors approved a stock repurchase program with no fixed expiration date under which we are authorized to repurchase up to $5.0 billion of shares of our Class C Common Stock.

Effective as of October 5, 2023, the Board of Directors approved the repurchase of an additional $5.0 billion of shares of the Class C Common Stock with no fixed expiration date.

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

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.

During the first nine months of Fiscal 2025, we repurchased approximately 16 million shares of Class C Common Stock for a total purchase price of approximately $1.8 billion.

During the first nine months of Fiscal 2024, we repurchased approximately 22 million shares of Class C Common Stock for a total purchase price of approximately $1.3 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 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.

During the first nine months of Fiscal 2025 and Fiscal 2024, the Company paid $1.0 billion and $0.8 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.

8 unchanged sentences

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.

As of November 1, 2024, the Company had purchase obligations of $8.1 billion, of which $6.9 billion was payable within 12 months.

Market Conditions

24 unchanged sentences

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

Six Months Ended

August 2, 2024

Nine Months Ended

November 1, 2024

(in millions)

11 unchanged sentences

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

August 2, 2024 February 2, 2024

November 1, 2024 February 2, 2024

(in millions)

14 unchanged sentences

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