Please stand by. Good afternoon and welcome to the Fiscal Year 2023 Second Quarter Financial Results Conference Call for Dell Technologies Inc. I’d like to inform all participants that this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies Inc. Any rebroadcast of this information in whole or part without the prior written permission of Dell Technologies is prohibited. Following prepared remarks, we will conduct a question-and-answer session. I’d now like to turn the call over to Rob Williams, Head of Investor Relations. Rob, you may begin.

Thanks everyone for joining us. With me today are Jeff Clarke; Chuck Whitten; and Tom Sweet. Our earnings materials are available on our IR website and I encourage you to review our presentation, which includes rich content to complement our discussion this afternoon. Guidance will be covered on today’s call. During this call, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income and earnings per share. A reconciliation of these measures to their most directly comparable GAAP measures can be found in our web deck and press release. Growth percentages refer to year-over-year change unless otherwise specified. Statements made during this call that relate to future results and events are forward-looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our web deck and SEC filings. We assume no obligation to update our forward-looking statements. During the call today, Jeff will recap Q2, including the current demand and supply chain environments. Chuck will cover CSG and ISG operating performance, and Tom will cover our financial results and guidance. Now, I’d like to turn it over to Jeff.

Hello, everyone. Thanks for joining us. In Q2, we executed well and delivered strong financial results, despite a rapidly changing and challenging macro environment. We also advanced our long-term strategy, growing the core while innovating for our customers and enabling their opportunities in the data era. We delivered record Q2 revenue of $26.4 billion, up 9%, with growth in both CSG and ISG, and diluted EPS was $1.68, up 14%. Our differentiated business model and execution enabled us to outperform in the segments we serve. And in calendar Q2, we gained PC share and expect to gain share in server and storage when IDC releases Q2 results. I’d like to take a couple of minutes and talk about the macros that provide important context for our remarks today. Since we last spoke in late May, our view of the demand environment through the back half of FY 2023 has changed. The demand environment slowed and pushed to the right over the course of the quarter, particularly in CSG. We saw a decline in PC demand as we went through the quarter, with higher ASPs, partially offsetting a unit decline. Our supply chain execution was excellent throughout the quarter and we were able to offset the CSG demand weakness with backlog reduction in CSG. We saw ISG demand while still growing slow and pushed throughout the quarter. The Q2 and second half macro dynamics have become more challenging as customers are taking a more cautious view of their needs given the uncertainty. We have responded swiftly by managing inventories down and reducing our expenditures. Now let me turn to the supply chain and innovation. Like Q1, we are still seeing shortages of parts and embedded integrated circuits, including power supplies and NICs. ISG backlog, particularly servers, remains elevated. PC backlog is now at normal levels as Q2 PC shipments significantly outpaced demand and the portfolio is on standard lead time across the board. On the cost front, we expect modest deflation in aggregate component costs in Q3 while logistics rates are beginning to decline. Our strength in ASPs over the last year has been a result of richer configurations and product mix, but the lower cost environment could have an impact. Turning to innovation, we are proud of the significant advances we have made in the first half of the year developing new solutions for our customers, expanding our multi-cloud ecosystem and delivering new cloud experiences that include all major public clouds. Project Alpine, which brings our enterprise-class data services into public clouds for bursting, test and development, cloud-based analytics and data and container mobility, the largest release in PowerStore history and the new PowerMax OS10 software, delivers more than 500 new Dell storage software advancements that help customers deliver faster insights, achieve better multi-cloud data control, and increase cyber resiliency. New APEX offerings, like Dell APEX Cyber Recovery Services, that extend beyond storage, compute and data protection and deliver APEX as a full-stack solution. And in CSG, we continue to deliver new commercial devices for our hybrid world, including the Latitude 9330, the world’s first laptop with a collaboration touchpad. We also recently celebrated 25 years of Precision innovation, driving many industry firsts along the way. I actually led the workstation business when we launched Precision, so I’m particularly proud of this one and our number one position worldwide. As we’ve highlighted, we’re also innovating in strategic growth areas like Telecom and I’d like to provide a few examples of our progress in this important area. In May, we announced that we joined forces with T-Mobile to make it easier for enterprises and government customers to embrace 5G. T-Mobile’s 5G Private Mobile Network combined with Dell’s edge computing technologies will bring customers the power of 5G connectivity on premise where they need it. In June, DISH marked a major milestone in building the world’s most advanced cloud-native 5G Open RAN network. They now offer 5G broadband service to over 20% of the U.S. population on a cloud-native network built on Dell’s open IT infrastructure, software and services. As we think about the second half of the year, we remain focused on what we can control, execution, relative performance, prudent cost management and delivering for our customers and shareholders like we did during Q2. What we have shown over the years is that regardless of the environment, we are agile and built to out-perform. Now let me turn it over to Chuck.

Thanks, Jeff. We delivered strong financial results and excellent relative performance in CSG and ISG, while managing the shifting demand dynamics as the quarter progressed. Starting with CSG, we delivered record Q2 revenue of $15.5 billion, up 9%, with operating income at 6.3% of revenue. Consistent with our Q1 commentary, Commercial continues to fare better than Consumer. Commercial revenue grew 15%, while Consumer revenue declined 9%. An important measure of our success in any market environment is relative performance and we again drove differentiated share results. We gained over 200 basis points of worldwide PC unit share and over 100 basis points of display share in calendar Q2 according to IDC. We have now gained PC unit share in 34 of the last 38 quarters. And in Commercial PCs, our focus and the most profitable segment of the market, we gained over 300 basis points of unit share in calendar Q2 to claim the number one spot worldwide. Turning to ISG. We delivered another record Q2 with ISG revenue of $9.5 billion, up 12%, our sixth consecutive quarter of growth, with operating income at 11% of revenue. Servers and networking grew 16% and storage grew 6%, our seventh consecutive quarter of servers and networking growth and our fifth consecutive quarter of demand growth in storage. The breadth of our storage portfolio continues to be a competitive advantage, with number one positions across storage categories. The breadth of leading capabilities is a real differentiator for us, as one size fits all architectures simply do not meet customers’ diverse needs in the data era. In Q2, we saw modest storage demand growth with strength in the high end and in our marquee mid-range product PowerStore, which grew double digits and has grown every single quarter since launch. And in servers, we saw demand growth in most geographies albeit at a moderating pace. As Jeff mentioned earlier, we expect to gain server and storage share in calendar Q2 when IDC releases results in September. Finally in ISG, I’d call out our momentum on APEX, our offerings for customers looking to buy infrastructure as a subscription. Our APEX ARR is now over $1 billion and we grew orders 78% year-on-year in Q2, while adding almost 200 new customers. Customers like Federal Home Loan Bank in San Francisco, who is using APEX Private Cloud to support its growth and cloud strategy and realizing significant cost savings as the financial institution serves its members. And customers like Montage Health, who is using APEX Private Cloud to provide clinicians better access to critical applications and information for patient care and staff collaboration. Stepping back, the near-term market outlook is marked by mixed signals, as Jeff highlighted in his macro comments. That said, we remain confident in the long-term health of our markets and in our competitive position. There has been a clear and significant increase in the size of the PC market from pre-pandemic levels as hybrid work has become the default approach for companies worldwide. And automation and digital transformation remain the backbone of our customers’ strategies, necessary for productivity and growth. Done right, technology investments are key to competitive advantage in the data era and can reduce costs, while combating an environment with high inflation and labor shortages. So we remain confident in the long-term attractiveness of our core markets, in our opportunity to build meaningful new businesses in the data and multi-cloud era, and in our durable competitive advantages that enable us to out-compete in any environment. Now, I’ll turn it over to Tom for the financials.

Thanks Chuck. We delivered record Q2 revenue of $26.4 billion, up 9%, driven by strength in both CSG and ISG. We highlighted in late May that we thought FY 2023 would see a more robust infrastructure investment cycle while PC growth would moderate. While we did see modest infrastructure demand growth in Q2, we now see a more challenging ISG demand environment as we head toward the back half of the year. And in CSG, we are seeing demand weakness in both Consumer and Commercial. Overall gross margin was $5.7 billion, roughly flat and 21.4% of revenue. Gross margin as a percentage of revenue was 200 basis points lower than last year, primarily due to an increase in our costs and FX headwinds not yet entirely reflected in pricing as we balanced profitability with competitive positioning. Operating expense was $3.7 billion, down 3% and 14% of revenue. During the quarter, we instituted a number of cost reduction measures including a slowdown in external hiring. Operating income was $2 billion, up 4% at 7.4% of revenue. Our tax rate was 19.9% and net income was $1.3 billion, up 9%, primarily driven by growth in operating income and a decline in interest expense due to our lower debt balances. Fully diluted earnings per share was $1.68, up 14% with diluted share count decreasing sequentially to 755 million shares as a result of repurchases. Note that our GAAP profitability was impacted by a $255 million net adjustment to the value of our strategic investment portfolio given market conditions and a $189 million charge related to exiting our business in Russia, both of which are primarily non-cash items. Our recurring revenue is approximately $5.2 billion a quarter, up 8%. Our remaining performance obligations or RPO is approximately $41 billion, up 2% and includes deferred revenue plus committed contract value not included in deferred revenue. Dell Financial Services originations were $2.3 billion, up 24% driven in part by our Technology Rotation Solutions. We have historically seen stronger originations when the macroeconomic environment slows and DFS ended the quarter with $13.5 billion in assets. Turning to our cash flow and balance sheet. Our cash flow from operations was $700 million in Q2 and is $5.7 billion on a trailing 12-month basis. Q2 cash flow was primarily driven by growth and profitability partially offset by a use of working capital. Working capital was impacted by an increase in receivables due to the timing of sales later in the quarter partially offset by a $400 million sequential reduction in inventory. The quality and aging of our receivables is strong and the team did a nice job on inventory this quarter, which will remain a focus as we move through the rest of the year. Our core debt balance is $16.1 billion and we ended the quarter with $7.1 billion in cash and investments, down $1.4 billion sequentially, principally due to $900 million in capital returns and a $300 million strategic investment portfolio write-down on a gross basis. We repurchased 13.6 million shares of stock in Q2 for $608 million and paid $242 million in dividends. Going forward, we will continue our balanced capital allocation approach, repurchasing shares programmatically to manage dilution while maintaining flexibility to be opportunistic like we were in Q1 and in Q2. Turning to guidance, as Jeff highlighted, we’re seeing customers become more cautious given the current macro-economic environment. We saw a softening in CSG, specific to consumer and chrome in Q1. In Q2 the decrease in demand velocity extended to commercial clients and we are seeing more cautious spending within our ISG business. Currency also continues to be a headwind for us, roughly 500 basis points for Q3 and roughly 400 basis points for the full year. Against that backdrop, we now expect Q3 revenue between $23.8 billion and $25 billion, down 8% at the mid-point, with CSG declining in the high-teens and ISG growing in the low-teens. We do expect gross margin rates to increase sequentially as mix shifts to ISG. Given the cost controls we have in place, we expect OpEx spend to be down versus Q2. For our non-GAAP tax rate, you should assume 20% plus or minus 100 basis points. We expect diluted share count to be roughly 750 million shares to 755 million shares. Netting this out, we expect diluted EPS in the range of $1.53 to $1.79, flat year-on-year at the midpoint. The environment we saw in late May translated to a 6% growth expectation for the full year, with diluted EPS growing 12%. Given the change in the demand environment, our current view for FY 2023 is revenue flat to up 2%, with diluted EPS between $6.60 and $7, up 9% at the midpoint. In closing, we delivered strong second quarter financial results but are more cautious as we enter the second half. We are actively managing our costs and spending and we remain focused on what we can control, executing our strategy to consolidate and modernize our core and build new growth engines that enable our customers’ multi-cloud future. And we expect to deliver revenue and EPS growth with strong free cash flow to our shareholders over time. Now, I’ll turn it back to Rob to begin Q&A.

Thanks, Tom. Let’s go ahead and get to Q&A. We are going to ask each participant to stick to one question, so we can get to as many analysts as possible. Operator, can you go ahead and take the first question?

Thank you. Our first question comes from Toni Sacconaghi with Bernstein.

Yes. Thank you. I’m just wondering if you can elaborate on the kind of linearity you saw in the quarter, specifically like was the book-to-bill greater than 1 in the first month and well below 1 in months two and three? And your demand outlook seems strikingly more cautious than some other enterprise peers like Cisco and NetApp, and I’m wondering why you might think that your view is somewhat different from what they are seeing?

Hey, Toni. Let me start and I’ll ask Jeff and Chuck to add their thoughts. Regarding Q2, typically, we see a pipeline build and conversion as we progress through the quarter, especially in the mid to late stages. However, in Q2, the pipeline in our client business did not build as expected and was pushed to the right. We also noticed demand in ISG following a similar trend. Generally, we would expect to see greater velocity growth in pipeline during the second month of the quarter, but we didn't see that this time. As we mentioned earlier, there was an overall caution from our customers as they navigate the macro environment. As a result, while we anticipated softer demand in CSG, the reality was that it was significantly softer, particularly among commercial clients. Consequently, despite having a high CSG backlog, we reduced the backlog in line with our shipment profile for clients in Q2. Concerning enterprise demand or infrastructure, we can only share what we're observing. Since we have the largest direct sales force among technology companies, we feel we have a good understanding of current demand and the environment. We are noticing that customers are being more cautious with their spending and project evaluations, which means projects are taking longer to finalize and are generally smaller in scale than what we've seen previously. Jeff, Chuck, do you have anything to add?

Yeah. Maybe, Toni, I’ll add a little observation from what we’re hearing from customers on enterprise dynamics. I think, look, texturally, if I start with the PC business, Commercial customers are just citing multiple reasons for sort of delaying purchases. That’s caution around future hiring, trade-offs within their IT budgets given the macroeconomic uncertainty, customers reducing the size of orders and buying for only immediate requirements, but the net was we saw a meaningful shift in corporate sentiment over the course of the quarter. I think ISG dynamics were a bit different. So we saw demand growth in both servers and storage but at a moderating rate as just more caution entered the environment. So where Commercial PC spending paused, infrastructure spending split, companies are putting more scrutiny on spend. As Tom said, deals took longer to close throughout the quarter and we generally just saw more deliberate customer behavior. So what you see us calling out today is us trusting that better demand signal that Tom cited and what we’re hearing from customers.

Thanks, Toni. Next question.

Thank you. Our next question will come from Erik Woodring with Morgan Stanley.

Hey, guys. Thanks so much for taking my questions. I just wanted to get your take on your ability to maintain kind of pricing power as some of these demand trends now start to flow through the business. Do you believe you have pricing power more so in one business versus the other, maybe by product; I would love to just have you guys tease that question out a little bit more? Thank you.

Sure, Erik. This is Jeff. Maybe a couple of comments, I’ll start with PCs and work our way through the product line. I think it’s important in PCs when you look at our mix of business being Commercial versus Consumer or more weighted towards Commercial versus Consumer, we get a natural uplift there. And we’re seeing, while we commented demand is slowing, richer configurations we saw consistently through the quarter, primarily from our premium products like our Latitude notebooks, our Precision class of workstations. So we’re seeing a higher mix of our higher end products, as well as richer configurations and I think that bodes well long term when you think about where we play. Then in addition, because of how we do business that you know very well, but I think it’s worthwhile mentioning, our ability to attach software and peripherals, our ability to attach services and financing options to those PCs, I think, is a differentiated capability over anyone else in the marketplace. So while the market may be softening as we’re referring to, our ability to continue to outperform with the quality of mix, the quality of our business, the mix towards Commercial and richer configurations we feel good about. Similar trend in servers, if you think about the growth of our ASPs over time in servers, they’ve expanded, driven by our ability to drive richer content, by selling deeper into the data center, selling higher value workload solutions around GPUs as an example, driving artificial intelligence-related workloads across our servers, we’re getting richer and greater content in each and every server and because of the challenges that we’ve had with supply for the better part of six quarters now, we’ve been able to pass through the incremental inflation that’s been associated with servers to end users. And similar in storage, we think storage is an opportunity for us to continue to drive higher revenue. We have the broadest portfolio in the marketplace. We cover every aspect of the storage market from a high end to the mid-range, to the entry level, to the unstructured space, to the data protection space, all highly valuable categories in storage, which allows us to drive differentiated revenue in our storage business.

Next question.

Certainly. Our next question comes from Simon Leopold with Raymond James.

Thanks for taking the question. Yes. I’d like to see what kind of actions you might be taking in response to the slowing, whether it’s maybe increasing promotions on PC, i.e., cutting prices, or whether you’re looking to reduce your OpEx, and I guess part of this is I’m trying to get a better sense...

Yeah. No doubt that I am the other one. We’ll take a 5-minute break. Justin, can you hear us on your end?

Yes. Yes, sir. I can hear you. I can hear you loud and clear. Are you able to hear us?

The last question dropped out. We’re going to take a 5-minute break and shift to another phone. So we’re going to pick this call back up at 3 minutes after the hour approximately.

Okay. Operator…

And we’ll just pick it up with the next question in the queue.

Absolutely. Everybody, just please stay on the line and we’ll just resume shortly. And once again, we are just taking a brief break with Dell Technologies. Please just stand by and remain on the line and we should resume shortly. We do thank you. Okay.

Justin, you there?

Yeah. Yeah. Yes, sir. We are back on the call.

Okay. Can we continue with Simon’s question?

Absolutely. Just one moment.

Just a second.

Your line is open again. Please proceed with your question. Thank you.

Great. Thanks. Hopefully, you can hear me. I wanted to ask about what actions you might be taking in response to the weakening environment, specifically, whether you’re looking to cut operating expenses. I know you guided for sequentially lower but something more permanent or whether you’re adding promotions to PCs, cutting prices, trying to get a better sense of what your response is to the weakness from those perspectives? Thank you.

Thanks, Simon. It’s Tom. I’ll begin and ask Jeff or Chuck to add in as needed. First, Simon, as you know, we’ve experienced economic cycles before, and I believe our teams and the company's ability to navigate them has been strong, as we have a long history of doing so and optimizing the business along the way. Currently, we are taking specific actions in response to the weakening environment. We've implemented various cost measures, including limiting external hiring and cutting back on discretionary spending. These are standard actions we take in response to a softening environment, and we will continue to monitor the situation closely to ensure we manage our profitability in line with our expectations. Regarding pricing, we will be very careful in our approach, especially considering that we don't see much elasticity in the consumer market right now. Any promotional spending we do will be targeted, primarily focusing on how we place products within the channel, even though we may not have as much as some of our competitors. I expect us to maintain discipline in our pricing strategy. I'm hesitant to test elasticity at this moment due to the current environment, but we also need to stay competitive, so we will keep a close eye on market dynamics in terms of pricing. Jeff, feel free to add anything you’d like.

Yeah. I mean I would add, Tom, I think, we have demonstrated discipline in pricing. Our product portfolio is in price position. Our win loss at each type of segment, whether small business, medium business, large corporation or global remain consistent and consistently good as we believe that our share gains over the past decade. So we’re going to remain disciplined there in PCs. Consumer is aggressive, as Tom said, given what is happening in the marketplace. We are not that tilted, if you will, or biased towards consumer and where we play in consumer tends to be in the premium side and the gaming side, which tend to be less competitive. It tends to be an area where we have a differentiated advantage. The same is true on the Commercial side, as I mentioned in the last question. When we move our way towards servers, the pricing environment is relatively benign. The pricing environment, we have large backlogs, we have demand ahead of supply, because of what the supply chain has gone through for the past six plus quarters. And we see that pricing environment or the pricing environment there enables us to pass along our increased costs, as I mentioned, and the same is true on storage. And then even when you step back, I’d ask all of us to reflect back, note on being ushered down here, sorry, as we work our way through this change in demand, we are unbelievably optimistic about the long-term. Hybrid work is here to stay, which drives higher mobile mix, which drives greater configurations and more peripherals. PCs are more pervasive in the education system worldwide. We’re approaching the three-year replacement cycle of what we put in to respond to COVID and triaging the work-from-home event from three years ago and we’re still starting at a market that’s larger than it was pre-COVID, which we’re excited by. And then you look at what’s happening on the infrastructure side, the world continues to digitize at a nonlinear rate, data is being created at unprecedented levels, we had data gravity pulling the infrastructure resources out to the edge, the new digital highways being built with 5G. So we absolutely are very bullish and optimistic about the long-term characteristics of the marketplace.

Great. Thank you, Simon. Thanks, Jeff. Next question.

Thank you. Our next question will come from Shannon Cross with Credit Suisse.

Thank you very much. I wanted to ask about Project APEX. You’re over $1 billion now. Curious as to the response from customers; it seems that ratable or Infrastructure as a service might be something that would be more attractive if we are going into a downturn, which appears we are. So maybe if you can talk about how you think about growth. And then also, how we should think about margin potential for that business, as it becomes albeit a small part now, but a bigger part of your revenue over time? Thank you.

Thanks, Shannon. It’s Chuck. Good to hear from you again. I’ll start and let the team layer on. Look, as you said, we’re pleased with our momentum on APEX and we’re excited to share the milestones today. APEX ARR is now approximately $1 billion, we grew orders 78% year-on-year in Q2 and we added 200 new customers. If you dissect it a bit, we’ve seen a lot of strength in our custom solutions. So our APEX Flex on Demand offer, that’s effectively customized infrastructure across storage, server, HCI, data protection with committed and then buffer capacity. And also our APEX data center utility offer, which is effectively customers that want to move all or part of their data center to a Dell managed pay-per-use model. And as you said, look, in the current macro environment, we’re naturally seeing lots of interest from customers who are looking to manage cash outlays by pivoting to a pay-as-they-go scale on-demand type model. So really good momentum in the business. Look, from a P&L and reporting and growth and margin, we don’t want to get ahead of ourselves. We’ll continue to report out periodically on our progress, like we did today, and we’re going to continue to remain focused on extending the offer set in APEX and hitting our technical milestones. So, more to come from us on APEX.

Thanks, Shannon.

Thank you. Our next question will come from Rod Hall with Goldman Sachs.

Yeah. Hi, guys. Thanks for the question. I guess, as I sit here, I think a lot of people are going to look to come away from this call with what they can maybe read across, obviously, Dell, a very important company, both in enterprise and Consumer. So I wondered if maybe starting with the Commercial the enterprise side of things, if you could give us any further color or double-click on the types of customer, maybe where you’ve seen this slowdown, are these large enterprises smaller? Any kind of trends you see that might help us learn what’s going on in the environment. And then likewise, in consumer, even though there’s less exposure, I know you guys have a lot of good data there. One thing in particular on consumer we’re interested in is higher end consumers, do you think that you’ve seen any evidence that those are weakening? Thanks a lot.

Sure, Rod. Jeff, I'll address this and then Tom and Chuck can certainly add their insights. Starting with Commercial PC or enterprise as you mentioned, we have communicated this in various ways, but I want to clarify it. Throughout the quarter, the pipeline did not develop as we anticipated, which is contrary to historical trends. We observed that large companies slowed their purchasing, particularly in large bids, and the large bids that we received were smaller in size. As Chuck noted, this behavior reflects customers prioritizing their immediate needs over future ones, and they were cautious due to the macroeconomic environment affecting us all. This cautious approach was evident across large multinationals and corporations within our customer base. Small businesses and new businesses were relatively less affected and performed better compared to larger businesses, which saw a slowdown in both servers and PCs as large bids became less frequent and smaller. This was a significant challenge throughout the quarter. In the consumer sector, we don't compete at the very low end of the market, which has ample inventory. This abundance has increased competition in the consumer segment, which you may have observed in recent earnings reports. Regarding the high-end gaming and our XPS or premium consumer business, we have been impacted, as exposure to these segments inevitably affects our consumer business, although the impact has been lesser. I hope that answers your question, but if it doesn't, feel free to ask for more clarification.

Okay. Hey, Jeff. I’d like to add to what you said about PC demand from the enterprise or infrastructure perspective. As we mentioned earlier, we observed a moderation in ISG demand throughout the quarter concerning overall growth. Customers are taking longer to make decisions, deal sizes are decreasing, and our pipeline is slightly under pressure. Digital technologies remain a consistent trend, and we see that some customers are still spending, albeit cautiously in the current environment. Reflecting on our previous guidance, we compared where we were in May to now. While we continue to anticipate ISG revenue growth in the low double digits for the year, it feels a bit softer. Additionally, considering the elevated backlog within ISG, we believe that in the second half of the year, the backlog may decrease depending on demand signals and supply chain conditions.

That’s great. Okay. I’m afraid of, Rob, so I don’t want to break his rules, so I appreciate all that detail.

Okay. Thanks, Rod.

Thank you. And our next question will come from Jim Suva with Citi.

Thank you. And I’m not smart enough to ask more than one question, so I’ll stick to one. And that is…

That we decided.

… with these delays, is your sense that there’s an opportunity for share shifts that will actually favor Dell, are there some actual surprise cancellations you’re having, is it kind of a quarter or two pause here or any sense about share shifts in this pause of duration? Thank you.

Well, I think, we can’t underestimate the impact of the macro environment that we are operating in and companies being cautious, and that cautionary view is impacting how fast things will be built out in the future. Again, I think our characterization would be companies are buying to their urgent and immediate needs. I won’t say they’re postponing their longer term build-outs, but they’re actually reevaluating the timing of those and I think that’s probably an important way to think about it. The notion of digital transformation, the world digitizing the things that I referenced a few moments ago are still here for us. We’re going to live in a world that is clearly more connected, more distributed, building data everywhere with data-driven sites and that’s going to require technology to bring to life. I think an immediate opportunity, I think, our direct model in the way that we operate and how I think agile and nimble we are, we typically do well when markets are up and we typically do well when markets are down. So our direct model has allowed us our belief with our listening posts to see this early, position our company appropriately and we intend to take share in the marketplaces we serve and we think we’re positioned to do that. And the ability to help, if you will, soft land some of the units slow down by having a model that or access to the market that allows us to sell higher end configurations across PCs, servers and storage and attached peripherals, services and financing, I think, gives us an advantage in a marketplace that maybe, I’ll use your word, pausing. We would prefer the word slowing for the reasons that I outlined. I hope that helped.

Thank you so much.

I can't resist mentioning, in relation to Tom’s earlier comments and our strategies during these uncertain economic times, that we have a proven playbook that has been effective across different cycles. Our approach will focus on what we can control and we aim to take an offensive position in the market. This means we plan to enhance our strategic presence in both our core and adjacent businesses.

All right. Great. Thank you Jim. Next question, please.

Thank you. Our next question comes from Aaron Rakers with Wells Fargo.

Yeah. Thanks for taking the question. I want to go back to kind of Rod’s question a little bit. I guess, if I were to look at the guidance, I think you said low-teens on the ISG segment this quarter. I’m assuming that implies year-over-year growth. It doesn’t seem like that’s really dissimilar to normal seasonality, actually, I think you could even argue it’s a little bit above seasonality. So I guess my question is, is if we look at this next quarter and even the quarter after that, should we think about, like, backlog just burning down relative to demand deteriorating and just help me bridge that bridge between what’s going on with backlog versus what you’re actually seeing as far as slowing ISG demand?

Yes, Aaron. That's exactly what I was referring to. During our discussion about Q2, we observed a moderation in ISG demand as the quarter progressed, and we anticipate that this moderating trend will continue. If you consider the latter half of the year, particularly in the ISG sector, it's important to analyze these aspects separately. We are somewhat more optimistic about storage demand than server demand at this stage. Our guidance reflects an expectation for ISG growth in the high-single digits to low-double digits throughout the second half of the year, primarily driven by current demand in each quarter and a substantial backlog that will facilitate additional shipments, all contingent on supply chain reliability. We feel more assured about the supply chain's availability, particularly within the ISG sector. Jeff, do you have anything to add?

No. I think you called it out correctly. As we look at the second half and the demand environment that we’ve been talking about from a supply chain perspective, the things that have impeded us to be able to ship what we sell in any given quarter, we believe are clearing the way in the second half of the year, which is what we’re supposed to do in the supply chain organization. So working through the things that I’ve called out in the past, such as, the voltage regulators, embedded controllers, the associated ICs with the power supplies and the NICs have line of sight to them in the second half of the year continues to improve and we’re in a good supply position.

Yeah. Thank you.

And our next question will come from Wamsi Mohan with Bank of America.

Yes. Thank you. Last quarter, you talked PCs could be about 330 million units. I was wondering if you could give us an update on your current view in 2022 and maybe any early thoughts into 2023. And if we look at your free cash flow, right, your LTM free cash flow is very impressive, but over the last six months, it’s been negative. As you look through this weakening demand environment and particularly declining revenues in CSG, I know you’ve got elevated levels of inventory as well. So there are quite a few moving pieces. So any help you can give us in trying to think through as you burn through that inventory and look at the elevated backlog, the rate and pace of that being off, how we should be thinking about your potential free cash flow generation over the next couple of quarters?

Sure. Wamsi, I’ll address since I’m the one that put 330 out there on our last call where our current thinking is. So I’m sure you saw last night that IDC came out with their new forecast, certainly a significant change. Second half, obviously, particularly changed in the market now and their definition of roughly 305 million units, which I believe takes the market down on their side or just under 13%. Our view, so tying it to the 330 that I talked about last time, our view is built on a proprietary model. That proprietary model uses many industry sources, that uses what we learn from our supply base and what we hear from our customers and our model is a little more pessimistic than that. We’re centering around 290 million units for the year, roughly 151 million sold in the first half of the year. You can do the math of how you get or what it would be in the second half. So we have the second half down more than IDC does based on our insight, our listening posts and our proprietary model that allows us to at least manage and navigate the business. So that’s our current outlook, 290 million. It will be wrong tomorrow. The precision of these tools isn’t that specific to the decimal, but it is an approximation of where we think the market is now in driving our behavior.

All right. Thanks, Jeff. Thanks, Wamsi. Next question, please.

And our next question will come from Amit Daryanani with Evercore.

Thanks for taking my question. I guess maybe if I think about the back half expectations that you have for ISG, could you just maybe talk about what are you seeing in storage versus servers and one is more weaker versus the other, that would be really helpful to understand? And then, Tom, if revenues are down the way you’re alluding to the back half, can we still have positive free cash flow generation back half of the year?

Yeah. Look, we’re pleased with the storage performance. You saw that fifth consecutive quarter of demand growth in storage and that streak is now extended to the P&L, we’re 6% growth in Q2 after 9% growth in Q1, so that’s 8% growth for the first half. Look, I think, we saw strength across a number of portions of our portfolio. Our breadth of portfolio continues to be an advantage and so we saw growth in storage around the high end, PowerStore continued to grow, entry, unstructured. And I’d sort of call out that as we’ve said in the past, the storage business can be lumpy in any one quarter, and if we pull the lens back to the first half, our core storage business, data protection, hyper-converged infrastructure businesses all grew at a very healthy clip. So looking ahead on storage, we would say, look, we do see demand growth moderating as the caution that enters the environment sort of extends to storage. But from where we sit today, we see more moderation in server buying than in storage buying, and so we do expect storage demand growth again in Q3.

All right. Great. Thanks. Thanks for the question. Next question, please.

And our next question will come from Sidney Ho with Deutsche Bank.

Thank you for taking my question. I'm interested in the margins. Last quarter, you mentioned that you expected the gross margin to remain relatively flat in Q3 and increase slightly in Q4. Given your current observations and the additional foreign exchange challenges, how do you anticipate the gross margin will trend? Additionally, could you share your expectations for operating margins by segment in light of your comments on reducing expenditures? Thank you.

Hey, Sidney. Let me talk about the margin dynamics that we’re seeing and I won’t parse it down to an operating segment level. But at an aggregate level, if you recall what we said in the guidance when we talked about this in May, we expected Q2 gross margins to decline given the mix of the business, given foreign currency, again, some of the backlog dynamics and effectively that’s what you saw happen in the Q2 results. What we just said in the guidance for Q3 was that we do expect operating our gross margin, excuse me, to increase in Q3, just given the mix of the business, the pricing actions that we have taken to try to offset the currency, although that continues to be dynamic. But we think the mix of the business is helpful, and we mix a bit more towards commercial PCs in the back half of the year as well. So our expectation right now with what we know today is that gross margins move upward in Q3 and then relatively stable as you go through the remainder of the year.

Great. All right. Next question, please.

Our next question will come from Steven Fox with Fox Advisors.

Good afternoon. Just wanted to clarify a couple of things you said on storage or just maybe understand the timeline. So I understand what you said looking back on mix and trends and how you’re still seeing overall demand growth and the broad advantages in the portfolio. But when you think about mix over the next two to three quarters, can you sort of dig into that and what sorts of some of these macro pressures might mean for the overall storage mix going forward? Thank you.

Let me address that question. We have discussed various aspects of our businesses, including the PC sector and the anticipated demand in our server division. As Chuck mentioned, we project the storage market will grow in the mid-single digits, and we aim to gain market share and exceed industry performance. The driving factors behind this growth include our leading positions across our product lineup. We are a market leader in high-end storage, having recently launched Version 4 of PowerMax, which is unmatched in the market, and we are confident in its growth potential. PowerStore is also performing well, accounting for nearly half of our midrange mix, with 24% of its customers being new. We have just released our third software version with a new controller, introducing a long-awaited feature, native MetroSync replication. We have no deficiencies in the midrange market and offer the most advanced architecture available, which we plan to leverage. Our new PowerScale and PowerFlex software-defined storage products are also unparalleled in the market. These elements will drive our differentiated growth, and I believe we will succeed in outperforming the market.

Hey, Jeff. I think in addition to that, given the product portfolio that we have, there’s a couple of macro things that help us as well. Clearly, the mainframe refresh cycle, so the high end are PowerMax should benefit from that. Now it’s early innings, but we do expect there to be some benefit as a result of that and the reality of the world is that data is still getting created. So the need and the ability of a company to store data continues to grow and with the solution capabilities that you just outlined in our positioning in the market, I think we feel pretty good about the opportunities.

Right. And maybe if you think about it, I think, I mentioned this before, but if you summarize that, our priorities in the storage business are really consolidating the high end with the best product in the marketplace. Innovating and taking share in the mid-range where we are the market leader, but want to create more space and then lead in the HCI and software-defined infrastructure business. So we have the leadership position in all three and we continue to lean on them to grow.

Great. That’s very helpful. Thank you.

All right.

Thank you. Our next question comes from Samik Chatterjee with JPMorgan.

Hey. Thanks for squeezing me in. I guess you’ve mentioned a few times on the call that you’ve obviously managed the business to economic downturns in the past as well. I was just curious if you can talk about parts of the business that will be countercyclical, I know financial services was called out as one and particularly as some of the slowing reverses from your customers, hopefully, in some time, where should we expect to see the rebound first, any insights on that from your experience? Thank you.

Sure. Let me begin and then others can add their thoughts. When considering what areas of our business might perform countercyclically, you've correctly noted that we’ve observed macro uncertainty or weakness in the past, leading customers to prioritize preserving cash and seeking financing options. This quarter, the originations in our financial services segment present opportunities for us. Additionally, APEX represents a key opportunity, particularly with its focus on service and subscription models that many customers are drawn to, allowing them to avoid capital expenditures. If we examine various sectors within the market and the current macro dynamics, we can see that government spending is directed toward the defense sector, education, and health care, which could lead to interesting prospects depending on budget allocations and flows. The ongoing macro trends surrounding energy investments will also necessitate infrastructure development. There are numerous areas in this broader context of a slowing economy that we are poised to leverage to drive growth. Furthermore, I want to emphasize that, as Jeff mentioned regarding supply chain dynamics, we anticipate seeing deflationary component costs in Q3. As you know, industries often perform well during periods of deflation in component costs, which could present margin opportunities for us. While we’ll need to navigate these challenges, I am confident in our ability to seize any growth opportunities that arise.

All right. Great. Thank you Jim. Next question, please.

Thank you. Our final question will come from Krish Sankar with Cowen and Co.

Hi. Thanks for taking my question. This is Stephen calling on behalf of Krish. Just one question on ISG server refresh later this year. Obviously, the new x86 server chips that are coming out this year are probably one of the most anticipated product releases. Can you talk about your customer feedback on expected demand a year within the context of macro slowing and also just given that AMD-based service systems have increased as a percentage of the overall market, but do you anticipate your portfolio to also be in line with that? Thanks.

Well, let me see if I work my way through that. So we talked about a slowing server demand independent of technology and architecture. It’s probably we’re saying for the last six quarters, we’ve been in a growth mode. The sector has really grown for us. It’s been seven quarters in a row and you’ve seen this massive consumption of infrastructure. In this case, we’re talking about servers. Servers, we benefited from that by taking tremendous share in this marketplace. So I look forward, as we get through the consumption cycle and I’m not here I can’t cast how long that consumption cycle is going to be delayed or paused as we go through what’s called a digestion period. We’re poised quite well when the consumption button gets turned back on again. We’ll have refresh products, both classes of x86 architectures. We’ll be in a performance position of the progress we’ve made strategically across high-value workloads. Our ability to sell deeper into the data center, what we’re doing in the software-defined space across the board, I think, positions us quite nicely to take advantage of when that consumption period resumes. I can’t forecast that. We talked about the demand slowing. We didn’t say it was stopped. So I think that’s an important notification. And the longer-term attributes continue to really drive a demand, a multi-cloud world, a decentralized world, a data-intensive world, a world that requires more data-driven insights, automation and embedded intelligence. Those are the things that we built for our customers. So longer-term, I feel really good. I’m not a market forecaster in terms of what happens in the next period of time, but we’re positioned quite well.

Very good. We had a couple of second questions that I intentionally didn’t address that were related to cash flow. And I just feel like it’s probably better that we just hit those. So Tom questions on cash flow in the second half, given the linearity and demand dynamics.

Certainly. Over the first half of the quarter and year, free cash flow has been somewhat weaker due to changes in demand and revenue dynamics. As we look toward the latter half of the year, we anticipate generating free cash flow. Our model generally creates significant cash flow when revenue rises, but when revenue levels off, we may see a slight reduction in cash flow. We are implementing several strategies to reduce working capital and improve its utilization. Our inventory decreased by $400 million this quarter, and we will continue to focus on that while ensuring we maintain continuity in supply to serve our customers effectively. We also saw an increase in receivables this quarter due to the sales trends we experienced, but our receivable aging looks good, and we are not currently observing any stress from our customer base. We will strive to restore that aspect to our usual profile. Tyler, do you have anything to add?

No. I would probably just add. I mean, look, if you look back over the last several years, obviously, it’s been a great demand environment, and we benefited from working capital efficiency and you saw our free cash flow conversion to net income was well above 1 time, right, and obviously, that’s our target, although I would say for this year, given where we are and what we’re seeing, I would expect us to be below that 1 time target. But we’ll obviously migrate back towards that over time.

All right. Thanks, Tyler. That wrapped the call today. Just as a reminder, we’ll be at a multitude of conferences this quarter with additional IR activities in Asia and Europe. So we look forward to seeing you when we’re out on the road and thank you for joining us today.

Thank you. This concludes today’s conference call. We appreciate your participation. You may disconnect at this time.