DELL 10-K diff: FY 2024-02-02 → FY 2025-01-31
Paragraph-level diff of Risk Factors (Item 1A) and Management's Discussion & Analysis (Item 7).
Item 1A · Risk Factors
+81 paragraphs −77 paragraphs ~77 changed
FY 2024-02-02 (earlier)
ITEM 1A — RISK FACTORSOur business, operating results, financial condition, and prospects are subject to a variety of significant risks, many of which are beyond our control. The following is a description of some of the important risk factors that may cause our actual results in future periods to differ substantially from those we currently expect or seek. The risks described below are not the only risks we face. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that also may materially adversely affect our business, operating results, financial condition, or prospects.Risks Relating to Our Business and Our Industry
Adverse global economic conditions may harm our business and result in reduced net revenue and profitability.As a global company with customers operating in a broad range of businesses and industries, our performance is affected by global economic conditions and the demand for technology products and services in international markets. Adverse economic conditions may negatively affect customer demand, and could result in postponed or decreased spending amid customer concerns over unemployment or slowing demand for their products, reduced asset values, volatile energy costs, the availability and cost of credit, and the stability and solvency of financial institutions, financial markets, businesses, local and state governments, and sovereign nations. In Fiscal 2024, global economic uncertainty adversely affected the demand for our products and services as some of our larger customers exhibited increased caution in their IT spending. Factors contributing to weak or unstable global economic conditions, including those attributable to geopolitical volatility (such as ongoing military conflicts in Ukraine and the Middle East and tensions across the Taiwan Strait), international trade protection measures and disputes, such as those between the United States and China, or public health issues such as the coronavirus pandemic also could harm our business by contributing to product shortages or delays, supply chain disruptions, insolvency of key suppliers, customer and counterparty insolvencies, increased product costs and associated price increases, reduced global sales, and other adverse effects on our operations. Any such effects could have a negative impact on our net revenue and profitability.Competitive pressures may adversely affect our industry unit share position, revenue, and profitability.We operate in an industry in which there are rapid technological advances in hardware, software, and services offerings. As a result, we face aggressive offering and price competition from both branded and generic competitors. We compete based on our ability to offer to our customers integrated solutions that provide desired features at a competitive price. Our competitors may provide offerings that are less costly, perform better, or include additional features. Further, our offering portfolios may quickly become outdated or our market share may quickly erode. Efforts to balance the mix of products and services to optimize profitability, liquidity, and growth may put pressure on our industry position.
As the technology industry continues to expand, there may be new and increased competition in different geographic regions. The generally low barriers to entry into the technology industry increase the potential for challenges from new competitors. Competition also may intensify from an increase in alternatives for mobile and cloud computing solutions. In addition, companies with which we have strategic alliances may become competitors in other product areas, or current competitors may enter into new strategic relationships with new or existing competitors, all of which may further increase competitive pressures.
Our reliance on vendors for products and components, many of which are single-source or limited-source suppliers, could harm our business by adversely affecting product availability, delivery, reliability, and cost.
We maintain several single-source or limited-source supplier relationships, including relationships with third-party software providers, either because multiple sources are not readily available or because the relationships are advantageous due to performance, quality, support, delivery, capacity, or price considerations. A delay in the supply of a critical single- or limited-source product or component may prevent the timely shipment of the related product in desired quantities or configurations. In addition, we may not be able to replace the functionality provided by third-party software currently offered with our products if that software becomes obsolete, defective, or incompatible with future product versions or is not adequately maintained or updated. Even where multiple sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could harm our operating results.
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Table of ContentsWe obtain many products and all of our components from third-party vendors, many of which are located outside of the United States. In addition, significant portions of our products are assembled by contract manufacturers, primarily in various locations in Asia. A significant concentration of such outsourced manufacturing is performed by only a few contract manufacturers, often in single locations. We sell components to these contract manufacturers and generate large non-trade accounts receivables, an arrangement that would present a risk of uncollectibility if the financial condition of a contract manufacturer should deteriorate.Although these relationships generate cost efficiencies, they limit our direct control over production. The increasing reliance on vendors subjects us to a greater risk of shortages and reduced control over delivery schedules of components and products, as well as a greater risk of increases in product and component costs. We experienced some of these adverse effects in recent periods, primarily as a result of impacts of the coronavirus pandemic.
We may experience additional supply shortages and price increases caused by changes to raw material availability, manufacturing capacity, labor shortages, public health issues, tariffs, trade disputes and protectionist measures, natural catastrophes or the effects of climate change (such as extreme weather conditions, sea level rise, drought, flooding, and wildfires), and significant changes in the financial condition of our suppliers. Because we maintain minimal levels of component and product inventories, a disruption in component or product availability could harm our ability to fill customer orders on a timely basis and at an acceptable price. The impact of supply constraints on our operations may be more acute during periods of rapid growth in demand for new products and services, such as the current demand for AI-optimized solutions. We are also subject to risks associated with our receipt from vendors of defective parts and products, which could require the replacement of such parts and products and expose us to reputational harm.
If we fail to achieve favorable pricing from vendors, our profitability could be adversely affected.
Our profitability is affected by our ability to achieve favorable pricing from vendors and contract manufacturers, including through negotiations for vendor rebates, marketing funds, and other vendor funding received in the normal course of business. Because these supplier negotiations are continual and reflect the evolving competitive environment, the variability in timing and amount of incremental vendor discounts and rebates can affect our profitability. The vendor programs may change periodically, potentially resulting in adverse profitability trends if we cannot adjust pricing or variable costs. An inability to establish a cost and product advantage, or determine alternative means to deliver value to customers, may adversely affect our revenue and profitability.
The results of operations of our business units may be adversely affected if we fail to successfully execute our strategy.
Our strategy involves enabling the digital transformation of our customers while leading in the core infrastructure markets in which we compete. Accordingly, we must continue to expand our customer base through direct sales, new distribution channels, continued development of new growth businesses, further development of relationships with resellers, and augmentation of selected business areas through targeted acquisitions and other commercial arrangements.
As we reach more customers through new distribution channels and expanded reseller relationships, we may fail to effectively manage the increasingly difficult tasks of inventory management and demand forecasting. Our ability to implement this strategy depends on efficiently transitioning sales capabilities, successfully adding to the breadth of our solutions capabilities through internal development and selective acquisitions of other businesses, and effectively managing the consequences of these strategic initiatives. If we are unable to meet these challenges, our results of operations could be adversely affected.
We are organized into two business units consisting of ISG and CSG that are each important components of our strategy. ISG offers a portfolio of storage, server, and networking solutions, including AI-optimized technologies, and faces intense competition from existing on-premises competitors and increasing competitive pressures from Infrastructure-as-a-Service providers. Accordingly, we expect we will be required to make additional investments to address such competitive pressures and drive future growth. Such pressures could result in the erosion of revenue and operating income and adversely affect ISG’s results of operations. To address industry trends, we have developed and continue to develop traditional, converged, and hyper-converged infrastructure solutions as well as AI-optimized products and solutions. ISG’s results of operations could be adversely affected if such products and solutions are not adopted by our customers or potential customers, or if customers move rapidly to adopt public cloud solutions.19Table of Contents
CSG largely relies on sales of desktops, workstations, and notebooks. Revenue from CSG absorbs our overhead costs and provides for scaled procurement. CSG faces risk and uncertainties from fundamental changes in the personal computer market, including a decline in worldwide revenues for desktops, workstations, and notebooks, and lower shipment forecasts for these products due to a general lengthening of the replacement cycle. Reduced demand for PC products or a significant increase in competition could cause our operating income to fluctuate and adversely impact CSG’s results of operations.
Social and ethical issues relating to the use of new and evolving technologies, such as AI, in our offerings may result in reputational harm and liability.
We view our continued investment in AI and generative AI (“GAI”) research and development as an opportunity to enhance our solutions, strengthen our competitive advantage, and contribute to the responsible advancement of AI and GAI technology. While we aim to do so in a responsible, legal, and ethical manner, social, ethical, regulatory, and legal issues relating to the use of AI and GAI in our offerings may result in reputational harm or liability, and may cause us to incur additional research, development, and compliance costs. As with many innovations, AI and GAI present risks that could affect their adoption and contribution to our business. If we enable or offer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm, or legal liability. Potential government regulation related to AI and GAI use and ethics also may increase the burden and cost of research and development and delay implementation of these technologies.
Our inability to manage solutions and product and services transitions in an effective manner could reduce the demand for our solutions, products, and services, and negatively affect the profitability of our operations.
Continuing improvements in technology result in the frequent introduction of new solutions, products, and services, improvements in product performance characteristics, and short product life cycles. If we fail to effectively manage transitions to new solutions and offerings, the products and services associated with such offerings and customer demand for our solutions, products, and services could diminish, and our profitability could suffer.
We increasingly source new products and transition existing products through our contract manufacturers and manufacturing outsourcing relationships to generate cost efficiencies and better serve our customers. The success of product transitions depends on a number of factors, including the availability of sufficient quantities of components at an acceptable cost. Product transitions also present execution uncertainties and risks, including the risk that new or upgraded products may have quality problems or other defects.
Failure to deliver high-quality products, software, and services could lead to loss of customers and diminished profitability.We must identify and address quality issues associated with our products, software, and services, many of which include third-party components. Although quality testing is performed regularly to detect quality problems and implement required solutions, failure to identify and correct significant product quality issues before the sale of such products to customers could result in lower sales, increased warranty or replacement expenses, and reduced customer confidence, which could harm our operating results.Cyber-attacks and other security incidents that disrupt our operations or result in a network intrusion, breach or loss, or other compromise of proprietary or confidential information about us or our workforce, customers, partners, or third parties could negatively affect our business, harm our reputation, cause us to lose clients and expose us to costly regulatory enforcement and litigation.
We routinely receive, collect, manage, store, transmit, and otherwise process large amounts of proprietary information and confidential data, including personally identifiable and other sensitive information, relating to our operations, products, partners, and customers. We face numerous sophisticated and evolving cyber threats of significant scale, volume, severity, and complexity, including threats specifically designed for or directly targeted at us, making it increasingly difficult to defend against security incidents successfully or to implement adequate preventative measures.20Table of Contents
Despite our cybersecurity governance and investment in controls and security measures, criminal or other unauthorized threat actors, including nation states and state-sponsored organizations, pose a significant risk of penetrating or bypassing our security defenses, breaching our information technology systems, and misappropriating, breaching, or compromising confidential and proprietary information of our company, our partners, or our customers, causing system disruptions and shutdowns, or introducing ransomware, malware, or vulnerabilities into our products, systems, and networks or those of our customers and partners. We also face a risk that employees, contractors, or other insiders, particularly those with connectivity to our systems, may introduce vulnerabilities into our environments, facilitate a cybersecurity attack, or take actions to misappropriate our intellectual property and proprietary information. Continued work-from-home and flexible work arrangements further increase our risk, as employees and contractors of our company and third-party providers are working remotely and using home networks that may pose an increased risk to our networks, data, and cybersecurity. In addition, our business may be adversely affected by cyber-attacks and data thefts resulting from ongoing wars and geopolitical conflicts.
In the past, we have been targeted by criminal and other threat actors that attempted cyber-attacks of our systems and networks. These attacks are common in our industry for companies of our size and can include such malicious techniques as ransomware, network intrusions, exploitation of zero-day vulnerabilities, distributed denial of service, man-in-the-middle, phishing, vishing, domain name system spoofing, password spraying and other credential attacks, structural query language injection, and malware. The costs associated with cybersecurity tools and infrastructure and competition for scarce cybersecurity and IT resources have at times limited, and may in the future limit, our ability to efficiently identify, eliminate, or remediate cybersecurity or other security vulnerabilities or problems or enact changes to minimize the attack surface of our network. While our security systems and controls have successfully protected us against, and mitigated the impacts of, many attacks of this nature, we have experienced security incidents that negatively affected our business and expect that we will experience similar incidents in the future.
The costs to address cybersecurity risks, both before and after a security incident, could be significant, regardless of whether incidents result from an attack on us directly, on customers we service, or on partners or third-party vendors upon which we rely. Our customers, partners, and third-party vendors continue to experience security incidents of varying severity, including, among others, ransomware attacks, network intrusions, and exploitations of product and software security vulnerabilities. These parties also possess or transmit our proprietary information and confidential data, including personal data, personally identifiable information, and other sensitive information, which may be exfiltrated if they are impacted by a security incident. Targeted cyber-attacks or those that result from a security incident directed at a partner or third-party vendor create a risk of compromise to our internal systems, products, services, and offerings, as well as the systems of our customers, which could result in interruptions, delays, or cessation of service that could disrupt business operations for us and our customers. Our proactive measures and remediation efforts are not always successful or timely. In addition, breaches of our security measures, including through the use and the unapproved dissemination of proprietary information or sensitive or confidential data about us, our customers, partners or other third parties, could impair our intellectual property rights and expose us, our customers, partners, or such other third parties to a risk of loss or misuse of such information or data. Any such incidents could subject us to government investigations and regulatory enforcement actions, litigation, potential liability, and damage to our brand and reputation, or otherwise harm our business and operations.
Hardware, software, and applications that we produce or procure from third parties also may contain defects in design or manufacture or other deficiencies, including security vulnerabilities that could interfere with the operation or security of our products, services, and offerings. In the event of a security vulnerability or other flaws in third-party components or software code, we may have to rely on multiple third parties to mitigate vulnerabilities. The mitigation techniques they deploy may be ineffective or result in adverse performance, system instability, or data loss, and may not always be available, or available on a timely basis. Any actual or perceived security vulnerabilities in our products or services, or those of third-party products we sell, could lead to loss of existing or potential customers, and may impede our sales, manufacturing, distribution, outsourcing services, information technology solutions, and other critical functions and offerings. Failure to comply with internal security policies and standards, including secure development lifecycle practices, or to prevent or promptly mitigate security vulnerabilities in our products and offerings may adversely affect our brand and reputation and subject us to government investigations, regulatory enforcement actions, litigation, and potential liability resulting from our inability to fulfill our contractual obligations to our customers and partners.21Table of Contents
As a global enterprise, we are subject to compliance risks under a significant and increasing number of laws and regulations in the United States, the European Union, China, and numerous other countries relating to cybersecurity, product and software supply chain security, and the collection, use, residency, transfer, and protection of data, including customer data, and other personal, sensitive, confidential, and proprietary information. Such information security, data protection, and privacy laws and regulations continue to evolve and may be interpreted and applied differently in different jurisdictions, making it difficult to determine how they may develop and apply to us.
Our execution of transactions and processing and use of customer data, including personal data and personal identifiable information and other data in the conduct of our business, the operation of our products and offerings, and the provision of services to our customers subject us to increased obligations to comply with applicable laws and regulations and may require us to notify regulators, customers, employees, or other third parties of our data processing and data transfer activities, cybersecurity and data protection practices, as well as to provide notification and disclosure of security incidents and data or privacy breaches. We also face the increasing cost of disparate global regulatory compliance obligations and potential enforcement activities and litigation action in the event we experience a significant disruption of our operations or breach, loss, or other compromise of proprietary or confidential information as a result of a cyber-attack or insider activity. While we continue to incur significant expenditures to comply with mandatory privacy, security, data protection and localization requirements imposed by law, regulation, industry standards and contractual obligation, we may fail to comply fully with these requirements. Any such non-compliance could adversely affect our ability to conduct business or sell our products or offerings in a specific jurisdiction or result in fines or penalties that could impact our financial results.
Failure to successfully execute on strategic initiatives including acquisitions, divestitures, or cost saving measures may negatively affect our future results.
We make strategic acquisitions of other companies as part of our growth strategy. We could experience unforeseen operating difficulties in integrating the businesses, technologies, services, products, personnel, or operations of acquired companies, especially if we are unable to retain the key personnel of an acquired company. Further, future acquisitions may result in a delay or reduction of sales for both us and the acquired company because of customer uncertainty about the continuity and effectiveness of solutions offered by either company and may disrupt our existing business by diverting resources and significant management attention that otherwise would be focused on development of the existing business. Acquisitions also may negatively affect our relationships with strategic partners if the acquisitions are seen as bringing us into competition with such partners.
To complete an acquisition, we may be required to use substantial amounts of cash, engage in equity or debt financings, or enter into credit agreements to secure additional funds. Such debt financings could involve restrictive covenants that might limit our capital-raising activities and operating flexibility. Further, an acquisition may negatively affect our results of operations because it may expose us to unexpected liabilities, require the incurrence of charges and substantial indebtedness or other liabilities, have adverse tax consequences, result in acquired in-process research and development expenses, or in the future require the amortization, write-down, or impairment of amounts related to deferred compensation, goodwill, and other intangible assets, or fail to generate a financial return sufficient to offset acquisition costs.
In addition, we periodically divest businesses, including businesses that are no longer a part of our strategic plan. These divestitures similarly require significant investment of time and resources, may disrupt our business and distract management from other responsibilities, and may result in losses on disposition or continued financial involvement in the divested business, including through indemnification or other financial arrangements, for a period following the transaction, which could adversely affect our financial results.
We continue to focus on minimizing operating expenses through cost improvements and simplification of our corporate structure. Cost saving measures, reorganizations, and divestitures have resulted in workforce reductions and consolidation of facilities. As a result of these actions, we may experience a loss of continuity, loss of accumulated knowledge, diminished employee productivity, disruptions to our operations, and inefficiency during transitional periods. These actions could also impact employee retention. We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive position.
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Table of ContentsOur ability to generate substantial non-U.S. net revenue is subject to additional risks and uncertainties.Sales outside the United States accounted for approximately half of our consolidated net revenue for Fiscal 2024. Our future growth rates and success are substantially dependent on the continued growth of our business outside of the United States. Our international operations face many risks and uncertainties, including varied local economic and labor conditions; political instability; public health issues; changes in the U.S. and international regulatory environments; the impacts of trade protection measures, including increases in tariffs and trade barriers due to the current geopolitical climate and changes and instability in government policies and international trade arrangements, which could adversely affect our ability to conduct business in non-U.S. markets; changes in tax laws; potential theft or other compromise, and limited or unfavorable protection, of our technology, data, or intellectual property; copyright levies; and volatility in foreign currency exchange rates. We could incur additional operating costs, or sustain supply chain disruptions, due to any such changes. Any of these factors could negatively affect our international business results and growth prospects.Our profitability may be adversely affected by changes in the mix of products and services, customers, or geographic sales, and by seasonal sales trends.Our overall profitability for any period may be adversely affected by changes in the mix of products and services, customers, or geographic markets reflected in sales for that period, and by seasonal trends. Profit margins vary among products, services, customers, and geographic markets. For example, our services offerings generally have a higher profit margin than consumer products. In addition, parts of our business are subject to seasonal sales trends. Within ISG, our storage sales are typically stronger in our fourth fiscal quarter. Our sales within the Americas are typically stronger in the second and fourth fiscal quarters, while our sales in EMEA are typically stronger during the fourth fiscal quarter. Seasonality in our business may change over time.We may lose revenue opportunities and experience gross margin pressure if sales channel participants fail to perform as expected.We rely on value-added resellers, system integrators, distributors, and retailers as sales channels to complement our direct sales organization in order to reach more end-users. Our future operating results depend on the performance of sales channel participants and on our success in maintaining and developing these relationships. Our revenue and gross margins could be negatively affected if the financial condition or operations of channel participants weaken as a result of adverse economic conditions or other business challenges, or if uncertainty regarding the demand for our products causes channel participants to reduce their orders for these products. Further, some channel participants may consider the expansion of our direct sales initiatives to conflict with their business interests as distributors or resellers of our products, which could lead them to reduce their investment in the distribution and sale of such products, or to cease all sales of our products.
Our financial performance could suffer from reduced access to the capital markets by us or some of our customers.
We may access debt and capital sources to provide financing for customers and to obtain funds for general corporate purposes, including working capital, acquisitions, capital expenditures, and funding of customer receivables. In addition, we maintain customer financing relationships with some companies that rely on access to the debt and capital markets to meet significant funding needs. Any inability of these companies to access such markets could compel us to self-fund transactions with such companies or to forgo customer financing opportunities, which could harm our financial performance. The debt and capital markets may experience extreme volatility and disruption from time to time, which could result in higher credit spreads in such markets and higher funding costs for us. Deterioration in our business performance, a credit rating downgrade, volatility in the securitization markets, changes in financial services regulation, or adverse changes in the economy could lead to reductions in the availability of debt financing. In addition, these events could limit our ability to continue asset securitizations or other forms of financing from debt or capital sources, reduce the amount of financing receivables that we originate, or negatively affect the costs or terms on which we may be able to obtain capital. Any of these developments could adversely affect our net revenue, profitability, and cash flows.
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If the value of our goodwill or intangible assets is materially impaired, our results of operations and financial condition could be materially and adversely affected.
As of February 2, 2024, our goodwill and intangible assets, net had a combined carrying value of $25.4 billion, representing approximately 31% of our total consolidated assets. We periodically evaluate goodwill and intangible assets, net to determine whether all or a portion of their carrying values may be impaired, in which case an impairment charge may be necessary. The value of goodwill may be materially and adversely affected if businesses that we acquire perform in a manner that is inconsistent with our assumptions at the time of acquisition. In addition, from time to time we divest businesses, and any such divestiture could result in significant asset impairment and disposition charges, including those related to goodwill and intangible assets, net. Any future evaluations resulting in an impairment of goodwill or intangible assets, net could materially and adversely affect our results of operations and financial condition in the period in which the impairment is recognized.
Weak economic conditions and additional regulation could harm our financial services activities.
Our financial services activities primarily through DFS can be negatively affected by adverse economic conditions that contribute to loan delinquencies and defaults. An increase in loan delinquencies and defaults would result in greater net credit losses, which may require us to increase our reserves for customer receivables.In addition, the implementation of new financial services regulation, or the application of existing financial services regulation, in countries where we conduct our financial services and related supporting activities, could unfavorably affect the profitability and cash flows of our consumer financing activities.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that include cash and investment deposits, interest rate swap contracts, foreign currency option contracts, and forward contracts. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default, either voluntarily or involuntarily, on its performance under the terms of the arrangement. In times of market distress, a counterparty may default rapidly and without notice, and we may be unable to take action to cover its exposure, either because of lack of contractual ability to do so or because market conditions make it difficult to take effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability eventually to recover any losses suffered as a result of that counterparty’s default may be limited by the impaired liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceeding. In the event of such a default, we could incur significant losses, which could harm our business and adversely affect our results of operations and financial condition.Our performance and business could suffer if our contracts for ISG services and solutions fail to produce revenue at expected levels due to exercise of customer rights under the contracts, inaccurate estimation of costs, or customer defaults in payment.We offer our ISG customers a range of consumption models for our services and solutions, including as-a-Service, utility, leases, or immediate pay models, designed to match customers’ consumption preferences. These solutions generally are multiyear agreements that typically result in recurring revenue streams over the term of the arrangement. Our financial results and growth depend, in part, on customers continuing to purchase our services and solutions over the contract life on the agreed terms. The contracts allow customers to take actions that may adversely affect our recurring revenue and profitability. These actions include terminating a contract if our performance does not meet specified services levels, requesting rate reductions, reducing the use of our services and solutions or terminating a contract early upon payment of agreed fees. In addition, we estimate the costs of delivering the services and solutions at the outset of the contract. If we fail to estimate such costs accurately and actual costs significantly exceed estimates, we may incur losses on the contracts. We also are subject to the risk of loss under the contracts as a result of a default, voluntarily or involuntarily, in payment by the customer, whether because of financial weakness or other reasons.
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Table of ContentsLoss of government contracts could harm our business.Contracts with U.S. federal, state, and local governments and with foreign governments are subject to future funding that may affect the extension or termination of programs and to the right of such governments to terminate contracts for convenience or non-appropriation. There is pressure on governments, both domestically and internationally, to reduce spending. Funding reductions or delays could adversely affect public sector demand for our products and services. In addition, if we violate legal or regulatory requirements, the applicable government could suspend or disbar us as a contractor, which would unfavorably affect our net revenue and profitability.Our business could suffer if we do not develop and protect our proprietary intellectual property or obtain or protect licenses to intellectual property developed by others on commercially reasonable and competitive terms.If we or our suppliers are unable to develop or protect desirable technology or technology licenses, we may be prevented from marketing products, may have to market products without desirable features, or may incur substantial costs to redesign products. We also may have to defend or enforce legal actions or pay damages in jurisdictions throughout the world if we are found to have violated patents or other intellectual property rights of other parties. Although our suppliers might be contractually obligated to obtain or protect such licenses and indemnify us against related expenses, those suppliers could be unable to meet their obligations. We invest in research and development and obtain additional intellectual property through acquisitions, but those activities do not guarantee that we will develop or obtain intellectual property necessary for profitable operations. Costs involved in developing and protecting rights in intellectual property may have a negative impact on our business. In addition, our operating costs could increase because of copyright levies or similar fees by rights holders and collection agencies in European and other countries.Infrastructure disruptions could harm our business.
We depend on our information technology and manufacturing infrastructure to achieve our business objectives. Natural disasters, manufacturing failures, telecommunications system failures, or defective or improperly installed new or upgraded business management systems could lead to disruptions in this infrastructure. Portions of our IT infrastructure, including those provided by third parties, also may experience interruptions, delays, or cessations of service, or produce errors in connection with systems integration or migration work. Such disruptions may adversely affect our ability to receive or process orders, manufacture and ship products in a timely manner, or otherwise conduct business in the normal course. Further, portions of our business involve the processing, storage, and transmission of data, which also would be negatively affected by such an event. Disruptions in our infrastructure could lead to loss of customers and revenue, particularly during a period of heavy demand for our products and services. We also could incur significant expense in repairing system damage and taking other remedial measures.
Failure to hedge effectively our exposure to fluctuations in foreign currency exchange rates and interest rates could adversely affect our financial condition and results of operations.
We utilize derivative instruments to hedge our exposure to fluctuations in foreign currency exchange rates and interest rates. Some of these instruments and contracts may involve elements of market and credit risk in excess of the amounts recognized in our financial statements. Global economic events, including trade disputes, economic sanctions and emerging market volatility, and associated uncertainty could cause currencies to fluctuate, which may contribute to variations in our sales of products and services in various jurisdictions. If we are not successful in monitoring our foreign exchange exposures and conducting an effective hedging program, our foreign currency hedging activities may not offset the impact of fluctuations in currency exchange rates on our results of operations and financial position.25
Table of ContentsAdverse legislative or regulatory tax changes, the expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other tax compliance matters could result in an increase in our tax expense or our effective income tax rate.Changes in tax laws could adversely affect our operations and profitability. In recent years, numerous legislative, judicial, and administrative changes have been made to tax laws applicable to us and similar companies. The Organisation for Economic Co-operation and Development (the “OECD”) is continuing discussions regarding fundamental changes in allocation of profits among tax jurisdictions in which companies do business, as well as the implementation of a global minimum tax, referred to as the “Pillar One” and “Pillar Two” proposals. Many countries, including countries in which we have tax holidays, have enacted or are in the process of enacting laws based on the Pillar Two proposal. Our effective tax rate and cash tax payments could increase in future years as a result of these changes.
Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays that expire in whole or in part from time to time. Many of these holidays may be extended when certain conditions are met, or may be terminated if certain conditions are not met or as a result of changes in tax legislation. If the tax holidays are not extended, if tax legislation changes, or if we fail to satisfy the conditions of the reduced tax rate, our effective tax rate would be affected. In addition, our overall tax benefit from tax incentives could be adversely affected if the global minimum tax provisions discussed above are adopted in a country in which we benefit from an existing tax incentive. Our effective tax rate also could be impacted if our geographic distribution of earnings changes. In addition, any actions by us to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes may affect the effective tax rate.
We are continually under audit in various tax jurisdictions. We may not be successful in resolving potential tax claims that arise from these audits. A final determination of tax audits or disputes may differ from what is reflected in our historical income tax provisions or benefits and accruals. An unfavorable outcome in certain of these matters could result in a substantial increase in our tax expense. In addition, our provision for income taxes could be adversely affected by changes in the valuation of deferred tax assets.Our profitability could suffer from declines in fair value or impairment of our portfolio investments.We invest a portion of available funds in a portfolio consisting of both equity and debt securities of various types and maturities pending the deployment of these funds in our business. Our equity investments consist of strategic investments in both marketable and non-marketable securities. Investments in marketable securities are measured at fair value on a recurring basis. We have elected to apply the measurement alternative for non-marketable securities. Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted by observable price changes. Our debt securities generally are classified as held to maturity and are recorded in our financial statements at amortized cost. Our earnings performance could suffer from declines in fair value or impairment of our investments.Unfavorable results of legal proceedings could harm our business and result in substantial costs.We are involved in various claims, suits, investigations, and legal proceedings that arise from time to time in the ordinary course of business or otherwise. Additional legal claims or regulatory matters affecting us and our subsidiaries may arise in the future and could involve stockholder, consumer, regulatory, compliance, intellectual property, antitrust, tax, and other issues on a global basis. Litigation is inherently unpredictable. Regardless of the merits of a claim, litigation may be both time-consuming and disruptive to our business. We could incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period. Even if we are not named a party to a particular suit, we may be subject to indemnification obligations to the named parties that could subject us to liability for damages or other amounts payable as a result of such judgments or settlements. In addition, our business, operating results, and financial condition could be adversely affected if any infringement or other intellectual property claim made against us by any third party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions.
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Our failure to achieve our ESG goals and initiatives, comply with ESG legal standards or meet the expectations of our stakeholders regarding our ESG activities could harm our reputation, adversely affect our business, and expose us to regulatory proceedings and litigation.
Many governments, regulators, investors, employees, customers, and other stakeholders are increasingly focused on environmental, social and governance (“ESG”) considerations relating to businesses, including climate change and greenhouse gas emissions, human and civil rights, and diversity and inclusion. We make statements about our ESG goals and initiatives through our SEC filings, our annual ESG report, our other non-financial reports, information provided on our website, press statements and other communications. Responding to these ESG considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside our control. We cannot guarantee that we will achieve our announced ESG goals and initiatives. In addition, some stakeholders may disagree with our goals and initiatives. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state, or international ESG laws and regulations, or meet evolving and varied stakeholder expectations could harm our reputation, adversely affect our business, financial condition or results of operations, and expose us to liabilities under regulatory proceedings or litigation instituted in the United States or in other countries.
We are or soon will be obligated to comply with new climate-related reporting requirements. Sustainability reporting frameworks may require us to provide detailed public disclosures about the greenhouse gas emissions and other climate-related effects our activities produce, the climate-related operating and financial risks we face, and the strategies we pursue to reduce and adapt to the impacts of climate change. We expect to incur substantial costs to prepare these disclosures. If we fail to compile, assess, and report the required information in a timely manner and in accordance with mandatory reporting standards, we could be exposed to fines and other sanctions.
Global climate change, and legal, regulatory, or market measures to address climate change, may negatively affect our business, operations, and financial results.We are subject to risks associated with the long-term effects of climate change on the global economy and on the IT industry in particular. The physical risks associated with climate change include the adverse effects of carbon dioxide and other greenhouse gases on global temperatures, weather patterns, and the frequency and severity of natural disasters. Extreme weather and natural disasters within or outside the United States could make it more difficult and costly for us to manufacture and deliver our products to our customers, obtain production materials from our suppliers, or perform other critical corporate functions.The increasing concern over climate change could also result in transition risks such as shifting customer preferences or regulatory changes. Changing customer preferences may result in increased demands regarding our solutions, products, and services, including the use of packaging materials and other components in our products and their environmental impact on sustainability. These demands may cause us to incur additional costs or make other changes to other operations to respond to such demands, which could adversely affect our financial results. If we fail to manage transition risks, including such demands, in an effective manner, customer demand for our solutions, products, and services could diminish, and our profitability could suffer.
The increasing concern over climate change could result in new domestic or international legal requirements for us to reduce greenhouse gas emissions and other environmental impacts of our operations, improve our energy efficiency, or undertake sustainability measures that exceed those we currently pursue. Any such regulatory requirements could cause disruptions in the manufacture of our products and result in increased procurement, production, and distribution costs. Our reputation and brand could be harmed if we fail, or are seen as having failed, to respond responsibly and effectively to changes in legal and regulatory measures adopted to address climate change.
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Compliance requirements of current or future environmental and safety laws, human rights laws, or other laws may expose us to potential liability, increase our operating costs and otherwise harm our business.Our operations are subject to environmental and safety regulations in all areas in which we conduct business. Product design and procurement operations must comply with new and future requirements relating to climate change laws and regulations, materials composition, sourcing, energy efficiency and collection, recycling, treatment, transportation, and disposal of electronics products, including restrictions on mercury, lead, cadmium, lithium metal, lithium ion, and other substances. If we fail to comply with applicable rules and regulations regarding the transportation, source, use, and sale of such regulated substances, we could be subject to liability. The costs and timing of costs under environmental and safety laws are difficult to predict, but could have an adverse impact on our business.In addition, we and our subsidiaries are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business, and are also subject to export controls, customs, economic sanctions laws, including those currently imposed on Russia, and embargoes imposed by the U.S. government. Violations of the U.S. Foreign Corrupt Practices Act or other anti-corruption laws or export control, customs, or economic sanctions laws may result in severe criminal or civil sanctions and penalties, and we and our subsidiaries may be subject to other liabilities that could have a material adverse effect on our business, results of operations, and financial condition.
We are subject to various human rights laws, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act intended to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of the Congo or adjoining countries. We incur costs to comply with the disclosure requirements of this law and other costs relating to the sourcing and availability of minerals used in our products. Further, we may face reputational harm if our customers or other stakeholders conclude that we are unable to sufficiently verify the origins of the minerals used in our products.
Natural disasters, terrorism, armed hostilities, or public health issues could harm our business.
Natural disasters, terrorism or armed hostilities, such as the war between Russia and Ukraine, the conflict in the Middle East, or tensions across the Taiwan Strait, or public health issues, such as those that have resulted from the coronavirus pandemic, whether in the United States or in other countries, could cause damage or disruption to us or our suppliers and customers, or could create political or economic instability, any of which impacts could harm our business. Any such events could cause a decrease in demand for our products, make it difficult or impossible to deliver products or for suppliers to deliver components, and create delays and inefficiencies in our supply chain.We are highly dependent on the services of Michael S. Dell, our Chief Executive Officer, and our loss of, or our inability to continue to attract, retain, and motivate, executive talent and other employees in this highly competitive market could harm our business.We are highly dependent on the services of Michael S. Dell, our founder, Chief Executive Officer, and largest stockholder. Further, we rely on key personnel, including other members of our executive leadership team, to support our business and increasingly complex product and services offerings. Our experienced executives are supported by employees in our U.S. and international operations who are highly skilled in product development, manufacturing, sales, and other functions critical to our future growth and profitability. If we lose the services of Mr. Dell or other key personnel, we may not be able to locate suitable or qualified replacements, and we may incur additional expenses to recruit replacements, which could severely disrupt our business and growth. We face intensive competition, both within and outside of our industry, in retaining and hiring individuals with the requisite expertise. As a result of this competition, we may be unable to continue to attract, retain, and motivate suitably qualified individuals at acceptable compensation levels who have the managerial, operational, and technical knowledge and experience to meet our needs. Any failure by us to do so could adversely affect our competitive position and results of operations.
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Table of ContentsWe have outstanding indebtedness and may incur additional debt in the future, which could adversely affect our financial condition.As of February 2, 2024, we and our subsidiaries had approximately $26.0 billion aggregate principal amount of indebtedness. As of the same date, we and our subsidiaries also had an additional $6.0 billion available for borrowing under our revolving credit facility and $5.0 billion of availability under our commercial paper program. Although continued debt paydown is part of our overall capital allocation strategy, a substantial portion of our cash flow from operations is used to make interest and other debt service payments, which reduces funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes, and potential acquisitions. Our indebtedness could also reduce our flexibility in responding to current and changing industry and financial market conditions. We may be able to incur significant additional secured and unsecured indebtedness under the terms of our existing debt, which generally do not restrict our ability to incur additional unsecured debt and contain significant exceptions to the covenant restricting our ability to incur additional secured debt.Risks Relating to Ownership of Our Class C Common Stock
Our multi-class common stock structure with different voting rights may adversely affect the trading price of the Class C Common Stock.Each share of our Class A Common Stock and each share of our Class B Common Stock has ten votes, while each share of our Class C Common Stock has one vote. Because of these disparate voting rights, Michael Dell and the Susan Lieberman Dell Separate Property Trust (the “MD stockholders”) and certain investment funds affiliated with Silver Lake Partners (the “SLP stockholders”) collectively held common stock representing approximately 94.0% of the total voting power of our outstanding common stock as of March 18, 2024. The limited ability of holders of the Class C Common Stock to influence matters requiring stockholder approval may adversely affect the trading price of the Class C Common Stock.
Because of our multi-class share structure, we have been and will likely continue to be excluded from certain stock indices. FTSE Russell has changed its eligibility criteria to exclude certain companies with multiple classes of shares of common stock from being added to some of its stock indices. Under the current criteria, new and, beginning in September 2022, existing constituents of its indices must have greater than 5% of their voting rights in the hands of public stockholders, as calculated by FTSE Russell. Previously, S&P Dow Jones also had excluded companies with multiple share classes, such as Dell Technologies, from its indices, including the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. In April 2023, S&P Dow Jones reversed this policy and announced that companies with multi-class capital structures will again be eligible for inclusion on its indices. We cannot be sure that such policy, or the policies of other indices, will not change further and make us ineligible for inclusion in the S&P Composite 1500, or other indices, in the future. After this rule change by the S&P Dow Jones, the Russell 2000 continues to have, and other indices may have, limitations on inclusion based on multiple share class structures.
It is unclear what effect, if any, exclusion from any indices has on the valuations of the affected publicly-traded companies. It is possible that such policies may depress the valuations of public companies excluded from such indices compared to valuations of companies that are included.Future sales, or the perception of future sales, of a substantial amount of shares of the Class C Common Stock could depress the trading price of the Class C Common Stock.Sales of a substantial number of shares of the Class C Common Stock in the public market, or the perception that these sales may occur, could adversely affect the market price of the Class C Common Stock, which could make it more difficult for investors to sell their shares of Class C Common Stock at a time and price that they consider appropriate. These sales, or the possibility that these sales may occur, also could impair our ability to sell equity securities in the future at a time and at a price we deem appropriate, and our ability to use Class C Common Stock as consideration for acquisitions of other businesses, investments, or other corporate purposes. As of March 18, 2024, we had a total of approximately 305 million shares of Class C Common Stock outstanding.
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As of March 18, 2024, the 328,224,977 outstanding shares of Class A Common Stock held by the MD stockholders and the 80,311,277 outstanding shares of Class B Common Stock held by the SLP stockholders are convertible into shares of Class C Common Stock at any time on a one-to-one basis. Such shares, upon any conversion into shares of Class C Common Stock, will be eligible for resale in the public market pursuant to Rule 144 under the Securities Act of 1933 (the “Securities Act”), subject to compliance with conditions of Rule 144. From February 2, 2024 to March 18, 2024, the MD stockholders converted 25 million shares of Class A Common Stock and the SLP stockholders converted approximately 6 million shares of Class B Common Stock on a one-for-one basis into a total of approximately 31 million shares of Class C Common Stock.
As of March 18, 2024, we have entered into a registration rights agreement with holders of substantially all outstanding shares of Class A Common Stock (which are convertible into the same number of shares of Class C Common Stock), holders of all outstanding shares of Class B Common Stock (which are convertible into the same number of shares of Class C Common Stock), and holders of approximately 42 million outstanding shares of Class C Common Stock, pursuant to which we granted such holders and their permitted transferees shelf, demand and/or piggyback registration rights with respect to such shares (including the shares of Class C Common Stock into which the Class A Common Stock and the Class B Common Stock may be converted). Registration of those shares under the Securities Act would permit such holders to sell the shares into the public market.
As of February 2, 2024, 40,188,647 shares of Class C Common Stock that were issuable upon the exercise, vesting, or settlement of outstanding stock options, restricted stock units, or deferred stock units under our stock incentive plan, all of which would have been, upon issuance, eligible for sale in the public market, subject where applicable to compliance with Rule 144, and an additional 58,080,682 shares of Class C Common Stock were authorized and reserved for issuance pursuant to potential future awards under the stock incentive plan. We also may issue additional stock options in the future that may be exercised for additional shares of Class C Common Stock and additional restricted stock units or deferred stock units that may vest. We expect that all shares of Class C Common Stock issuable with respect to such awards will be registered under one or more registration statements on Form S-8 under the Securities Act and available for sale in the open market.We are controlled by the MD stockholders, who, together with the SLP stockholders, collectively own a substantial majority of our common stock and are able to effectively control our actions, including approval of mergers and other significant corporate transactions.By reason of their ownership of Class A Common Stock possessing a majority of the aggregate votes entitled to be cast by holders of all outstanding shares of our common stock voting together as a single class, the MD stockholders have the ability to approve any matter submitted to the vote of all of the outstanding shares of the common stock voting together as a single class. Through their control, the MD stockholders are able to control our actions, including actions related to the election of our directors and directors of our subsidiaries, amendments to our organizational documents, and the approval of significant corporate transactions, including mergers and sales of substantially all of our assets that our stockholders may deem advantageous. For example, although our bylaws provide that the number of directors will be fixed by resolution of the Board of Directors, our stockholders may adopt, amend, or repeal the bylaws in accordance with the Delaware General Corporation Law. Through their control, the MD stockholders therefore may amend our bylaws to change the number of directors (within the limits of the certificate of incorporation), notwithstanding any determination by the Board of Directors regarding board size.
Further, as of March 18, 2024, the MD stockholders and the SLP stockholders collectively beneficially owned 63.1% of our outstanding common stock. This concentration of ownership together with the disparate voting rights of our common stock may delay or deter possible changes in control of Dell Technologies, which may reduce the value of an investment in the Class C Common Stock. So long as the MD stockholders and the SLP stockholders continue to own common stock representing a significant amount of the combined voting power of our outstanding common stock, even if such amount is, individually or in the aggregate, less than 50%, such stockholders will continue to be able to strongly influence our decisions.In addition, the MD stockholders and the SLP stockholders, respectively, have the right to nominate a number of individuals for election as Group I Directors (who constitute all but one of our directors), which is equal to the percentage of the total voting power for the regular election of directors beneficially owned by the MD stockholders or by the SLP stockholders multiplied by the number of directors then on the Board of Directors who are not members of the audit committee, rounded up to the nearest whole number. Further, so long as the MD stockholders or the SLP stockholders each beneficially own at least 5% of all outstanding shares of the common stock entitled to vote generally in the election of directors, each of the MD stockholders or the SLP stockholders, as applicable, are entitled to nominate at least one individual for election as a Group I Director.30
Table of ContentsThe MD stockholders, the MSD Partners stockholders, and the SLP stockholders and their respective affiliates may have interests that conflict with the interests of other stockholders or those of Dell Technologies.
In the ordinary course of their business activities, the MD stockholders, certain investment funds affiliated with an investment firm formed by principals of the firm that manages the capital of Michael Dell and his family (the “MSD Partners stockholders”), and the SLP stockholders and their respective affiliates may engage in activities in which their interests conflict with our interests or those of other stockholders. Our certificate of incorporation provides that none of the MD stockholders, the MSD Partners stockholders, the SLP stockholders, nor any of their respective affiliates or any director or officer of the Company who is also a director, officer, employee, managing director, or other affiliate (other than Michael Dell) have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. The MD stockholders, the MSD Partners stockholders, and the SLP stockholders also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, such stockholders may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance the value of their investment in Dell Technologies, even though such transactions might involve risks to other stockholders.Because we are a “controlled company” within the meaning of the rules of the New York Stock Exchange and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements, holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject to such requirements.We are a “controlled company” within the meaning of the rules of the New York Stock Exchange (the “NYSE”) because the MD stockholders hold common stock representing more than 50% of the voting power in the election of directors. As a result, holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements. Because we are a controlled company, we may elect not to comply with certain corporate governance requirements under NYSE rules, including the requirements that we have a board composed of a majority of “independent directors,” as defined under NYSE rules, and that we have a compensation committee and a nominating/corporate governance committee each composed entirely of independent directors. Although we currently maintain a board composed of a majority of independent directors and three standing committees of the board composed entirely of independent directors, we may decide in the future to change our board membership and committee composition so that the board is not composed of a majority of independent directors or one or more committees are not composed entirely of independent directors.
Our certificate of incorporation designates a state court of the State of Delaware and the U.S. federal district courts as the sole and exclusive forum for certain types of legal actions and proceedings that may be initiated by our stockholders, which could limit the ability of the holders of Class C Common Stock to obtain a favorable judicial forum for disputes with us or with our directors, officers, or controlling stockholders.Our certificate of incorporation contains provisions requiring an exclusive forum for specified types of legal actions and proceedings.Under our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum will be, to the fullest extent permitted by law, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) for:
• any derivative action or proceeding brought on our behalf;
• any action asserting a claim of breach of a fiduciary duty owed by any director or officer or stockholder of Dell Technologies to us or our stockholders;
• any action asserting a claim against Dell Technologies or any director or officer or stockholder of Dell Technologies arising pursuant to any provision of the Delaware General Corporation Law or of our certificate of incorporation or bylaws; or31
Table of Contents• any action asserting a claim against us or any director or officer or stockholder of Dell Technologies governed by our internal affairs doctrine.
The foregoing Delaware exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Exchange Act or the rules or regulations thereunder, or any other claim over which the federal district courts of the United States have exclusive jurisdiction.
In addition to the Delaware exclusive forum provision, our certification of incorporation contains a provision stating that, unless we consent in writing to the selection of an alternative forum, the federal courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.These provisions of our certificate of incorporation could limit the ability of the holders of the Class C Common Stock to obtain a favorable judicial forum for disputes with us or with our directors, officers, or controlling stockholders, which may discourage such lawsuits against us and our directors, officers, and stockholders. Alternatively, if a court were to find these provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, and results of operations.
We may not continue to pay cash dividends or to pay cash dividends at the same rate as announced in March 2024.Our payment of cash dividends, as well as the rate at which we pay dividends, is solely at the discretion of our Board of Directors. Further, dividend payments, if any, are subject to our financial results and the availability of statutory surplus to pay dividends. These factors could result in a change to our current dividend policy.32
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FY 2025-01-31 (later)
ITEM 1A — RISK FACTORSOur business, operating results, financial condition, and prospects are subject to a variety of significant risks, many of which are beyond our control. The following is a description of material risk factors that may cause our actual results in future periods to differ substantially from those we currently expect or seek. The risks described below are not the only risks we face. There are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that also may materially adversely affect our business, operating results, financial condition, or prospects.Risks Relating to Our Business and Our Industry
Adverse global economic conditions may harm our business and result in reduced net revenue and profitability.As a global company with customers operating in a broad range of businesses and industries, our performance is affected by global and regional economic conditions and the demand for technology products and services in international markets. Adverse economic conditions may negatively affect customer demand, and could result in postponed or decreased spending amid customer concerns over elevated inflation and interest rates or slowing demand for their products, reduced asset values, volatile energy costs, the availability and cost of credit, and the stability of financial institutions, financial markets, businesses, local and state governments, and sovereign nations. In Fiscal 2025, global economic uncertainty adversely affected the demand for our products and services as some of our larger customers exhibited caution in their IT spending.
Factors contributing to weak or unstable global or regional economic conditions, including those attributable to geopolitical volatility (such as ongoing military conflicts and terrorism), extreme weather events (such as wildfires or flooding), international trade protection measures and disputes, or public health issues also could harm our business by contributing to product shortages or delays, supply chain disruptions, insolvency of key suppliers, customers and counterparties, increased product costs and associated price increases, reduced global sales, and other adverse effects on our operations. Any such effects could have a negative impact on our net revenue and profitability.
Trade policies and disputes could result in increased tariffs and other trade restrictions and protectionist measures, which could increase our manufacturing costs, increase prices of and reduce demand for our products, limit our ability to sell to certain customers, hamper our procurement of components or raw materials, or impede or slow the movement of our goods across borders.Competitive pressures may adversely affect our industry unit share position, revenue, and profitability.We operate in an industry in which there are rapid technological advances in hardware, software, and services offerings, including AI, cloud, and security-related offerings. Our ability to respond to such advances and to develop new or improved offerings is critical to our continued success. We face aggressive competition from a variety of competitors in all areas of our business, including companies that specialize in one or more of our product or service lines. Our competitors may provide offerings that are less costly, perform better, or include additional features. Further, our offering portfolios may quickly become outdated or our market share may quickly erode. Our efforts to balance the mix of products and services to optimize profitability, liquidity, and growth may put pressure on our industry position. If we do not successfully adapt to industry developments and changing demand, and evolve our business to keep pace with the demands of current and prospective customers, we may be unable to develop and maintain a competitive advantage, which would adversely affect our unit share position, revenue, and profitability.
In addition, companies with which we have strategic alliances may become competitors in other product areas, or current competitors may enter into new strategic relationships with new or existing competitors, all of which may further increase competitive pressures.
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The operating results of our business units may be adversely affected if we fail to successfully execute our strategy and related initiatives.
We pursue a strategy of providing broad and innovative technology solutions for the data and artificial intelligence era and being at the forefront of AI, software-defined, and cloud native infrastructure solutions. To successfully execute our strategy, we must continue to improve cost structures, optimize sales coverage, improve channel execution, manage the increasingly difficult tasks of inventory management and demand forecasting, and strengthen our capabilities in our areas of strategic focus, while continuing to achieve product innovation that builds on our strategic capabilities in areas such as edge computing, hybrid cloud, artificial intelligence, data center networking, network security, and high-performance computing. The operating results of our business units may be adversely affected if we fail to successfully execute our strategy and related initiatives.
We are organized into two business units consisting of ISG and CSG that are each important components of our strategy. ISG offers a portfolio of storage, server, and networking solutions, including AI-optimized technologies, and faces intense competition from existing on-premises competitors and increasing competitive pressures from Infrastructure-as-a-Service providers. Accordingly, we expect we will be required to make additional investments to address such competitive pressures and drive future growth. Such pressures could result in the erosion of revenue and operating income and negatively affect ISG’s results of operations. To address industry trends, we have developed and continue to develop traditional, converged, and hyper-converged infrastructure solutions as well as AI-optimized products and solutions. ISG’s results of operations could be adversely affected if such products and solutions are not adopted by our customers or potential customers, or if customers move rapidly to adopt public cloud solutions.
CSG largely relies on sales of notebooks, desktops, and workstations. Revenue from CSG absorbs our overhead costs and provides for scaled procurement. CSG faces risks and uncertainties from fundamental changes in the personal computer market, including a decline in worldwide revenues for notebooks, desktops, and workstations, and lower shipment forecasts for these products due to a general lengthening of the replacement cycle. Reduced demand for PC products or a significant increase in competition could cause our operating income to fluctuate and adversely impact CSG’s results of operations.
Our relationships with our product and component vendors could harm our business by adversely affecting product availability, delivery, reliability, and cost.
Our reliance on vendors subjects us to a greater risk of shortages and reduced control over delivery schedules of components and products, as well as a greater risk of increases in product and component costs.We obtain many products and all of our components from third-party vendors, many of which are located outside of the United States. In addition, significant portions of our products are assembled by contract manufacturers, primarily in various locations in Asia. A significant concentration of such outsourced manufacturing is performed by only a few contract manufacturers, often in single locations. We sell components to these contract manufacturers and generate large non-trade accounts receivables, an arrangement that would present a risk of uncollectibility if the financial condition of a contract manufacturer should deteriorate.We may experience additional supply shortages and price increases caused by changes to raw material availability, manufacturing capacity, labor shortages, public health issues, tariffs, trade disputes and protectionist measures, extreme weather events or effects of climate change, and significant changes in the financial condition of our suppliers. Because we generally maintain minimal levels of component and product inventories, a disruption in component or product availability could harm our ability to fill customer orders on a timely basis and at an acceptable price. The impact of supply constraints on our operations may be more acute during periods of rapid growth in demand for new products and services, such as the current demand for AI-optimized solutions. We are also subject to risks associated with our receipt from vendors of defective parts and products, which could require the replacement of such parts and products and expose us to reputational harm.
Our profitability is affected by our ability to achieve favorable pricing from vendors and contract manufacturers, including through negotiations for vendor rebates, marketing funds, and other vendor funding received in the normal course of business. Because these supplier negotiations are continual and reflect the evolving competitive environment, the variability in timing and amount of incremental vendor discounts and rebates can affect our profitability. The vendor programs may change periodically, and changes in our business may result in increased reliance of vendors with less favorable pricing terms, potentially resulting in adverse profitability trends if we cannot adjust pricing or variable costs. An inability to establish a cost and product advantage, or determine alternative means to deliver value to customers, may adversely affect our revenue and profitability.
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Our use of single-source or limited-source suppliers may adversely affect the availability or timely delivery of some critical products or components.
We maintain several single-source or limited-source supplier relationships, including relationships with third-party software providers, either because multiple sources are not readily available or because the relationships are advantageous due to performance, quality, support, delivery, capacity, or price considerations. A delay in the supply of a critical single- or limited-source product or component may prevent the timely shipment of the related product in desired quantities or configurations. In addition, we may not be able to replace the functionality provided by third-party software currently offered with our products if that software becomes obsolete, defective, or incompatible with future product versions or is not adequately maintained or updated. Even where multiple sources of supply are available, qualification of the alternative suppliers and establishment of reliable supplies could result in delays and a possible loss of sales, which could harm our operating results.
The nature of the demand for AI solutions may have adverse effects on our operating performance.
While we expect the buyer base for our AI solutions to continue to expand, to date our AI solutions have been purchased primarily by a small number of larger customers and cloud service providers. If we are not successful in continuing to expand sales to a broader base of customers, our ability to maintain growth in this area may be limited. Sales of AI to large customers may also cause fluctuations in our results of operations, as such large orders may occur in some periods and not others and are generally subject to intense competition and pricing pressure, which can have an impact on our margin and results of operations. Larger orders may also require greater commitments of working capital, such as for purchases of key components, which could adversely affect our cash flow and expose us to the risk of holding excess and obsolete inventory due to delays or cancellations. These transactions may also involve larger amounts of credit or longer payment terms than have been typical for our business, increasing our risks in the event customers do not pay or make timely payment, particularly where our payment terms with major suppliers of underlying components differ from the payment terms of our customers. In addition, the accelerated rate of innovation of components from our suppliers may result in higher defects or failure of our offerings to perform, which could cause us to incur increased warranty costs, inventory provisions or impairments and could impact future sales.
Risks associated with management of our AI solutions and use of AI in our internal functions and operations could result in reputational harm, legal liability, and other adverse effects on our business.
The use of AI in our products and services presents ethical and legal risks to our business, financial condition, and results of operations. If our use of AI becomes controversial, we may experience loss of user trust, as well as brand or reputational harm, competitive injury, or legal liability. The use of AI technologies also could expose us to an increased risk of cybersecurity threats and incidents and claims or other adverse effects from infringements or violations of intellectual property, including claims related to AI technologies considered to have similarities to other AI technologies. Our use of such technologies could increase the risk of exposure of our or other parties’ proprietary confidential information, or other confidential or sensitive information, to unauthorized recipients, including inadvertent disclosure of confidential or sensitive information into publicly available third-party training sets, and may affect our ability to realize the benefit of, or adequately maintain, protect and enforce, our intellectual property or confidential information. Such risks related to the use of AI could, whether directly or indirectly, harm our results of operations, competitive position, and business.
AI is the subject of evolving review by various domestic and international governmental and regulatory agencies, including the SEC and the U.S. Federal Trade Commission, and laws, rules, directives and regulations governing the use of AI, such as the EU Artificial Intelligence Act, are changing and evolving rapidly. We may not always be able to anticipate how to respond to these legal frameworks for AI use and we may have to expend resources to adjust or audit our products and services in certain jurisdictions, especially if the legal frameworks are not consistent across jurisdictions. In particular, use of personal data in foundational models and intellectual property ownership and license rights, including copyright, of generative and other AI output, have not been fully interpreted by courts or regulations. Any failure or perceived failure by us to comply with laws, rules, directives, and regulations governing the use of AI could have an adverse impact on our business, and we may not be able to claim intellectual property ownership and license rights on content or source code that we create using AI.19Table of Conte nts
Failure to deliver high-quality products, software, and services, or to manage solutions and product and services transitions in an effective manner, could reduce demand and negatively affect the profitability of our operations.We must identify and address quality issues associated with our products, software, and services, many of which include third-party components. Although quality testing is performed regularly to detect quality problems and implement required solutions, failure to identify and correct significant product quality issues before the sale of such products to customers could result in lower sales, increased warranty or replacement expenses, and reduced customer confidence, which could harm our operating results.In addition, continuing improvements in technology, and the development of new technology, result in the frequent introduction of new solutions, products, and services, improvements in product performance characteristics, and short product life cycles. If we fail to effectively manage transitions to new solutions and offerings, the products and services associated with such offerings and customer demand for our solutions, products, and services could diminish, and our profitability could suffer.
We frequently source new products and transition existing products through our contract manufacturers and manufacturing outsourcing relationships to generate cost efficiencies and better serve our customers. The success of product transitions depends on various factors that include the availability of sufficient quantities of components at an acceptable cost. Product transitions also present execution uncertainties and risks, including the risk that new or upgraded products may have quality problems or other defects.
Failure to successfully implement our cost efficiency plans may negatively affect our future results.
We continue to make significant changes to modernize 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. We are pursuing disciplined cost management in coordination with our ongoing business modernization 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. As a result of these actions, we may experience a loss of continuity, loss of accumulated knowledge, diminished employee productivity, disruptions to our operations, and operational inefficiencies during transitional periods. These actions could also negatively impact employee retention. We may experience delays or unanticipated costs in implementing our cost efficiency plans, which could prevent the timely or full achievement of expected cost efficiencies and adversely affect our competitive position and results of operations.
Strategic acquisitions and dispositions we pursue may require us to incur costs and expose us to liabilities that could harm our business and adversely affect our financial performance.
We may make additional strategic acquisitions of other companies as part of our growth strategy. These transactions may fail to generate a financial return sufficient to offset acquisition costs. We could experience unforeseen operating difficulties in integrating the businesses, technologies, services, products, personnel, or operations of acquired companies, especially if we are unable to retain the key personnel of an acquired company. Acquisitions may result in a delay or reduction of sales because of customer uncertainty and may disrupt our existing business by diverting resources and management attention. Acquisitions also may negatively affect our relationships with strategic partners if they view the transactions as bringing us into competition. To complete an acquisition, we may be required to use substantial amounts of cash, engage in equity or debt financings, or enter into credit agreements to secure additional funds. Such debt financings could involve financial or restrictive covenants that might limit our capital-raising activities and operating flexibility. Further, an acquisition may expose us to unexpected liabilities, require the incurrence of charges and substantial indebtedness or other liabilities, have adverse tax consequences, result in acquired in-process research and development expenses, or require the amortization, write-down, or impairment of amounts related to deferred compensation, goodwill, and other intangible assets.
In addition, we periodically divest businesses, including businesses that are no longer a part of our strategic plan. These divestitures require significant investment of time and resources, may disrupt our business and distract management from other responsibilities, and may result in losses on disposition or continued financial involvement in the divested business, including through indemnification or other financial arrangements, which could adversely affect our financial results.20Table of Conte nts
Security incidents, including cyber-attacks, could disrupt our operations and result in the compromise of networks, systems, and assets, and the breach or loss of proprietary, personal, or confidential information of our company or of our workforce, customers, partners, or third parties.
We routinely receive, collect, manage, store, transmit, and process large amounts of proprietary information and confidential data, including personally identifiable and other sensitive information, relating to our operations, products, partners, and customers. We face numerous sophisticated and evolving cyber threats of significant scale, volume, severity, and complexity, including threats specifically designed for or directly targeted at us, making it increasingly difficult to defend against security incidents successfully or to implement adequate preventative measures.
Our cybersecurity program may not always successfully manage or mitigate the effects of these risks. Future cyber-attacks or incidents, such as some of those we have experienced in the past, could persist undetected in our environments for a period of time. Despite our cybersecurity governance and investment in controls and security measures, threat actors, including nation states and state-sponsored organizations, pose a significant risk of penetrating or bypassing our security defenses, including by utilizing insider threat tactics or utilizing AI tools against our defenses, breaching our information technology systems, and misappropriating or compromising confidential and proprietary information of our company, our partners, or our customers, causing system disruptions and shutdowns, introducing ransomware, malware, or vulnerabilities into our products, systems, and networks or those of our customers and partners, or accessing systems and networks of our customers or partners through connectivity to or credentials taken from our network. In some cases these incidents, which are common in our industry for companies of our size, have resulted in successful attacks on our IT environments.
We are targeted by criminal and other threat actors that conduct cyber-attacks of our systems and networks on an ongoing basis. We have experienced cyber-attacks that leveraged compromised credentials of our partners, employees, and customers to gain unauthorized access to Dell Technologies, partner, and vendor systems and confidential information, including information about our customers, employees, and partners. These incidents have caused, and may in the future cause, disruption to parts of our business operations and could result in regulatory, investigative, recovery, remediation, and litigation expenses. We anticipate that our systems and networks will continue to be targeted by criminal and other threat actors with increasing frequency and potential harm. In particular, we expect that attacks by nation state actors and their agents may intensify during periods of geopolitical conflict.
The costs to address cybersecurity risks, both before and after a security incident, could be significant, regardless of whether incidents result from an attack on us directly, on customers we service, or on partners or third-party vendors upon which we rely. The costs associated with cybersecurity tools and infrastructure and competition for scarce cybersecurity and IT resources have at times limited, and may in the future limit, our ability to identify, eliminate, or remediate cybersecurity or other security vulnerabilities or problems or enact changes to minimize the attack surface of our network.
Our customers, partners, and third-party vendors continue to experience security incidents of varying severity and differing attack methods. These parties possess or transmit our proprietary information and confidential data, including personal data, personally identifiable information, and other sensitive information, which may be exfiltrated if they are affected by a security incident. Targeted cyber-attacks or those that result from a security incident directed at a partner or third-party vendor create a risk of compromise to our internal systems, products, services, and offerings, as well as the systems of our customers, which could result in interruptions, delays, or cessation of service that could disrupt business operations for us and our customers. Our proactive measures and remediation efforts may not always be successful or timely. In addition, compromises of our security measures, including through the use and the unapproved dissemination of proprietary information or sensitive or confidential data about us, our customers, partners or other third parties, could impair our intellectual property rights and expose us, our customers, partners, or such other third parties to a risk of loss or misuse of such information or data. Any such incidents could subject us to government investigations and regulatory enforcement actions, litigation, potential liability, and damage to our brand and reputation, or otherwise harm our business and operations.21Table of Conte nts
Hardware, software, and applications that we produce or procure from third parties may contain defects in design or manufacture or other deficiencies, including security vulnerabilities that could interfere with the operation or security of our products, services, and offerings. In the event of a security vulnerability or other flaws in third-party components or software code, we may have to rely on multiple third parties to mitigate vulnerabilities. The mitigation techniques they deploy may be ineffective or result in adverse performance, system instability, or data loss, and may not always be available, or available on a timely basis. Further, our use of AI technologies, including generative AI, may make us susceptible to unanticipated security threats from adversaries as we incorporate such technologies into our internal systems, customer-facing services and products, while our understanding of AI-related security risks and protection methods continues to develop.
Any actual or perceived security vulnerabilities in our products or services, or those of third-party products we sell or in the open-source software we utilize, could lead to loss of existing or potential customers, and may impede our sales, manufacturing, distribution, outsourcing services, information technology solutions, and other critical functions and offerings. Failure to comply with internal security policies and standards, including secure development lifecycle practices, or to prevent or promptly mitigate security vulnerabilities in our products and offerings may adversely affect our brand and reputation, impact our ability to sell products in certain jurisdictions, and subject us to government investigations, regulatory enforcement actions, litigation, and potential liability resulting from our inability to fulfill our contractual obligations to our customers and partners.
As a global enterprise, we face compliance risks under a significant and increasing number of laws and regulations in the United States, the European Union, China, and numerous other jurisdictions relating to cybersecurity, product security, software supply chain security and AI, and the collection, use, residency, transfer, and protection of data. Such laws and regulations continue to evolve, may be applied differently in different jurisdictions, and could result in increased costs in the event of a significant disruption of our operations, data or privacy breach, loss, or other compromise of proprietary or confidential information as a result of a cyber-attack or insider activity. It is likely that in some cases, we will fail to comply with such requirements, and any such non-compliance could adversely affect our ability to conduct business or sell our products or offerings in a specific jurisdiction or result in fines or penalties that could negatively affect our financial results.Our ability to generate substantial non-U.S. net revenue is subject to additional risks and uncertainties.Sales outside the United States accounted for approximately half of our consolidated net revenue for Fiscal 2025. Our future growth rates and success are substantially dependent on the continued growth of our business outside of the United States. Our international operations face many risks and uncertainties, including varied local economic and labor conditions; political instability; public health issues; changes in the U.S. and international regulatory environments; the impacts of trade protection measures, including increases in tariffs and trade barriers, and other changes in international trade arrangements that could adversely affect our ability to conduct business in non-U.S. markets; changes in tax laws; potential theft or other compromise, and limited or unfavorable protection, of our technology, data, or intellectual property; copyright levies; and volatility in foreign currency exchange rates. We could incur additional operating costs, or sustain supply chain disruptions, due to any such changes. Any of these factors could negatively affect our international business results and growth prospects.Our profitability may be adversely affected by changes in the mix of products and services, customers, or geographic sales, and by seasonal sales trends.Our overall profitability for any period may be adversely affected by changes in the mix of products and services, customers, or geographic markets reflected in sales for that period, and by seasonal trends. Profit margins vary among products, services, customers, and geographic markets. In addition, parts of our business are subject to seasonal sales trends. Within ISG, our storage sales are typically stronger in our fourth fiscal quarter. Our sales within the Americas are typically stronger in the second and fourth fiscal quarters, while our sales in EMEA are typically stronger during the fourth fiscal quarter. Seasonality in our business may change over time.
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Table of Conte ntsWe may lose revenue opportunities and experience gross margin pressure if sales channel participants fail to perform as expected.We rely on value-added resellers, system integrators, distributors, and retailers as sales channels to complement our direct sales organization. Our future operating results depend on the performance of sales channel participants and on our success in maintaining and developing these relationships. Our revenue and gross margins could be negatively affected if the financial condition or operations of channel participants weaken as a result of adverse economic conditions or other business challenges, or if uncertainty regarding the demand for our products causes channel participants to reduce their orders for these products. Further, channel participants may consider our direct sales initiatives to conflict with their business interests, which could lead them to reduce their investment in the distribution and sale of such products, or to cease all sales of our products.
Our financial performance is dependent on access to the capital markets by us or some of our customers.
We may access debt and capital sources to provide financing for customers and to obtain funds for general corporate purposes, including working capital, acquisitions, capital expenditures, and funding of customer receivables. The debt and capital markets may experience extreme volatility and disruption from time to time, which could result in higher credit spreads in such markets and higher funding costs for us.
In addition, we maintain customer financing relationships with some companies that rely on access to the debt and capital markets to meet significant funding needs. Any inability of these companies to access such markets could compel us to self-fund transactions with such companies or to forgo customer financing opportunities, which could harm our financial performance.
Deterioration in our business performance, a credit rating downgrade, volatility in the capital markets, changes in financial services regulation, or adverse changes in the economy could lead to reductions in the availability of debt financing. In addition, these events could limit our ability to continue asset securitizations or other forms of financing from debt or capital sources, reduce the amount of financing receivables that we originate, or negatively affect the costs or terms on which we may be able to obtain capital. Any of these developments could adversely affect our net revenue, profitability, and cash flows.
Weak economic conditions, changing customer mix, and additional regulation could harm our financial services activities.
Our financial services activities, conducted primarily through Dell Financial Services, can be negatively affected by adverse economic conditions that contribute to loan delinquencies and defaults. An increase in loan delinquencies and defaults would result in greater net credit losses, which may require us to increase our reserves for customer receivables.In addition, the implementation of new financial services regulation, or the application of existing financial services regulation, in countries where we conduct our financial services and related supporting activities, could unfavorably affect the profitability and cash flows of our consumer financing activities.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that include cash and investment deposits, interest rate swap contracts, foreign currency option contracts, and forward contracts. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will default, either voluntarily or involuntarily, on its performance under the terms of the arrangement. In times of market distress, a counterparty may default rapidly and without notice, and we may be unable to take action to cover its exposure, either because of lack of contractual ability to do so or because market conditions make it difficult to take effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability eventually to recover any losses suffered as a result of that counterparty’s default may be limited by the impaired liquidity of the counterparty or the applicable legal regime governing the bankruptcy proceeding. In the event of such a default, we could incur significant losses, which could harm our business and adversely affect our results of operations and financial condition.23
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If the value of our goodwill or intangible assets is materially impaired, our results of operations and financial condition could be materially and adversely affected.
As of January 31, 2025, our goodwill and intangible assets, net had a combined carrying value of $24.1 billion, representing approximately 30% of our total consolidated assets. We periodically evaluate goodwill and intangible assets, net to determine whether all or a portion of their carrying values may be impaired, in which case an impairment charge may be necessary. The value of goodwill may be materially and adversely affected if businesses that we acquire perform in a manner that is inconsistent with our assumptions at the time of acquisition. In addition, from time to time we divest businesses, and any such divestiture could result in significant asset impairment and disposition charges, including those related to goodwill and intangible assets, net. Any future evaluations resulting in an impairment of goodwill or intangible assets, net could materially and adversely affect our results of operations and financial condition in the period in which the impairment is recognized.Our performance and business could suffer if our contracts for ISG services and solutions fail to produce revenue at expected levels due to exercise of customer rights under the contracts, inaccurate estimation of costs, or customer defaults in payment.We offer our ISG customers a range of consumption models for our services and solutions, including as-a-Service, utility, lease, or immediate pay models, designed to match customers’ consumption preferences. These solutions generally are multiyear agreements that typically result in recurring revenue streams over the term of the arrangement. Our financial results and growth depend, in part, on customers continuing to purchase our services and solutions over the contract life on the agreed terms. The contracts allow customers to take actions that may adversely affect our recurring revenue and profitability. These actions may include terminating a contract if our performance does not meet specified services levels, requesting rate reductions, reducing the use of our services and solutions or terminating a contract early upon payment of agreed fees. In addition, we estimate the costs of delivering the services and solutions at the outset of the contract. If we fail to estimate such costs accurately and actual costs significantly exceed estimates, we may incur losses on the contracts. We also are subject to the risk of loss under the contracts as a result of a default, voluntarily or involuntarily, in payment by the customer, whether because of financial weakness or other reasons.Loss of government contracts could harm our business.Our contracts with U.S. federal, state, and local governments and with foreign governments represent a significant source of business and are subject to future funding that may affect the extension or termination of programs and to the right of such governments to terminate contracts for convenience or non-appropriation. In addition, there is pressure to reduce spending on governments, both domestically and internationally, notably in recent periods on U.S. federal government agencies. Funding reductions, uncertainties or delays could adversely affect public sector demand for our products and services. In addition, if we violate legal or regulatory requirements, the applicable government could suspend or disbar us as a contractor, which would unfavorably affect our net revenue and profitability.Our business could suffer if we do not develop and protect our proprietary intellectual property or obtain or protect licenses to intellectual property developed by others on commercially reasonable and competitive terms.If we or our suppliers are unable to develop or protect desirable technology or obtain technology licenses, we may be prevented from marketing products, may have to market products without desirable features, or may incur substantial costs to redesign products. We also may have to defend or enforce legal actions or pay damages and comply with injunctions in jurisdictions throughout the world if we are found to have violated patents, including standard essential patents, or other intellectual property rights of other parties. Although our suppliers might be contractually obligated to obtain or protect such licenses and indemnify us against related expenses and injunctions, those suppliers could be unable to meet their obligations. We invest in research and development and obtain additional intellectual property through acquisitions, but those activities do not guarantee that we will develop or obtain intellectual property necessary for profitable operations. Costs involved in developing and protecting rights in intellectual property may have a negative impact on our business. In addition, our operating costs could increase because of copyright levies or similar fees by rights holders and collection agencies in European and other countries. New regulations, legislation and executive orders may also create uncertainty for our ability to develop or protect desirable technology or obtain technology licenses.
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Table of Conte ntsInfrastructure disruptions could harm our business.
We depend on our information technology and manufacturing infrastructure to achieve our business objectives. Natural disasters, manufacturing failures, telecommunications system failures, or defective or improperly installed new or upgraded business management systems could lead to disruptions in this infrastructure. Portions of our IT infrastructure, including those provided by third parties, also may experience interruptions, delays, or cessations of service, or produce errors in connection with systems integration or migration work. Such disruptions may adversely affect our ability to receive or process orders, manufacture and ship products in a timely manner, or otherwise conduct business in the normal course. Further, portions of our business involve the processing, storage, and transmission of data, which also would be negatively affected by such an event. Disruptions in our infrastructure could lead to loss of customers and revenue, particularly during a period of heavy demand for our products and services. We also could incur significant expense in repairing system damage and taking other remedial measures.
Failure to hedge effectively our exposure to fluctuations in foreign currency exchange rates and interest rates could adversely affect our financial condition and results of operations.
We utilize derivative instruments to hedge our exposure to fluctuations in foreign currency exchange rates and interest rates. Some of these instruments and contracts may involve elements of market and credit risk in excess of the amounts recognized in our financial statements. Global economic events, including trade disputes, economic sanctions and emerging market volatility, and associated uncertainty could cause currencies to fluctuate, which may contribute to variations in our sales of products and services in various jurisdictions. If we are not successful in monitoring our foreign exchange exposures and conducting an effective hedging program, our foreign currency hedging activities may not offset the impact of fluctuations in currency exchange rates on our results of operations and financial position.Adverse legislative or regulatory tax changes, the expiration of tax holidays or favorable tax rate structures, or unfavorable outcomes in tax audits and other tax compliance matters could result in an increase in our tax expense or our effective income tax rate.Changes in tax laws could adversely affect our operations and profitability. In recent years, numerous legislative, judicial, and administrative changes have been made to tax laws applicable to us and similar companies. The Organisation for Economic Co-operation and Development (the “OECD”) is continuing discussions regarding fundamental changes in the allocation of profits among tax jurisdictions in which companies do business, as well as the implementation of a global minimum tax, referred to as the “Pillar One” and “Pillar Two” proposals. Many countries, including countries in which we have tax holidays, have enacted or are in the process of enacting laws based on the Pillar Two proposal. Our effective tax rate and cash tax payments could increase in future years as a result of these changes.
Portions of our operations are subject to a reduced tax rate under various tax holidays that expire in whole or in part from time to time. Many of these holidays may be extended when certain conditions are met, or may be terminated if certain conditions are not met or as a result of changes in tax legislation. If the tax holidays are not extended, if tax legislation changes, or if we fail to satisfy the conditions of the reduced tax rate, our effective tax rate would be affected. Our effective tax rate also could be impacted if our geographic distribution of earnings changes. In addition, any actions by us to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes may affect the effective tax rate.
We are continually under audit in various tax jurisdictions, including the United States. We may not be successful in resolving potential tax claims that arise from these audits. A final determination of tax audits or disputes may differ from what is reflected in our historical income tax provisions or benefits and accruals. An unfavorable outcome in certain of these matters could result in a substantial increase in our tax expense. Further, our provision for income taxes could be adversely affected by changes in the valuation of deferred tax assets.
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Table of Conte ntsOur profitability could suffer from declines in fair value or impairment of our portfolio investments.We invest a portion of our available funds in a portfolio consisting of both equity and debt securities of various types and maturities pending the deployment of these funds in our business. Our equity investments consist of strategic investments in both marketable and non-marketable securities. Investments in marketable securities are measured at fair value on a recurring basis. We have elected to apply the measurement alternative for non-marketable securities. Under the alternative, we measure investments without readily determinable fair values at cost, less impairment, adjusted by observable price changes. Our debt securities generally are classified as held to maturity and are recorded in our financial statements at amortized cost. Our earnings performance could suffer from declines in fair value or impairment of our investments.Unfavorable results of legal proceedings could harm our business and result in substantial costs.We are involved in various claims, suits, investigations, and legal proceedings that arise from time to time in the ordinary course of business or otherwise. Additional legal claims or regulatory matters affecting us and our subsidiaries may arise in the future and could involve stockholder, consumer, regulatory, compliance, intellectual property, antitrust, tax, trade, privacy, and other issues on a global basis. Litigation is inherently unpredictable. Regardless of the merits of a claim, litigation may be both time-consuming and disruptive to our business. We could incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period. Even if we are not named a party to a particular suit, we may be subject to indemnification obligations to the named parties, including our directors and executive officers as well as other third parties, that could subject us to liability for damages or other amounts payable as a result of such judgments or settlements. In addition, our business, operating results, and financial condition could be adversely affected if any infringement or other intellectual property claim made against us by any third party is successful, resulting in damages being assessed and injunctions granted, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions.
Evolving and varied stakeholder expectations and regulatory requirements with respect to sustainability and ESG activities could harm our reputation, adversely affect our business, and expose us to regulatory proceedings and litigation.
Many stakeholders are increasingly focused on ESG considerations with evolving and varied expectations that could expose us to heightened scrutiny and various financial, legal, reputational, operational, compliance, and other risks. We make statements about sustainability and ESG goals and initiatives through our SEC filings, our annual ESG report, our other non-financial reports, information provided on our website, press statements and other communications. Responding to these considerations and successful implementation of these goals and initiatives involves risks and uncertainties, is not guaranteed, and is subject to numerous conditions, as well as standards, processes, regulations, and methodologies that continue to evolve. Any failure, or perceived failure, by us to achieve our sustainability and ESG goals, further our initiatives, adhere to our public statements, comply with federal, state, or international ESG laws and regulations, or meet evolving and varied stakeholder expectations could harm our reputation, adversely affect our business, financial condition or results of operations, and expose us to liabilities under regulatory proceedings or litigation instituted in the United States or in other countries.
In recent periods, regulators in various jurisdictions have increasingly expressed or pursued opposing views, legislation, and expectations with respect to sustainability initiatives. Conflicting regulations and a lack of harmonization of ESG legal and regulatory environments across the jurisdictions in which we operate may create enhanced compliance risks and costs.
Global climate change, and legal, regulatory, or market measures related to climate change, may negatively affect our business, operations, and financial results.We are subject to risks associated with the long-term effects of climate change on the global economy and on the IT industry in particular. The physical risks associated with climate change include the adverse effects of carbon dioxide and other greenhouse gases on global temperatures, weather patterns, and the frequency and severity of natural disasters. Extreme weather and natural disasters within or outside the United States could make it more difficult and costly for us to manufacture and deliver our products to our customers, obtain production materials from our suppliers, or perform other critical corporate functions.26
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Concern over climate change could also result in transition risks such as shifting customer preferences or regulatory changes. Changing customer preferences may result in increased demands regarding our solutions, products, and services, including the use of packaging materials and other components in our products and their environmental impact on sustainability. These demands may cause us to incur additional costs or make other changes to other operations to respond to such demands, which could adversely affect our financial results.
Concern over climate change could result in new legal requirements for us to reduce greenhouse gas emissions and other environmental impacts of our operations, improve our energy efficiency, or undertake sustainability measures that exceed those we currently pursue. Any such regulatory requirements could cause disruptions in the manufacture of our products and result in increased procurement, production, and distribution costs.
Our compliance with current or future environmental and safety laws could have an adverse effect on our business.Our operations are subject to environmental and safety regulations in all areas in which we conduct business. Product design and procurement operations must comply with new and future requirements relating to climate change laws and regulations, materials composition, sourcing, energy efficiency and collection, recycling, treatment, transportation, and disposal of electronics products, including restrictions on mercury, lead, cadmium, lithium metal, lithium ion, and other substances. If we fail to comply with applicable rules and regulations regarding the transportation, source, use, and sale of such regulated substances, we could be subject to liability. The costs and timing of costs under environmental and safety laws are difficult to predict, but could have an adverse impact on our business.Compliance requirements of anti-corruption laws, economic sanctions and other trade laws, human rights laws and other laws regulating our international operations may expose us to potential liability, increase our operating costs and otherwise harm our business.
We and our subsidiaries are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business, and are also subject to export controls, country and product specific tariffs, customs, economic sanctions laws, and embargoes imposed by the U.S. government. Violations of the U.S. Foreign Corrupt Practices Act or other anti-corruption laws or export control, customs, trade, or economic sanctions laws may result in severe criminal or civil sanctions and penalties, and we and our subsidiaries may be subject to other liabilities that could have a material adverse effect on our business, results of operations, and financial condition.
We are subject to various human rights laws, including provisions of the EU Forced Labor Regulations, US Uniform Forced Labor Protection Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act intended to improve transparency and accountability concerning the supply of minerals originating from the conflict zones of the Democratic Republic of the Congo or adjoining countries. We incur costs to comply with the disclosure requirements of this law and other costs relating to the sourcing and availability of minerals used in our products. Further, we may face reputational harm if our customers or other stakeholders conclude that we are unable to sufficiently verify the origins of the minerals used in our products.We are highly dependent on the services of Michael S. Dell, our Chief Executive Officer, and our loss of, or our inability to continue to attract, retain, and motivate, executive talent and other employees in this highly competitive market could harm our business.We are highly dependent on the services of Michael S. Dell, our founder, Chief Executive Officer, and largest stockholder. Further, we rely on key personnel, including Jeff Clarke and other members of our executive leadership team, to support our business and increasingly complex product and services offerings. Our experienced executives are supported by employees in our U.S. and international operations who are highly skilled in product development, manufacturing, sales, and other functions critical to our future growth and profitability. If we lose the services of Mr. Dell or other key personnel, we may not be able to locate suitable or qualified replacements, and we may incur additional expenses to recruit replacements, which could severely disrupt our business and growth. We face intensive competition, both within and outside of our industry, in retaining and hiring individuals with the requisite expertise. As a result of this competition, we may be unable to continue to attract, retain, and motivate suitably qualified individuals at acceptable compensation levels who have the managerial, operational, and technical knowledge and experience to meet our needs. Failure by us to do so could adversely affect our competitive position and results of operations.
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Table of Conte ntsWe have outstanding indebtedness and may incur additional debt in the future, which could adversely affect our financial condition.As of January 31, 2025, we and our subsidiaries had approximately $24.6 billion of indebtedness. As of the same date, we and our subsidiaries may incur up to $5.0 billion of short-term indebtedness under our commercial paper program and up to $6.0 billion of additional indebtedness under our revolving credit facility, which acts as a backstop to provide liquidity for the commercial paper program. Although continued debt paydown is part of our overall capital allocation strategy, a substantial portion of our cash flow from operations is used to make interest and other debt service payments, which reduces funds available to us for other purposes such as working capital, capital expenditures, other general corporate purposes, and potential acquisitions. Our indebtedness could also reduce our flexibility in responding to current and changing industry and financial market conditions. We may be able to incur significant additional secured and unsecured indebtedness under the terms of our existing debt, which generally do not restrict our ability to incur additional unsecured debt and contain significant exceptions to the covenant restricting our ability to incur additional secured debt.Risks Relating to Ownership of Our Class C Common Stock
Our multi-class common stock structure with different voting rights may adversely affect the trading price of the Class C Common Stock.Each share of our Class A Common Stock and each share of our Class B Common Stock has ten votes, while each share of our Class C Common Stock has one vote. Because of these disparate voting rights, Michael Dell and the Susan Lieberman Dell Separate Property Trust (the “MD stockholders”) and certain investment funds affiliated with Silver Lake Partners (the “SLP stockholders”) collectively held common stock representing approximately 91.4% of the total voting power of our outstanding common stock as of March 17, 2025. The limited ability of unaffiliated holders of the Class C Common Stock to influence matters requiring stockholder approval may adversely affect the trading price of the Class C Common Stock.
Because of our multi-class share structure, we have in the past been, and may in the future be, excluded from certain stock indices. Previously, the FTSE Russell and S&P Dow Jones had excluded companies with multiple share classes, such as Dell Technologies, from its indices. We cannot be sure that the policies of the FTSE Russell or S&P Dow Jones or the policies of other sponsors of indices will not change and make us ineligible for inclusion in their indices in the future. It is unclear what effect, if any, exclusion from any indices has on the valuations of the affected publicly-traded companies. It is possible that such policies may depress the valuations of public companies excluded from such indices compared to valuations of companies that are included.Future sales, or the perception of future sales, of a substantial amount of shares of the Class C Common Stock could depress the trading price of the Class C Common Stock.Sales of a substantial number of shares of the Class C Common Stock in the public market, or the perception that these sales may occur, could adversely affect the market price of the Class C Common Stock, which could make it more difficult for investors to sell their shares of Class C Common Stock at a time and price that they consider appropriate. These sales, or the possibility that these sales may occur, also could impair our ability to sell equity securities in the future at a time and at a price we deem appropriate, and our ability to use Class C Common Stock as consideration for acquisitions of other businesses, investments, or other corporate purposes. As of March 17, 2025, we had a total of approximately 359 million shares of Class C Common Stock outstanding.
As of March 17, 2025, the 277 million outstanding shares of Class A Common Stock held by the MD stockholders and the 62 million outstanding shares of Class B Common Stock held by the SLP stockholders are convertible into shares of Class C Common Stock at any time on a one-to-one basis. Such shares, upon any conversion into shares of Class C Common Stock, will be eligible for resale in the public market pursuant to Rule 144 under the Securities Act of 1933 (the “Securities Act”), subject to compliance with conditions of Rule 144.
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We have entered into a registration rights agreement with holders of substantially all outstanding shares of Class A Common Stock (which are convertible into the same number of shares of Class C Common Stock), holders of all outstanding shares of Class B Common Stock (which are convertible into the same number of shares of Class C Common Stock), and, as of March 17, 2025, holders of approximately 38 million outstanding shares of Class C Common Stock, pursuant to which we granted such holders and their permitted transferees shelf, demand and/or piggyback registration rights with respect to such shares (including the shares of Class C Common Stock into which the Class A Common Stock and the Class B Common Stock may be converted). Registration of those shares under the Securities Act would permit such holders to sell the shares into the public market.
As of January 31, 2025, 26 million shares of Class C Common Stock that were issuable upon the exercise, vesting, or settlement of outstanding stock options, restricted stock units, or deferred stock units under our stock incentive plan, all of which would have been, upon issuance, eligible for sale in the public market, subject where applicable to compliance with Rule 144, and an additional 54 million shares of Class C Common Stock were authorized and reserved for issuance pursuant to potential future awards under the stock incentive plan. We also may issue additional stock options in the future that may be exercised for additional shares of Class C Common Stock and additional restricted stock units or deferred stock units that may vest. We expect that all shares of Class C Common Stock issuable with respect to such awards will be registered under one or more registration statements on Form S-8 under the Securities Act and available for sale in the open market.We are controlled by the MD stockholders, who, together with the SLP stockholders, collectively own a substantial majority of our common stock and are able to effectively control our actions, including approval of mergers and other significant corporate transactions.By reason of their ownership of Class A Common Stock possessing a majority of the aggregate votes entitled to be cast by holders of all outstanding shares of our common stock voting together as a single class, the MD stockholders have the ability to approve any matter submitted to the vote of holders of all of the outstanding shares of the common stock voting together as a single class. Through their control, the MD stockholders are able to control our actions, including actions related to the election of our directors and directors of our subsidiaries, amendments to our organizational documents, and the approval of significant corporate transactions, including mergers and sales of substantially all of our assets that our stockholders may deem advantageous. For example, although our bylaws provide that the number of directors will be fixed by resolution of the Board of Directors, our stockholders may adopt, amend, or repeal the bylaws in accordance with the Delaware General Corporation Law. Through their control, the MD stockholders therefore may amend our bylaws to change the number of directors (within the limits of the certificate of incorporation), notwithstanding any determination by the Board of Directors regarding board size.
Further, as of March 17, 2025, the MD stockholders together with the SLP stockholders collectively beneficially owned 54.0% of our outstanding common stock. This concentration of ownership together with the disparate voting rights of our common stock may delay or deter possible changes in control of Dell Technologies, which may reduce the value of an investment in the Class C Common Stock. So long as the MD stockholders and the SLP stockholders continue to own common stock representing a significant amount of the combined voting power of our outstanding common stock, even if such amount is, individually or in the aggregate, less than 50%, such stockholders will continue to be able to strongly influence our decisions.In addition, the MD stockholders and the SLP stockholders, respectively, have the right to nominate a number of individuals for election as Group I Directors (who constitute all but one of our directors), which is equal to the percentage of the total voting power for the regular election of directors beneficially owned by the MD stockholders or by the SLP stockholders multiplied by the number of directors then on the Board of Directors who are not members of the audit committee, rounded up to the nearest whole number. Further, so long as the MD stockholders or the SLP stockholders each beneficially own at least 5% of all outstanding shares of the common stock entitled to vote generally in the election of directors, each of the MD stockholders or the SLP stockholders, as applicable, are entitled to nominate at least one individual for election as a Group I Director.29
Table of Conte ntsThe MD stockholders, the MSD Partners stockholders, and the SLP stockholders and their respective affiliates may have interests that conflict with the interests of other stockholders or those of Dell Technologies.
In the ordinary course of their business activities, the MD stockholders, certain investment funds affiliated with an investment firm formed by principals of the firm that manages the capital of Michael Dell and his family (the “MSD Partners stockholders”), and the SLP stockholders and their respective affiliates may engage in activities in which their interests conflict with our interests or those of other stockholders. Our certificate of incorporation provides that none of the MD stockholders, the MSD Partners stockholders, the SLP stockholders, nor any of their respective affiliates or any director or officer of the Company who is also a director, officer, employee, managing director, or other affiliate (other than Michael Dell) have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. The MD stockholders, the MSD Partners stockholders, and the SLP stockholders also may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. In addition, such stockholders may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance the value of their investment in Dell Technologies, even though such transactions might involve risks to other stockholders.Because we are a “controlled company” within the meaning of the rules of the New York Stock Exchange and, as a result, qualify for exemptions from certain corporate governance requirements, holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject to such requirements.We are a “controlled company” within the meaning of the rules of the New York Stock Exchange (the “NYSE”) because the MD stockholders hold common stock representing more than 50% of the voting power in the election of directors. As a result, holders of Class C Common Stock do not have the same protections afforded to stockholders of companies that are subject to all of the NYSE’s corporate governance requirements. Because we are a controlled company, we may elect not to comply with certain corporate governance requirements under NYSE rules, including the requirements that we have a board composed of a majority of “independent directors,” as defined under NYSE rules, and that we have a compensation committee and a nominating/corporate governance committee each composed entirely of independent directors. Although we currently maintain a board composed of a majority of independent directors and three standing committees of the board composed entirely of independent directors, we may decide in the future to change our board membership and committee composition so that the board is not composed of a majority of independent directors or one or more committees are not composed entirely of independent directors.
Our certificate of incorporation designates a state court of the State of Delaware and the U.S. federal district courts as the sole and exclusive forum for certain types of legal actions and proceedings that may be initiated by our stockholders, which could limit the ability of the holders of Class C Common Stock to obtain a favorable judicial forum for disputes with us or with our directors, officers, or controlling stockholders.Our certificate of incorporation contains provisions requiring an exclusive forum for specified types of legal actions and proceedings. These provisions could limit the ability of the holders of the Class C Common Stock to obtain a favorable judicial forum for disputes with us or with our directors, officers, or controlling stockholders, which may discourage such lawsuits against us and our directors, officers, and stockholders.Under our certificate of incorporation, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum will be, to the fullest extent permitted by law, a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) for:
• any derivative action or proceeding brought on our behalf;
• any action asserting a claim of breach of a fiduciary duty owed by any director or officer or stockholder of Dell Technologies to us or our stockholders;
• any action asserting a claim against Dell Technologies or any director or officer or stockholder of Dell Technologies arising pursuant to any provision of the Delaware General Corporation Law or of our certificate of incorporation or bylaws; or30
Table of Conte nts• any action asserting a claim against us or any director or officer or stockholder of Dell Technologies governed by our internal affairs doctrine.
The foregoing Delaware exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Exchange Act or the rules or regulations thereunder, or any other claim over which the federal district courts of the United States have exclusive jurisdiction.
In addition to the Delaware exclusive forum provision, our certification of incorporation contains a provision stating that, unless we consent in writing to the selection of an alternative forum, the federal courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.If a court were to find these provisions inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, and results of operations.
We may not continue to pay cash dividends or to pay cash dividends at the same rate as announced in February 2025.Our payment of cash dividends, as well as the rate at which we pay dividends, is solely at the discretion of our Board of Directors. Further, dividend payments, if any, are subject to our financial results and the availability of statutory surplus to pay dividends. These factors could result in a change to our current dividend policy.31
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Item 7 · Management's Discussion & Analysis
+276 paragraphs −276 paragraphs ~276 changed
FY 2024-02-02 (earlier)
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis management’s discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in this Annual Report on Form 10-K. This section of this Form 10-K generally discusses Fiscal 2024 and Fiscal 2023 items and presents year-to-year comparisons between Fiscal 2024 and Fiscal 2023 results. Discussion of Fiscal 2022 items and year-to-year comparisons between Fiscal 2023 and Fiscal 2022 results that are not included in this Form 10-K are presented in “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended February 3, 2023, as filed with the SEC on March 30, 2023, which is available free of charge on the SEC’s website at www.sec.gove and on our Investor Relations website at investors.delltechnologies.com.In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs, and that are subject to numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied in any forward-looking statements.
Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the United States of America (“GAAP”). Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC Corporation’s consolidated subsidiaries.
Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal year ended February 2, 2024 as “Fiscal 2024” and our fiscal year ended February 3, 2023 as “Fiscal 2023.” Fiscal 2024 included 52 weeks and Fiscal 2023 included 53 weeks.INTRODUCTION
Company OverviewDell Technologies is a global technology company that provides customers with a broad and innovative solutions portfolio to help customers modernize their information technology (“IT”) infrastructure, address workforce transformation, and provide critical solutions that keep people and organizations connected. With our extensive portfolio and our commitment to innovation, we offer secure, integrated solutions that extend from the edge to the core to the cloud, and we are at the forefront of artificial intelligence (“AI”), software-defined, and cloud native infrastructure solutions. Our vision is to become the most essential technology partner. We intend to realize our vision as we execute our strategy to leverage our strengths to extend our leadership positions and capture new growth.We are organized into two business units which are also our reportable segments: Infrastructure Solutions Group and Client Solutions Group.• Infrastructure Solutions Group (“ISG”) — ISG includes our storage, server, and networking offerings. Our comprehensive storage portfolio includes modern and traditional storage solutions, including all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined storage. Our server portfolio includes high-performance general-purpose and AI-optimized servers. Our networking portfolio includes wide area network infrastructure, data center and edge networking switches, and cables and optics. ISG also offers software, peripherals, and services, including consulting and support and deployment.
• Client Solutions Group (“CSG”) — CSG includes offerings designed for commercial and consumer customers. Our CSG portfolio includes branded PCs including notebooks, desktops, and workstations, branded peripherals, and third-party software and peripherals. CSG also includes services offerings, such as configuration, support and deployment, and extended warranties.
40Table of ContentsOur “other businesses” primarily consist of our resale of standalone offerings of VMware LLC (formerly “VMware, Inc.” and individually and together with its subsidiaries, “VMware”), referred to as “VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”). These businesses are not classified as reportable segments, either individually or collectively.
For further discussion regarding our current reportable segments, see “Item 1 Business”, “Results of Operations — Business Unit Results,” and Note 19 of the Notes to the Consolidated Financial Statements included in this report.
We offer customers choice in how they acquire our solutions including traditional purchasing and financing offerings provided by Dell Financial Services and its affiliates (“DFS”). We also offer flexible consumption models, including utility, subscription, and as-a-Service models. These offerings allow our customers to pay over time and provide them with operational and financial flexibility. For additional information about our financing arrangements, see Note 6 of the Notes to the Consolidated Financial Statements included in this report.Business Trends and ChallengesFiscal 2024 Significant Developments — During Fiscal 2024, certain significant developments impacted the environment in which we operate. Such developments, and their impact on our operations, were as follows:
• Macroeconomic uncertainty: Throughout the year, the effects of the evolving macroeconomic environment continued to impact industry-wide demand as customers were cautious and measured in their approach to IT spending, which affected our ISG and CSG net revenue performance.
• Advancements in artificial intelligence: Despite overall caution from our enterprise and large corporate customers, our ISG business benefited from increased demand for AI-optimized solutions as advancements in AI influenced customer spending behavior as organizations look to implement AI in their own operations. Demand for AI-optimized servers outpaced the supply of graphics processing units (“GPUs”) for these products, resulting in elevated backlog levels for such offerings as we exited the fiscal year.
• Supply chain: Notwithstanding the constraints in supply for GPUs, our supply chain operated efficiently during the year. We experienced a decline in component and logistics costs, which we refer to as input costs. Input costs decreased generally as a result of declines in demand leading to improving supply positions for certain limited-source components as well as reductions in both expedited shipments and overall rate costs in the freight network.
• Broadcom’s acquisition of VMware: On November 22, 2023, Broadcom, Inc., (“Broadcom”) completed its acquisition of VMware, leading to changes to our relationship with VMware described below. The changes affected our other businesses net revenue, most notably in the fourth quarter of the fiscal year.
Throughout the year, we remained focused on our key strategic priorities, building long-term value creation for our stakeholders, and addressing our customers’ needs while continuing to make prudent decisions in response to the environment. We balanced profitability and growth while executing disciplined pricing and navigating through competitive pricing pressures, which increased as the year progressed. Additionally, we continued to execute cost management measures, including limiting external hiring, employee reorganizations, and other actions to align our investments with our strategic priorities and customer needs. These actions resulted in a reduction in our overall headcount.
Despite continued near-term challenges, we expect the demand environment to improve in Fiscal 2025 which will enable us to achieve net revenue growth for the full fiscal year. We expect ISG net revenue to grow, driven by our AI-optimized servers, improving demand for our traditional servers, and a recovery in demand for our storage offerings. We expect CSG net revenue growth for the full fiscal year, driven in part by the anticipated PC refresh cycle in the latter part of Fiscal 2025. While we anticipate both ISG and CSG net revenue growth, we expect a continued reduction of our other businesses’ net revenue as a result of the change in our commercial relationship with VMware.
We expect input costs to increase during Fiscal 2025, principally driven by anticipated inflation for component costs as the year progresses. Further, we anticipate that the pricing environment will be more competitive in Fiscal 2025, which we began to observe during the second half of Fiscal 2024. 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. We plan to mitigate the impact of these dynamics through continued disciplined cost management.41
Table of ContentsThroughout Fiscal 2025, we will continue to advance our own capabilities to change the way we work and make decisions, improve business outcomes and the customer experience, and reduce cost by leveraging new technology to streamline our own systems and optimize business processes. We believe our unique operating advantages provide a foundation to foster growth, drive efficiencies, and continue to position us for long-term success.
Relationship with VMware — On November 1, 2021, we completed our spin-off of VMware by means of a special stock dividend (the “VMware Spin-off”). In connection with and upon completion of the VMware Spin-off, we entered into the Commercial Framework Agreement (“CFA”) with VMware, which provided the framework under which we and VMware continued our commercial relationship. Pursuant to the CFA, we have acted as a distributor of VMware’s standalone products and services, purchased such products and services for resale to customers, and integrated VMware products and services with Dell Technologies’ offerings for sale to end-users.
On November 22, 2023, VMware was acquired by Broadcom. Following the acquisition, Broadcom announced changes to its go-to-market approach for VMware offerings which impacted our commercial relationship with VMware. In response to such changes, on January 25, 2024, under a provision of the CFA permitting us to terminate the agreement upon a change in control of VMware, we delivered notice of termination of the CFA to Broadcom under which the agreement will terminate on March 25, 2024.
The Company continues to integrate select VMware products and services with Dell Technologies’ offerings and sell them to end-users. The results of such offerings are reflected within CSG or ISG, depending upon the nature of the underlying offering sold.
VMware was a related party until the date of its acquisition by Broadcom. The acquisition terminated the preexisting related party relationship with VMware such that no related party relationship exists with either Broadcom or VMware as of the date of issuance of this report. For more information regarding the impact of the Broadcom acquisition of VMware and our related party transactions with VMware, see Note 20 of the Notes to the Consolidated Financial Statements included in this report.
ISG — We expect that ISG will continue to be impacted by the evolving nature of the IT infrastructure market and competitive environment. With our scale and strong solutions portfolio, we believe we are well-positioned to address the ongoing competitive dynamics and trends in technology and customer needs. Through our collaborative, customer-focused approach to innovation, we strive to deliver new and relevant solutions and software to our customers quickly and efficiently. We continue to focus on customer base expansion and the lifetime value of customer relationships.
We anticipate that ISG will continue to benefit from technology advances and customer interest in AI. Through our server and storage offerings, including our AI-optimized solutions, 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. Cloud native applications are expected to continue to be a key trend in the infrastructure market. We benefit from offering solutions that address software-defined storage, hyper-converged infrastructure, and modular solutions based on server-centric architectures. We continue to expand our offerings in external storage arrays, which incorporate flexible, cloud-based functionality. 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. We anticipate that CSG will benefit from advances in AI in the long-term as customers will require PCs with the ability to run their complex AI workloads.
Competitive dynamics continue to be an important factor in our CSG business and continue to impact pricing and operating results. We remain committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio. We expect that the CSG demand environment will continue to be subject to seasonal trends.
Recurring Revenue and Consumption Models — We expect that our flexible consumption models will further strengthen our customer relationships and provide a foundation for growth in recurring revenue. We define recurring revenue as revenue recognized that is primarily related to hardware and software maintenance as well as operating leases, subscription, as-a-Service, and usage-based offerings.42
Table of ContentsStrategic Investments and Acquisitions — As part of our strategy, we will continue to evaluate opportunities for strategic investments through our venture capital investment arm, Dell Technologies Capital, with a focus on emerging technology areas that are relevant to our business. The technologies or products these companies have under development are typically in the early stages and may never have commercial value, which could result in a loss of a substantial part of our investment in the companies.
Foreign Currency Exposure — We manage our business on a U.S. dollar basis. However, we have a large global presence, generating approximately half of our net revenue from sales to customers outside of the United States during Fiscal 2024 and Fiscal 2023. As a result, our operating results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates. We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.
Other Macroeconomic Risks and Uncertainties — The impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility (including ongoing military conflicts in Ukraine and the Middle East), and global macroeconomic conditions (including those in China), may affect our ability to conduct business in some non-U.S. markets. We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.
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Table of ContentsNON-GAAP FINANCIAL MEASURESIn this management’s discussion and analysis, we use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP product net revenue; non-GAAP services net revenue; non-GAAP net revenue; non-GAAP product gross margin; non-GAAP services gross margin; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating income; non-GAAP net income; non-GAAP earnings per share attributable to Dell Technologies, Inc. - diluted; free cash flow; and adjusted free cash flow. These non-GAAP financial measures are not meant to be considered as indicators of performance or liquidity in isolation from or as a substitute for gross margin, operating expenses, operating income, net income, diluted earnings per share, or cash flows from operating activities prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis.We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. Management uses these non-GAAP measures in financial planning and forecasting and when evaluating our financial results and operating trends and performance. We believe, when used supplementally with GAAP financial measures, these non-GAAP financial measures provide our investors with useful and transparent information to help them evaluate our results by facilitating an enhanced understanding of our results of operations and enabling them to make period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented in this report. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.Non-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share attributable to Dell Technologies, Inc. - diluted, as defined by us, exclude amortization of intangible assets, the impact of purchase accounting, transaction-related expenses, stock-based compensation expense, other corporate expenses and, for non-GAAP net income and non-GAAP diluted earnings per share attributable to Dell Technologies, fair value adjustments on equity investments and an aggregate adjustment for income taxes. As the excluded items may have a material impact on our financial results, our management compensates for this limitation by relying primarily on our GAAP results and using non-GAAP financial measures supplementally or for projections when comparable GAAP financial measures are not available.Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. The discussion below includes information on each of the excluded items as well as our reasons for excluding them from our non-GAAP results. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual.
The following is a summary of the items excluded from the most comparable GAAP financial measures to calculate our non-GAAP financial measures.• Amortization of Intangible Assets — Amortization of intangible assets primarily consists of amortization of customer relationships, developed technology, and trade names. In connection with our acquisition by merger of EMC, referred to as the “EMC merger transaction,” and the acquisition of Dell Inc. by Dell Technologies Inc., referred to as the “going-private transaction,” all of the tangible and intangible assets and liabilities of EMC and Dell Inc. and their consolidated subsidiaries, respectively, were accounted for and recognized at fair value on the transaction dates. Accordingly, for the periods presented, amortization of intangible assets primarily represents amortization associated with intangible assets recognized in connection with the EMC merger transaction and the going-private transaction. We exclude amortization charges for purchased intangible assets as they are significantly impacted by the timing and magnitude of our acquisitions, may vary in amount from period to period, and do not reflect current operating performance.44
Table of Contents• Impact of Purchase Accounting — The impact of purchase accounting includes purchase accounting adjustments primarily related to the EMC merger transaction recorded under the acquisition method of accounting in accordance with the accounting guidance for business combinations. In accordance with such guidance, all of the assets and liabilities acquired were accounted for and recognized at fair value as of the transaction date, and the fair value adjustments continue to amortize over the estimated useful lives in the periods following the transaction. The fair value adjustments that are still amortizing primarily relate to property, plant, and equipment. We exclude the impact of purchase accounting as it is does not reflect our current operating performance and charges are significantly impacted by the timing and magnitude of our acquisitions and, as a result, may vary in amount from period to period.
• Transaction-Related (Income) Expenses — Transaction-related expenses typically consist of acquisition, integration, and divestiture related costs, and are expensed as incurred. During Fiscal 2022, this category also includes costs incurred in connection with the VMware Spin-off. These expenses primarily represent costs for legal, banking, consulting, and advisory services. During Fiscal 2022, this category included $1.5 billion in debt extinguishment fees primarily associated with the early retirement of certain senior notes. From time to time, this category also may include transaction-related income related to divestitures of businesses or asset sales. During Fiscal 2022, we recognized a pre-tax gain of $4.0 billion on the sale of our Boomi business. We exclude transaction-related expenses because they are significantly impacted by the timing and magnitude of our acquisitions and divestitures and do not reflect current operating performance.
• Stock-based Compensation Expense — Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of performance-based awards containing a market condition, we use the Monte Carlo valuation model. For other share-based awards, the fair value is generally based on the closing price of the Class C Common Stock as reported on the NYSE on the date of grant. Although stock-based compensation is an important aspect of the compensation of our employees and executives, 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 impairment charges, severance expenses, incentive charges related to equity investments, facility action costs, and payroll taxes associated with stock-based compensation. During Fiscal 2024 and Fiscal 2023, we recognized $0.6 billion and $0.5 billion, respectively, of severance expense related to workforce reduction activities. Severance costs are primarily related to severance and benefits for employees terminated pursuant to cost savings initiatives. During Fiscal 2023, other corporate expenses includes $0.9 billion of net expense recognized within interest and other, net, in connection with an agreement to settle the Class V transaction litigation. See Note 12 of the Notes to the Consolidated Financial Statements included in this report for information about this matter. Although we may incur these types of expenses in the future, we exclude other corporate expenses as they can vary from period to period, are significantly impacted by the timing and nature of these events, and are not used by management in assessing operating performance of the business.
• Fair Value Adjustments on Equity Investments — Fair value adjustments on equity investments primarily consist of the gain (loss) on strategic investments, which includes recurring fair value adjustments of investments in publicly-traded companies, as well as those in privately-held companies, which are adjusted for observable price changes and any potential impairments. See Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional information on our strategic investment activity. We exclude fair value adjustments on equity investments given the volatility in ongoing adjustments to the valuation of these strategic investments and because such adjustments are unrelated to the operating performance of our business.
• Aggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments described above, as well as an adjustment for discrete tax items. 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. The tax effects are determined based on the tax jurisdictions where the above items were incurred. See Note 13 of the Notes to the Consolidated Financial Statements included in this report for additional information about our income taxes. Beginning in Fiscal 2025, our non-GAAP income tax will be calculated using a fixed estimated annual tax rate which will be determined based on historical trends and projections for the current fiscal year. We may adjust our estimated annual tax rate during the fiscal year to take into account events that would significantly impact our income tax expense, including significant changes resulting from tax legislation, material changes in the geographic mix of revenue and expenses, changes to our corporate structure, and other significant events.
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Table of ContentsThe following table presents a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 % Change February 3, 2023 % Change January 28, 2022(in millions, except percentages)Product net revenue $ 64,353 (19) % $ 79,250 (1) % $ 79,830Non-GAAP adjustments:Impact of purchase accounting — — —
Non-GAAP product net revenue $ 64,353 (19) % $ 79,250 (1) % $ 79,830
Services net revenue $ 24,072 4 % $ 23,051 8 % $ 21,367Non-GAAP adjustments:Impact of purchase accounting — — 32
Non-GAAP services net revenue $ 24,072 4 % $ 23,051 8 % $ 21,399
Net revenue $ 88,425 (14) % $ 102,301 1 % $ 101,197Non-GAAP adjustments:Impact of purchase accounting — — 32
Non-GAAP net revenue $ 88,425 (14) % $ 102,301 1 % $ 101,229
Product gross margin $ 11,037 (17) % $ 13,221 5 % $ 12,606Non-GAAP adjustments:Amortization of intangibles 331 414 598
Impact of purchase accounting — 2 3
Stock-based compensation expense 51 52 48
Other corporate expenses 23 32 6
Non-GAAP product gross margin $ 11,442 (17) % $ 13,721 3 % $ 13,261
Services gross margin $ 9,832 4 % $ 9,465 2 % $ 9,285
Non-GAAP adjustments:
Impact of purchase accounting — — 32
Stock-based compensation expense 98 100 85
Other corporate expenses 72 141 21
Non-GAAP services gross margin $ 10,002 3 % $ 9,706 3 % $ 9,423
Gross margin $ 20,869 (8) % $ 22,686 4 % $ 21,891
Non-GAAP adjustments:
Amortization of intangibles 331 414 598
Impact of purchase accounting — 2 35
Stock-based compensation expense 149 152 133
Other corporate expenses 95 173 27
Non-GAAP gross margin $ 21,444 (8) % $ 23,427 3 % $ 22,684
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Fiscal Year EndedFebruary 2, 2024 % Change February 3, 2023 % Change January 28, 2022
(in millions, except percentages)
Operating expenses $ 15,658 (7) % $ 16,915 (2) % $ 17,232Non-GAAP adjustments:Amortization of intangibles (488) (556) (1,043)
Impact of purchase accounting (14) (42) (32)
Transaction-related expenses (12) (22) (273)
Stock-based compensation expense (729) (779) (675)
Other corporate expenses (649) (726) (310)
Non-GAAP operating expenses $ 13,766 (7) % $ 14,790 (1) % $ 14,899
Operating income $ 5,211 (10) % $ 5,771 24 % $ 4,659Non-GAAP adjustments:Amortization of intangibles 819 970 1,641
Impact of purchase accounting 14 44 67
Transaction-related expenses 12 22 273
Stock-based compensation expense 878 931 808
Other corporate expenses 744 899 337
Non-GAAP operating income $ 7,678 (11) % $ 8,637 11 % $ 7,785
Net income $ 3,195 32 % $ 2,422 (51) % $ 4,942Non-GAAP adjustments:Amortization of intangibles 819 970 1,641
Impact of purchase accounting 14 44 67
Transaction-related (income) expenses 49 (16) (2,143)
Stock-based compensation expense 878 931 808
Other corporate expenses 744 1,812 337
Fair value adjustments on equity investments (47) 206 (572)
Aggregate adjustment for income taxes (407) (642) (156)
Non-GAAP net income $ 5,245 (8) % $ 5,727 16 % $ 4,924
47Table of ContentsFiscal Year EndedFebruary 2, 2024 % Change February 3, 2023 % Change January 28, 2022
Earnings per share attributable to Dell Technologies, Inc. — diluted $ 4.36 35 % $ 3.24 (48) % $ 6.26
Non-GAAP adjustments:
Amortization of intangibles 1.11 1.29 2.07
Impact of purchase accounting 0.02 0.06 0.08
Transaction-related (income) expenses 0.07 (0.02) (2.71)
Stock-based compensation expense 1.19 1.24 1.02
Other corporate expenses 1.01 2.41 0.43
Fair value adjustments on equity investments (0.06) 0.27 (0.72)
Aggregate adjustment for income taxes (0.55) (0.86) (0.20)
Total non-GAAP adjustments attributable to non-controlling interests (0.02) (0.02) (0.01)
Non-GAAP earnings per share attributable to Dell Technologies, Inc. — diluted $ 7.13 (6) % $ 7.61 22 % $ 6.22
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In addition to the above measures, we consider free cash flow and adjusted free cash flow to be liquidity measures that provide useful information to management and investors in part because we use these metrics in our long-term capital allocation framework. 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 to, among other purposes, 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. 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 consider 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:
Fiscal Year Ended
February 2, 2024 % Change February 3, 2023 % Change January 28, 2022(in millions, except percentages)Cash flow from operations $ 8,676 143 % $ 3,565 (65) % $ 10,307Non-GAAP adjustments:Capital expenditures and capitalized software development costs, net (a) (2,753) (2,993) (2,755)
Free cash flow $ 5,923 935 % $ 572 (92) % $ 7,552
Free cash flow $ 5,923 935 % $ 572 (92) % $ 7,552Non-GAAP adjustments:DFS financing receivables (b) (309) 461 241
DFS operating leases (c) (7) 500 394
Adjusted free cash flow $ 5,607 266 % $ 1,533 (81) % $ 8,187____________________(a) Capital expenditures and capitalized software development costs, net include proceeds from sales of facilities, land, and other assets.
(b) DFS financing receivables represent the operating cash flow impact from the change in financing receivables.
(c) DFS operating leases represent the change in net carrying value of equipment for DFS operating leases.
We exclude the cash flow impact of DFS financing receivables and operating leases from our adjusted free cash flow, as the initial funding at the time of origination is largely subsequently replaced with cash inflows from DFS debt, the majority of which is asset-backed.
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RESULTS OF OPERATIONS
Consolidated Results
The following table summarizes our consolidated results for the periods indicated. Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages and per share amounts)
Net revenue:Products $ 64,353 72.8 % (19) % $ 79,250 77.5 % (1) % $ 79,830 78.9 %
Services 24,072 27.2 % 4 % 23,051 22.5 % 8 % 21,367 21.1 %
Total net revenue $ 88,425 100.0 % (14) % $ 102,301 100.0 % 1 % $ 101,197 100.0 %Gross margin:Products $ 11,037 17.2 % (17) % $ 13,221 16.7 % 5 % $ 12,606 15.8 %
Services 9,832 40.8 % 4 % 9,465 41.1 % 2 % 9,285 43.5 %
Total gross margin $ 20,869 23.6 % (8) % $ 22,686 22.2 % 4 % $ 21,891 21.6 %
Operating expenses $ 15,658 17.7 % (7) % $ 16,915 16.6 % (2) % $ 17,232 17.0 %
Operating income $ 5,211 5.9 % (10) % $ 5,771 5.6 % 24 % $ 4,659 4.6 %
Net income $ 3,195 3.6 % 32 % $ 2,422 2.4 % (51) % $ 4,942 4.9 %
Earnings per share attributable to Dell Technologies — diluted $ 4.36 35 % $ 3.24 (48) % $ 6.26
Cash flow from operations $ 8,676 143 % $ 3,565 (65) % $ 10,307Non-GAAP Financial Information
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022
Dollars % of Non-GAAP Net Revenue % Change Dollars % of Non-GAAP Net Revenue % Change Dollars % of Non-GAAP Net Revenue(in millions, except percentages and per share amounts)Non-GAAP net revenue:
Products $ 64,353 72.8 % (19) % $ 79,250 77.5 % (1) % $ 79,830 78.9 %
Services 24,072 27.2 % 4 % 23,051 22.5 % 8 % 21,399 21.1 %
Total non-GAAP net revenue $ 88,425 100.0 % (14) % $ 102,301 100.0 % 1 % $ 101,229 100.0 %Non-GAAP gross margin:Products $ 11,442 17.8 % (17) % $ 13,721 17.3 % 3 % $ 13,261 16.6 %
Services 10,002 41.6 % 3 % 9,706 42.1 % 3 % 9,423 44.0 %
Total non-GAAP gross margin $ 21,444 24.3 % (8) % $ 23,427 22.9 % 3 % $ 22,684 22.4 %
Non-GAAP operating expenses $ 13,766 15.6 % (7) % $ 14,790 14.5 % (1) % $ 14,899 14.7 %
Non-GAAP operating income $ 7,678 8.7 % (11) % $ 8,637 8.4 % 11 % $ 7,785 7.7 %
Non-GAAP net income $ 5,245 5.9 % (8) % $ 5,727 5.6 % 16 % $ 4,924 4.9 %
Non-GAAP earnings per share attributable to Dell Technologies — diluted $ 7.13 (6) % $ 7.61 22 % $ 6.22
Free cash flow $ 5,923 935 % $ 572 (92) % $ 7,552
Adjusted free cash flow $ 5,607 266 % $ 1,533 (81) % $ 8,187
50Table of ContentsNon-GAAP product net revenue, non-GAAP services net revenue, non-GAAP net revenue, non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share attributable to Dell Technologies, free cash flow, and adjusted free cash flow are not measurements of financial performance prepared in accordance with GAAP. Non-GAAP financial measures as a percentage of revenue are calculated based on non-GAAP net revenue, where applicable. 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.OverviewDuring Fiscal 2024, net revenue decreased by 14%, driven by declines in CSG net revenue and, to a lesser extent, ISG net revenue, which reflected the prolonged impact of global macroeconomic conditions on demand. The decline in CSG net revenue was primarily attributable to a decrease in units sold within both commercial and consumer offerings, partially offset by an increase in the average selling prices of our commercial offerings. ISG net revenue decreased as a result of a reduction in net revenue attributable to our servers and networking offerings and, to a lesser extent, our storage offerings.
Operating income and non-GAAP operating income decreased by 10% to $5.2 billion and 11% to $7.7 billion, respectively, during Fiscal 2024. The decline in operating income and non-GAAP operating income was driven by a decrease in ISG operating income and, to a lesser extent, CSG operating income, which both declined primarily as a result of a decrease in net revenue that outpaced the favorable impacts of a decline in input costs and cost management measures. The decline in ISG operating income was primarily attributable to decreases in our servers and networking offerings and, to a lesser extent, our storage offerings. The decline in CSG operating income was driven by decreases in both commercial and consumer offerings. The decline in operating income was partially offset by decreases in other corporate expenses and amortization of intangibles.
During Fiscal 2024, both operating income and non-GAAP operating income as a percentage of net revenue increased 30 basis points to 5.9% and 8.7%, respectively. These increases were due to an increase in gross margin as a percentage of net revenue, which was principally driven by a decline in input costs. The increase in operating income and non-GAAP operating income as a percentage of net revenue was offset by an increase in operating expense rate, principally within ISG, that was attributable to a decrease in net revenue which outpaced the impact of continued cost management measures.
Cash provided by operating activities was $8.7 billion during Fiscal 2024, and was primarily driven by profitability coupled with strong inventory management and cash collections performance. During Fiscal 2023, cash provided by operating activities was $3.6 billion, which primarily reflected profitability that was partially offset by the impact of working capital dynamics. See “Liquidity, Cash Requirements, and Market Conditions” for additional information about our cash flow metrics.
Despite the near-term challenges driven by uncertainty in the macroeconomic environment, we continue to see opportunities to create value and grow as we respond to long-term demand for our IT solutions driven by a technology- and data-enabled world. We have demonstrated our ability to adjust to changing market conditions with complementary solutions and innovation across both segments of our business, an agile workforce, and the strength of our global supply chain. As we continue to innovate and modernize our offerings, we believe that Dell Technologies is well-positioned for long-term profitable growth.Net RevenueDuring Fiscal 2024, net revenue decreased 14%, primarily driven by declines in CSG net revenue and, to a lesser extent, ISG net revenue. See “Business Unit Results” for further information.
• Product Net Revenue — Product net revenue includes revenue from the sale of hardware products and software licenses. During Fiscal 2024, product net revenue decreased 19%, due to declines in CSG product net revenue and, to a lesser extent, ISG product net revenue. CSG product net revenue decreased primarily as a result of a decline in units sold, which impacted both our commercial and consumer offerings. The decline in ISG product net revenue was primarily attributable to a decrease in product net revenue attributable to our servers and networking offerings driven by a decrease in units sold, and, to a lesser extent, a decline in our product net revenue attributable to storage offerings.
51Table of Contents• Services Net Revenue — Services net revenue includes revenue from our services offerings and support services related to hardware products and software licenses. During Fiscal 2024, services net revenue increased 4%, driven primarily by growth within services net revenue attributable to CSG and other businesses. The increase in services net revenue attributable to CSG was driven primarily by third-party software support and maintenance and hardware support and maintenance. The increase in services net revenue attributable to other businesses was driven primarily by VMware software maintenance arrangements. See “Introduction” for additional information about the impact of Broadcom’s acquisition of VMware on our relationship with VMware.A substantial portion of services net revenue is derived from offerings that have been deferred over a period of time, and, as a result, reported growth rates for services net revenue will be different than reported growth rates for product net revenue.From a geographical perspective, net revenue decreased in the Americas, EMEA, and APJ during Fiscal 2024, most notably within APJ.
Gross MarginDuring Fiscal 2024, gross margin and non-GAAP gross margin both decreased 8% to $20.9 billion and $21.4 billion, respectively. The declines were driven by decreases in both ISG and CSG gross margin that were primarily attributable to a decrease in net revenue, the effect of which was partially offset by lower input costs.
Both gross margin and non-GAAP gross margin percentage increased 140 basis points to 23.6% and 24.3%, respectively, during Fiscal 2024. The increases were primarily attributable to the impacts of an overall decline in input costs coupled with an increase in average selling price across many of our offerings as we continued to exercise disciplined pricing in an increasingly competitive environment.
• Product Gross Margin — During Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 17% to $11.0 billion and $11.4 billion, respectively. The decreases were primarily driven by declines in both ISG and CSG product gross margin, which were largely attributable to declines in product net revenue, partially offset by lower input costs.
During Fiscal 2024, product gross margin percentage and non-GAAP product gross margin percentage both increased 50 basis points to 17.2% and 17.8%, respectively, primarily due to an increase in CSG product gross margin percentage. CSG product gross margin percentage increased primarily as a result of the impacts of an overall decline in input costs coupled with an increase in average selling price across many of our product offerings.
• Services Gross Margin — During Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $9.8 billion and 3% to $10.0 billion, respectively. The increases were primarily attributable to growth within ISG services gross margin and, to a lesser extent, CSG services gross margin, that were driven by support and maintenance associated with products sold in prior periods.During Fiscal 2024, services gross margin percentage decreased 30 basis points to 40.8% and non-GAAP services gross margin percentage decreased 50 basis points to 41.6%. The decreases were driven primarily by a shift in mix of services delivered.
Vendor Programs
Our gross margin is affected by our ability to achieve competitive pricing with our vendors and contract manufacturers, including through our negotiation of a variety of vendor rebate programs to achieve lower net costs for the various components we include in our products. Under these programs, vendors provide us with rebates or other discounts from the list prices for the components, which are generally elements of their pricing strategy. We account for vendor rebates and other discounts as a reduction in cost of net revenue. We manage our costs on a total net cost basis, which includes supplier list prices reduced by vendor rebates and other discounts.52Table of ContentsThe terms and conditions of our vendor rebate programs are largely based on product volumes and are generally negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing and amount of vendor rebates and other discounts we receive under the programs may vary from period to period, reflecting changes in the competitive environment. We monitor our component costs and seek to address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross margins for Fiscal 2024 were not materially affected by any changes to the terms of our vendor rebate programs, as the amounts we received under these programs were generally stable relative to our total net cost. We are not aware of any significant changes to our vendor rebate programs that will materially impact our results in the near term.Operating Expenses
The following table presents information regarding our operating expenses for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages)
Operating expenses:Selling, general, and administrative $ 12,857 14.5 % (9) % $ 14,136 13.9 % (4) % $ 14,655 14.5 %
Research and development 2,801 3.2 % 1 % 2,779 2.7 % 8 % 2,577 2.5 %
Total operating expenses $ 15,658 17.7 % (7) % $ 16,915 16.6 % (2) % $ 17,232 17.0 %Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages)Non-GAAP operating expenses $ 13,766 15.6 % (7) % $ 14,790 14.5 % (1) % $ 14,899 14.7 %
During Fiscal 2024, total operating expenses decreased 7%, due to a decline in selling, general, and administrative expenses.
• Selling, General, and Administrative — During Fiscal 2024, selling, general, and administrative (“SG&A”) expenses decreased 9%, driven by a decrease in employee compensation and benefits expense, principally due to a decline in overall headcount and, to a lesser extent, a decrease in advertising and outside services expense as a result of continued disciplined cost management.
• 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 1% during Fiscal 2024, principally due to an increase in R&D-related employee compensation and benefits expense, partially offset by a decrease in outside services as a result of continued disciplined cost management.As a percentage of net revenue, R&D expenses for Fiscal 2024 and Fiscal 2023 were 3.2% and 2.7%, respectively. The increases in R&D expenses as a percentage of net revenue were attributable to continued R&D investments as we support R&D initiatives to innovate and introduce new and enhanced solutions into the market.During Fiscal 2024, non-GAAP operating expenses decreased 7%, principally due to continued disciplined cost management which resulted in a decline in employee compensation and benefits, outside services, and advertising expenses, among other items.
We continue to make strategic investments designed to enable growth, marketing, and R&D, while balancing our efforts to drive cost efficiencies in the business. We also expect to continue making investments in support of our own digital transformation which aims to streamline and optimize our business processes.53
Table of ContentsOperating Income
Operating income and non-GAAP operating income decreased by 10% to $5.2 billion and 11% to $7.7 billion, respectively, during Fiscal 2024. The decline in operating income and non-GAAP operating income was driven by a decrease in ISG operating income and, to a lesser extent, CSG operating income, which both declined primarily as a result of a decrease in net revenue that outpaced the favorable impacts of a decline in input costs and cost management measures. The decline in ISG operating income was primarily attributable to decreases in our servers and networking offerings and, to a lesser extent, our storage offerings. The decline in CSG operating income was driven by decreases in both commercial and consumer offerings. The decline in operating income was partially offset by decreases in other corporate expenses and amortization of intangibles.
During Fiscal 2024, both operating income and non-GAAP operating income as a percentage of net revenue increased 30 basis points to 5.9% and 8.7%, respectively. These increases were due to an increase in gross margin as a percentage of net revenue, which was principally driven by a decline in input costs. The increase in operating income and non-GAAP operating income as a percentage of net revenue was offset by an increase in operating expense rate, principally within ISG, that was attributable to a decrease in net revenue which outpaced the impact of continued cost management measures.Interest and Other, Net
The following table presents information regarding interest and other, net for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022(in millions)
Interest and other, net:Investment income, primarily interest $ 305 $ 100 $ 42
Gain (loss) on investments, net 47 (206) 569
Interest expense (1,501) (1,222) (1,542)
Foreign exchange (199) (265) (221)
Gain on disposition of businesses and assets — — 3,968
Debt extinguishment gain (loss) 68 — (1,572)
Legal settlement, net — (894) —
Other (44) (59) 20
Total interest and other, net $ (1,324) $ (2,546) $ 1,264
The change in interest and other, net was favorable, primarily as a result of $0.9 billion of expense recognized in Fiscal 2023 in connection with an agreement to settle the Class V transaction litigation, coupled with a gain on investments and an increase in investment income during Fiscal 2024. Favorable impacts within interest and other, net were partially offset by an increase in interest expense primarily associated with DFS securitization and structured financing programs. See Note 12 to the Notes to the Consolidated Financial Statements for additional information about the settlement of the Class V transaction litigation.Income and Other Taxes
The following table presents information regarding our income and other taxes for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022(in millions, except percentages)Income before income taxes $ 3,887 $ 3,225 $ 5,923
Income tax expense $ 692 $ 803 $ 981
Effective income tax rate 17.8 % 24.9 % 16.6 %54
Table of ContentsFor Fiscal 2024 and Fiscal 2023, our effective income tax rate was 17.8% and 24.9%, respectively. Changes related to our effective income tax rates for Fiscal 2024 as compared to Fiscal 2023 were primarily attributable to the tax impact of foreign operations and benefits from U.S. research and development tax credits. In addition, our effective tax rate for Fiscal 2023 included the impact of an expense recognized in connection with the agreement to settle the Class V transaction litigation described in Note 12 of the Notes to the Consolidated Financial Statements.
Our effective income tax rate can fluctuate depending on the geographic distribution of our worldwide earnings, as our foreign earnings are generally taxed at lower rates than in the United States. The differences between our effective income tax rates and the U.S. federal statutory rate of 21% principally result from the geographical distribution of income, differences between the book and tax treatment of certain items, and discrete tax items. In certain jurisdictions, our tax rate is significantly less than the applicable statutory rate as a result of tax holidays. The majority of our foreign income subject to these tax holidays is attributable to Singapore and China. A significant portion of these income tax benefits relates to a tax holiday that will be effective until January 31, 2029. Most of our other tax holidays will expire in whole or in part during Fiscal 2030 and Fiscal 2031. 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 February 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 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 anticipate 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. Our income tax benefit from tax holidays and incentives decreased the provision for income taxes by approximately $244 million ($0.33 per share) during Fiscal 2024.
For further discussion regarding tax matters, including the status of income tax audits, see Note 13 of the Notes to the Consolidated Financial Statements included in this report.Net IncomeDuring Fiscal 2024, net income increased 32% to $3.2 billion, driven primarily by a favorable change in interest and other, net, partially offset by a decline in operating income.
During Fiscal 2024, non-GAAP net income decreased 8% to $5.2 billion, driven by a decline in operating income, partially offset by a decline in income tax expense.55
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Business Unit ResultsOur reportable segments are based on the ISG and CSG business units. A description of our business units is provided under “Introduction.” See Note 19 of the Notes to the Consolidated Financial Statements included in this report for a reconciliation of net revenue and operating income by reportable segment to consolidated net revenue and consolidated operating income, respectively.Infrastructure Solutions Group
The following table presents net revenue and operating income attributable to ISG for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 % Change February 3, 2023 % Change January 28, 2022(in millions, except percentages)
Net revenue:Servers and networking $ 17,624 (14) % $ 20,398 14 % $ 17,901
Storage 16,261 (9) % 17,958 9 % 16,465
Total ISG net revenue $ 33,885 (12) % $ 38,356 12 % $ 34,366Operating income:ISG operating income $ 4,286 (15) % $ 5,045 35 % $ 3,736
% of segment net revenue 12.6 % 13.2 % 10.9 %
Net Revenue — During Fiscal 2024, ISG net revenue decreased 12% driven primarily by servers and networking net revenue and, to a lesser extent, storage net revenue as global macroeconomic conditions continued to impact demand.
Revenue from sales of servers and networking decreased 14% during Fiscal 2024, driven by a decrease in units sold, the effect of which was partially offset by an increase in the average selling prices of our server offerings. The average selling price of our server offerings increased as a result of the impact of attached offerings and richer configurations.During Fiscal 2024, storage net revenue decreased 9%, driven by a decline in net revenue across the majority of our storage offerings.From a geographical perspective, net revenue attributable to ISG decreased in the Americas, EMEA, and APJ during Fiscal 2024.
Operating Income — During Fiscal 2024, ISG operating income as a percentage of net revenue decreased 60 basis points to 12.6%, principally due to an increase in operating expenses as a percentage of net revenue. Operating expenses as a percentage of net revenue increased as a result of a decline in revenue that outpaced the impact of continued cost management measures coupled with continued investment in research and development. The impact of an increase in operating expenses as a percentage of net revenue was partially offset by an overall decline in input costs coupled with an increase in average selling price.56
Table of ContentsClient Solutions Group
The following table presents net revenue and operating income attributable to CSG for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 % Change February 3, 2023 % Change January 28, 2022(in millions, except percentages)
Net revenue:Commercial $ 39,814 (13) % $ 45,556 — % $ 45,576
Consumer 9,102 (28) % 12,657 (20) % 15,888
Total CSG net revenue $ 48,916 (16) % $ 58,213 (5) % $ 61,464Operating income:CSG operating income $ 3,512 (8) % $ 3,824 (12) % $ 4,365
% of segment net revenue 7.2 % 6.6 % 7.1 %Net Revenue — During Fiscal 2024, CSG net revenue decreased 16% driven by a decline in units sold as global macroeconomic conditions continued to impact demand.Commercial net revenue decreased 13% during Fiscal 2024. The decline was primarily due to a decrease in units sold which was partially offset by the effect of an increase in the average selling prices of our commercial offerings. Average selling prices of our commercial offerings increased primarily as a result of richer configurations and the mix of offerings sold.
Consumer net revenue decreased 28% during Fiscal 2024, principally due to a decrease 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 primarily in APJ and, to a lesser extent, in the Americas and EMEA during Fiscal 2024.Operating Income — During Fiscal 2024, CSG operating income as a percentage of net revenue increased 60 basis points to 7.2%, primarily due to the impact of an overall decrease in input costs coupled with an increase in the average selling prices of our commercial offerings, as described above. The impact of these factors was partially offset by an increase in operating expenses as a percentage of net revenue, which increased as a result of a decline in CSG net revenue that outpaced the impact of continued cost management measures.
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OTHER BALANCE SHEET ITEMS
Accounts ReceivableWe sell products and services directly to customers and through a variety of sales channels, including retail distribution. Our accounts receivable, net, was $9.3 billion and $12.5 billion as of February 2, 2024 and February 3, 2023, respectively. The reduction in accounts receivable, net was driven primarily by a decline in net revenue coupled with strong collections. 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 February 2, 2024 and February 3, 2023, the allowance for expected credit losses was $71 million and $78 million, respectively. Based on our assessment, we believe that we are adequately reserved for expected credit losses.Dell Financial Services and Financing ReceivablesWe 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. 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 $8.4 billion, $9.7 billion, and $8.5 billion for Fiscal 2024, Fiscal 2023, and Fiscal 2022 respectively.
Our leases are generally classified as sales-type leases or operating leases. On commencement of sales-type leases, we recognize profit up-front, and recognize amounts due from the customer under the lease contract as financing receivables. 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. We recognize product revenue and depreciation expense, classified as cost of net revenue, over the contract term.
As of February 2, 2024 and February 3, 2023, our financing receivables, net were $10.5 billion and $10.9 billion, respectively . The decline in financing receivables was driven primarily by the sale of our U.S. consumer revolving customer financing receivables portfolio. See Note 6 of the Notes to the Consolidated Financial Statements included in this report for additional information about the sale.
We maintain an allowance to cover expected financing receivable credit losses and evaluate credit loss expectations based on our total portfolio. For both Fiscal 2024 and Fiscal 2023, the principal charge-off rate for our financing receivables portfolio was 0.5% and for Fiscal 2022 was 0.6%. The credit quality of our financing receivables has improved in recent years as the mix of high-quality commercial accounts in our portfolio has continued to increase. We continue to monitor broader economic indicators and their potential impact on future credit loss performance. We have an extensive process to manage our exposure to customer credit risk, including active management of credit lines and our collection activities. We also sell selected fixed-term financing receivables without recourse to unrelated third parties on a periodic basis, primarily to manage certain concentrations of customer credit exposure. Based on our assessment of the customer financing receivables, we believe that we are adequately reserved.
We retain a residual interest in equipment leased under our lease programs. As of February 2, 2024 and February 3, 2023, the residual interest recorded as part of financing receivables was $157 million and $142 million, respectively. The amount of the residual interest is established at the inception of the lease based upon estimates of the value of the equipment at the end of the lease term using historical studies, industry data, and future value-at-risk demand valuation methods. On a quarterly basis, we assess the carrying amount of our recorded residual values for expected losses. Generally, expected losses as a result of residual value risk on equipment under lease are not considered to be significant primarily because of the existence of a secondary market with respect to the equipment. 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 Fiscal 2024 and Fiscal 2023.
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As of February 2, 2024 and February 3, 2023, 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 Fiscal 2024, Fiscal 2023, and Fiscal 2022.
DFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with asset-backed financing. For DFS offerings which qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations and is largely subsequently offset by cash proceeds from financing. For DFS operating leases, the initial funding is classified as a capital expenditure and reflected as an impact to cash flows used in investing activities.
See Note 6 of the Notes to the Consolidated Financial Statements included in this report for additional information about our financing receivables and the associated allowances, and equipment under operating leases.59
Table of ContentsLIQUIDITY, CASH REQUIREMENTS, AND MARKET CONDITIONS
Liquidity and Capital Resources
We rely on operating cash flows, which are impacted by trends in the demand environment, as our primary source of liquidity for our ongoing business operations. We monitor the efficiency of our balance sheet to ensure that we have adequate liquidity to support our business and strategic initiatives.
In addition to internally generated cash, we have access to other capital sources to finance our strategic initiatives and fund growth in our financing operations. Our strategy is to deploy capital from any potential source, whether internally generated cash or debt, depending on the adequacy and availability of that source of capital and whether it can be accessed in a cost-effective manner.We believe that our current cash and cash equivalents, together with cash that will be provided by future operations and borrowings expected to be available under our revolving credit facility and commercial paper program, will be sufficient over at least the next twelve months and for the foreseeable future thereafter to meet our material cash requirements, including funding of our operations, debt-related payments, capital expenditures, and other corporate needs.As part of our overall capital allocation strategy, we intend to return capital to our stockholders through both share repurchase programs and dividend payments and use the remaining available cash to drive growth and maintain our investment grade credit rating.
The following table presents our cash and cash equivalents as well as our available borrowings as of the dates indicated:February 2, 2024 February 3, 2023(in millions)
Cash and cash equivalents, and available borrowings:Cash and cash equivalents $ 7,366 $ 8,607
Remaining available borrowings under 2021 Revolving Credit Facility 5,999 5,999
Total cash and cash equivalents, and available borrowings $ 13,365 $ 14,606
During Fiscal 2024, cash and cash equivalents decreased by $1.2 billion primarily due to the return of capital to our stockholders, capital expenditures, and the repayment of Senior Notes, the effect of which was partially offset by cash flows from operations.
As of February 2, 2024, our 2021 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 February 2, 2024, there were no borrowings outstanding under the facility and remaining available borrowings totaled approximately $6.0 billion. The 2021 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 February 2, 2024, we had no outstanding borrowings under the program.
We may regularly use our available borrowings from the 2021 Revolving Credit Facility and issuances under the commercial paper program on a short-term basis for general corporate purposes. See the following discussion for additional information about our debt.
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Debt
The following table presents our outstanding debt as of the dates indicated:February 2, 2024 Change February 3, 2023(in millions)
Core debtSenior Notes $ 15,607 $ (2,693) $ 18,300
Legacy Notes and Debentures 952 — 952
DFS allocated debt (1,640) (444) (1,196)
Total core debt 14,919 (3,137) 18,056DFS related debtDFS debt 9,492 (798) 10,290
DFS allocated debt 1,640 444 1,196
Total DFS related debt 11,132 (354) 11,486
Other 171 (154) 325
Total debt, principal amount 26,222 (3,645) 29,867
Carrying value adjustments (228) 51 (279)
Total debt, carrying value $ 25,994 $ (3,594) $ 29,588
The outstanding principal amount of our debt decreased $3.6 billion to $26.2 billion as of February 2, 2024, driven primarily by the prepayment of $2.7 billion principal amount of Senior Notes and a reduction in DFS debt which was principally attributable to the prepayment and termination of our U.S. securitization facility for consumer revolving loans.
Subsequent to the close of Fiscal 2024, we issued $1.0 billion aggregate principal amount of 5.40% Senior Notes due 2034. We intend to use the net proceeds of the issuance to prepay a portion of our outstanding 6.02% Senior Notes due 2026.
We define core debt as the total principal amount of our debt, less DFS related debt and other debt. Our core debt was $14.9 billion and $18.1 billion as of February 2, 2024 and February 3, 2023, respectively. See Note 8 of the Notes to the Consolidated Financial Statements included in this report for additional information about our debt.DFS related debt primarily represents debt from our securitization and structured financing programs. Our risk of loss under these programs is limited to transferred lease and loan payments and associated equipment, as the credit holders have no recourse to Dell Technologies.To fund expansion of the DFS business, we balance the use of the securitization and structured financing programs with other sources of liquidity. We approximate the amount of our core debt used to fund the DFS business by applying a 7:1 debt-to-equity ratio to the sum of our financing receivables balance and equipment under operating leases, net. The debt-to-equity ratio is based on the underlying credit quality of the assets. See Note 6 of the Notes to the Consolidated Financial Statements included in this report for additional information about our DFS debt.We believe we will continue to be able to make our debt principal and interest payments, including payment of short-term maturities, from existing and expected sources of cash, primarily from operating cash flows. Cash used for debt principal and interest payments may include short-term borrowings under our commercial paper program, our revolving credit facility, or other borrowings. Under our variable-rate debt, we could experience variations in our future interest expense from potential fluctuations in applicable reference rates, or from possible fluctuations in the level of DFS debt required to meet future demand for customer financing.At our sole discretion, we may purchase, redeem, prepay, refinance, or otherwise retire any amount of our outstanding indebtedness under the terms of such indebtedness at any time and from time to time, in open market or negotiated transactions with the holders of such indebtedness or otherwise, as we consider appropriate in light of market conditions and other relevant factors.
61Table of ContentsCash Flows
The following table presents a summary of our Consolidated Statements of Cash Flows for the periods indicated:
Fiscal Year EndedFebruary 2, 2024 February 3, 2023 January 28, 2022(in millions)
Net change in cash from:Operating activities $ 8,676 $ 3,565 $ 10,307
Investing activities (2,783) (3,024) 1,306
Financing activities (7,094) (1,625) (16,609)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (186) (104) (106)
Change in cash, cash equivalents, and restricted cash $ (1,387) $ (1,188) $ (5,102)
Operating Activities — Cash provided by operating activities was $8.7 billion during Fiscal 2024, and was primarily driven by profitability coupled with strong inventory management and cash collections performance. 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. During Fiscal 2023, cash provided by operating activities was $3.6 billion, which primarily reflected profitability that was partially offset by the impact of working capital dynamics.
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 include capitalized software development costs, acquisitions and divestitures, and the maturities, sales, and purchases of investments. Cash used in investing activities was $2.8 billion and $3.0 billion during Fiscal 2024 and Fiscal 2023, 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 $7.1 billion during Fiscal 2024 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. During Fiscal 2023, cash used in financing activities was $1.6 billion and primarily consisted of 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. For DFS offerings that qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations and is largely subsequently offset by cash proceeds from financing. For 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 $8.4 billion, $9.7 billion, and $8.5 billion during Fiscal 2024, Fiscal 2023, and Fiscal 2022 respectively. As of February 2, 2024, the Company had $10.5 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. The SCF Program does not impact our liquidity, as payments by us to participating suppliers are remitted to the financial institution on the original invoice due date. Further, we negotiate payment terms with our suppliers regardless of their decision to participate in the SCF Program. Payments made under the SCF Program are included in cash flows from operating activities on the Consolidated Statements of Cash Flows. See Note 21 of the Notes to the Consolidated Financial Statements included in this report for more information regarding the SCF Program.
62Table of ContentsMaterial Capital Commitments and Cash Requirements
The Company’s material capital commitments include the following:Capital Expenditures — We spent $2.8 billion and $3.0 billion during Fiscal 2024 and Fiscal 2023, respectively, on property, plant, and equipment and capitalized software development costs. Of total expenditures incurred, funding of assets in a customer contract totaled $1.2 billion and $1.5 billion during Fiscal 2024 and Fiscal 2023, 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 Company’s 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, the Company had approximately $5.7 billion in cumulative authorized amount remaining under the stock repurchase program.
During Fiscal 2024, the Company repurchased approximately 34 million shares of Class C Common Stock for a total purchase price of approximately $2.1 billion. During Fiscal 2023, the Company repurchased approximately 62 million shares of Class C Common Stock for a total purchase price of approximately $2.8 billion.
Dividend Payments — During Fiscal 2024 and Fiscal 2023, the Company paid $1.1 billion and $1.0 billion, respectively, in dividends and dividend equivalents at a rate of $0.37 per share per fiscal quarter and $0.33 per share per fiscal quarter, respectively.
On February 29, 2024, subsequent to the close of Fiscal 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.Additionally, the Company’s material cash requirements include the following contractual obligations:Debt — Our expected principal cash payments on borrowings are exclusive of discounts and premiums. As of February 2, 2024, the Company had outstanding debt for an aggregate principal amount of $26.2 billion, with $7.0 billion payable within 12 months. Included within the aggregate principal amount was $16.7 billion of outstanding long-term notes with varying maturities, with $1.1 billion payable within 12 months, and $9.5 billion of DFS debt, with $5.9 billion payable within 12 months.
As of February 2, 2024, future interest payments associated with outstanding debt were $7.4 billion, with $1.2 billion payable within 12 months. Included within total future interest payments is $6.9 billion of payments related to outstanding long-term notes, with $0.9 billion payable within 12 months, and $0.5 billion of payments related to our DFS debt, with $0.3 billion payable within 12 months.Purchase Obligations — Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on us. These obligations specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include contracts that may be canceled without penalty.We utilize several suppliers to manufacture sub-assemblies for our products. Our efficient supply chain management allows us to enter into flexible and mutually beneficial purchase arrangements with our suppliers in order to minimize inventory risk. Consistent with industry practice, we acquire raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on our projected demand and manufacturing needs. These purchase orders are typically fulfilled within 30 days and are entered into during the ordinary course of business in order to establish best pricing and continuity of supply for our production. Purchase orders are not included in purchase obligations, as they typically represent our authorization to purchase rather than binding purchase obligations.
As of February 2, 2024, the Company had purchase obligations of $5.0 billion, with $4.4 billion payable within 12 months.
63Table of ContentsOperating Leases — We lease property and equipment, manufacturing facilities, and office space under non-cancelable leases. Certain of these leases obligate us to pay taxes, maintenance, and repair costs. As of February 2, 2024, the Company had operating lease obligations of $0.9 billion, with $0.3 billion payable within 12 months. See Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information about our leasing transactions in which we are the lessee.
Tax Obligations — Tax obligations represent a one-time mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. As of February 2, 2024, the balance of tax obligations was $108 million, with $48 million payable within 12 months. Excluded from the amounts above are $1.3 billion in additional liabilities associated with uncertain tax positions as of February 2, 2024. We are unable to reliably estimate the expected payment dates for any liabilities for uncertain tax positions. See Note 13 of the Notes to the Consolidated Financial Statements included in this report for more information regarding these tax matters.Market Conditions
We regularly monitor economic conditions and associated impacts on the financial markets and our business. We consistently evaluate the financial health of our supplier base, carefully manage customer credit, diversify counterparty risk, and monitor the concentration risk of our cash and cash equivalents balances globally. We routinely monitor our financial exposure to borrowers and counterparties.We monitor credit risk associated with our financial counterparties using various market credit risk indicators such as credit ratings issued by nationally recognized credit rating agencies and changes in market credit default swap levels. We perform periodic evaluations of our positions with these counterparties and may limit exposure to any one counterparty in accordance with our policies. We monitor and manage these activities depending on current and expected market developments.
We use derivative instruments to hedge certain foreign currency exposures. We use forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted transactions denominated in currencies other than the U.S. dollar. In addition, we primarily use forward contracts and may use purchased options to hedge monetary assets and liabilities denominated in a foreign currency. See Note 9 of the Notes to the Consolidated Financial Statements included in this report for additional information about our use of derivative instruments.We are exposed to interest rate risk related to our variable-rate debt portfolio. In the normal course of business we follow established policies and procedures to manage this risk, including monitoring of our asset and liability mix and the use of derivative instruments. As a result, we do not anticipate any material losses from interest rate risk.64Table of Contents
Summarized Guarantor Financial InformationDell International L.L.C. and EMC Corporation (the “Issuers”), both of which are wholly-owned subsidiaries of Dell Technologies Inc., completed private offerings of multiple series of senior secured notes issued on June 1, 2016, March 20, 2019, and April 9, 2020 (the “Senior Secured Notes”). The Senior Secured Notes became unsecured obligations following the release of the collateral securing such Senior Secured Notes during Fiscal 2022. On December 13, 2021, the Issuers completed a private offering of senior unsecured notes (together with the Senior Secured Notes, the “Unregistered Senior Notes”).
In June 2021 and September 2023, the Issuers completed exchange offers in which they issued $18.4 billion and $2.1 billion, respectively, in aggregate principal amount of registered senior notes under the Securities Act of 1933 (the “Exchange Notes”) in exchange for the same principal amount and substantially identical terms of the Senior Notes.
On January 24, 2023, the Issuers completed a public offering of unsecured senior notes (together with the Exchange Notes, the “Senior Notes”) in the aggregate principal amount of $2.0 billion. The unsecured senior notes were sold pursuant to a shelf registration statement.
Guarantees — The Senior Notes are guaranteed on a joint and several unsecured basis by Dell Technologies Inc. and its wholly-owned subsidiaries, Denali Intermediate, Inc. and Dell Inc. (collectively, the “Guarantors”).
Basis of Preparation of the Summarized Financial Information — The tables below are summarized financial information provided in conformity with Rule 13-01 of the SEC’s Regulation S-X. The summarized financial information of the Issuers and Guarantors (collectively, the “Obligor Group”) is presented on a combined basis, excluding intercompany balances and transactions between entities in the Obligor Group. The Obligor Group’s investment balances in Non-Obligor Subsidiaries have been excluded. The Obligor Group’s amounts due from, amounts due to, and transactions with Non-Obligor Subsidiaries have been presented separately. The Obligor Group’s transactions with VMware LLC (formerly “VMware, Inc.” and individually and together with its subsidiaries, “VMware”) and its consolidated subsidiaries (the “Related Party”) have been presented separately through November 21, 2023, the date immediately prior to Broadcom, Inc.’s acquisition of VMware, effective upon which the related party relationship terminated.The following table presents summarized results of operations information for the Obligor Group for the period indicated:
Fiscal Year EndedFebruary 2, 2024(in millions)Net revenue (a) $ 9,198
Gross margin (b) 4,029
Operating income 983
Interest and other, net (c) (3,739)
Loss before income taxes $ (2,756)
Net loss attributable to Obligor Group $ (2,055)____________________(a) Includes net revenue from products and services sold to Non-Obligor Subsidiaries of $850 million and $121 million, respectively.
(b) Includes cost of net revenue from the resale of solutions purchased from Non-Obligor Subsidiaries for the fiscal year and from the Related Party through November 21, 2023, of $948 million and $298 million, respectively. Includes cost of net revenue from shared services provided by Non-Obligor Subsidiaries of $570 million.
(c) Includes interest expense on intercompany loan payables of $2,172 million and other expenses from services provided by Non-Obligor Subsidiaries of $87 million.
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The following table presents summarized balance sheet information for the Obligor Group as of the dates indicated:February 2, 2024 February 3, 2023(in millions)
ASSETSCurrent assets $ 2,631 $ 2,972
Intercompany receivables 281 595
Due from related party, net — 312
Short-term intercompany loan receivables 92 227
Total current assets 3,004 4,106
Due from related party, net — 440
Goodwill and intangible assets 14,447 14,818
Other non-current assets 3,437 3,009
Total assets $ 20,888 $ 22,373LIABILITIESCurrent liabilities $ 5,255 $ 6,611
Due to related party — 110
Total current liabilities 5,255 6,721
Long-term debt 15,353 17,996
Intercompany loan payables 41,617 38,896
Other non-current liabilities 3,473 3,891
Total liabilities $ 65,698 $ 67,504
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Critical Accounting Estimates
We prepare our financial statements in conformity with GAAP, which requires certain estimates, assumptions, and judgments to be made that may affect our Consolidated Statements of Financial Position and Consolidated Statements of Income. Accounting policies that have a significant impact on our Consolidated Financial Statements are described in Note 2 of the Notes to the Consolidated Financial Statements included in this report. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical. We consider an accounting policy to be critical if the nature of the estimate or assumption is subject to a material level of judgment and if changes in those estimates or assumptions are reasonably likely to materially impact our Consolidated Financial Statements. We have discussed the development, selection, and disclosure of our critical accounting policies with the Audit Committee of our Board of Directors.
Revenue Recognition — We sell a wide portfolio of products and services offerings to our customers. Our agreements have varying terms and conditions depending on the goods and services being sold, the rights and obligations conveyed, and the legal jurisdiction of the arrangement. While most of our agreements have standard terms and conditions, more complex agreements may contain nonstandard terms and conditions. There are significant judgments in interpreting agreements to determine the appropriate accounting for nonstandard terms and conditions.
Our contracts with customers often include multiple performance obligations for various distinct goods and services such as hardware, software licenses, support and maintenance agreements, and other service offerings and solutions. We use significant judgment to assess whether these promises are distinct performance obligations that should be accounted for separately. In certain hardware solutions, the hardware is highly interdependent on, and interrelated with, the embedded software. In these offerings, the hardware and software licenses are accounted for as a single performance obligation.
The transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to the customer. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Estimates are updated each reporting period as the variability is resolved or if additional information becomes available. Generally, volume discounts, rebates, and sales returns reduce the transaction price. When we determine the transaction price, we only include amounts that are not subject to significant future reversal.
When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in proportion to the standalone selling price (“SSP”) of each performance obligation.
Judgment is required when determining the SSP of our performance obligations. If the observable price is available, we utilize that price for the SSP. If the observable price is not available, the SSP must be estimated. We estimate SSP by considering multiple factors, including, but not limited to, pricing practices, internal costs, and profit objectives as well as overall market conditions, which include geographic or regional specific factors, competitive positioning, and competitor actions. Our SSP estimates rely, in part, on company pricing trends. Market conditions could impact the selling price in the current period which may not be reflective of trends, and could lead to revenue timing, classification, and segment differences when compared to similar contracts in other periods. SSP for our performance obligations is periodically reassessed.
For transactions that involve a third party, the Company evaluates whether it is acting as the principal or the agent in the transaction. This determination requires significant judgment and impacts the amount and timing of revenue recognized. If the Company determines that it controls a good or service before it is transferred to the customer, the Company is acting as the principal and recognizes revenue at the gross amount of consideration it is entitled to from the customer. Indicators that the Company controls a good or service before transferring to a customer include, but are not limited to, the Company being the primary obligor to the customer, establishing its own pricing, and having inventory and credit risks.
Goodwill and Indefinite-Lived Intangible Assets Impairment Assessments — Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred.
To determine whether goodwill is impaired, we first assess certain qualitative factors. Qualitative factors that may be assessed include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events. Based on this assessment, if it is determined to be more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform a quantitative analysis of the goodwill impairment test. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.67Table of Contents
Significant judgment is exercised in the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each of our goodwill reporting units is generally estimated using a combination of public company multiples and discounted cash flow methodologies, which is then compared to the carrying value of each goodwill reporting unit. The discounted cash flow and public company multiples methodologies require significant judgment, including estimation of future revenues, gross margins, and operating expenses, which are dependent on internal forecasts, current and anticipated economic conditions and trends, selection of market multiples through assessment of the reporting unit’s performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount rate of our business, and the determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.
The fair value of the indefinite-lived intangible assets is generally estimated using discounted cash flow methodologies. The discounted cash flow methodologies require significant judgment, including estimation of future revenue, the estimation of the long-term revenue growth rate of our business, and the determination of the weighted average cost of capital and royalty rates. Changes in these estimates and assumptions could materially affect the fair value of the indefinite-lived intangible assets, potentially resulting in a non-cash impairment charge.For our annual impairment test during the third fiscal quarter of Fiscal 2024, during which the Company elected to quantitatively test the Infrastructure Solutions Group and Client Solutions Group reporting units, we determined that the fair value of each of these reporting units substantially exceeded its carrying amount. For more information about our goodwill and intangible assets, see Note 10 of the Notes to the Consolidated Financial Statements included in this report.Income Taxes — We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. We calculate a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. We account for the tax impact of including Global Intangible Low-Taxed Income (GILTI) in U.S. taxable income as a period cost. We provide related valuation allowances for deferred tax assets, where appropriate. Significant judgment is required in determining any valuation allowance against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. In the event we determine that all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.
Significant judgment is also required in evaluating our uncertain tax positions. Although we believe our tax return positions are sustainable, we recognize tax benefits from uncertain tax positions in the financial statements only when it is more likely than not that the positions will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s administrative practices and precedents. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. We believe we have provided adequate reserves for all uncertain tax positions.
Legal and Other Contingencies — The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Significant judgment is required in determining whether a loss should be accrued, and changes in these factors could materially impact our Consolidated Financial Statements.68Table of Contents
Inventories — We state our inventory at the lower of cost or net realizable value. We record a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. We perform a detailed review of inventory each fiscal quarter that considers multiple factors, including demand forecasts, product life cycle status, product development plans, current sales levels, product pricing, and component cost trends. The industries in which we compete are subject to demand changes. If future demand or market conditions for our products are less favorable than forecasted, or if unforeseen technological changes negatively impact the utility of component inventory, we may be required to record additional write-downs, which would adversely affect our gross margin.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements included in this report for a summary of recently issued accounting pronouncements that are applicable to our Consolidated Financial Statements.69Table of Contents
FY 2025-01-31 (later)
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis management’s discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses Fiscal 2025 and Fiscal 2024 items. This section also discusses Fiscal 2024 and Fiscal 2023 results, as the Company revised its Fiscal 2024 items to correct for a misstatement in its financial statements discovered during the fourth quarter of Fiscal 2025. The revisions ensure comparability across all periods reflected herein. For additional information, see Note 1 and Note 22 of the Notes to the Consolidated Financial Statements included in this report.In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs, and that are subject to numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied in any forward-looking statements.
Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with generally accepted accounting principles in the United States of America (“GAAP”). Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC Corporation’s consolidated subsidiaries.
Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023 as “Fiscal 2025,” “Fiscal 2024,” and “Fiscal 2023,” respectively. Both Fiscal 2025 and Fiscal 2024 included 52 weeks, while Fiscal 2023 included 53 weeks.INTRODUCTION
Company OverviewDell Technologies is a leader in the global technology industry focused on providing broad and innovative technology solutions for the data and artificial intelligence (“AI”) era. We build and offer solutions ranging from client devices and peripherals to infrastructure solutions across servers, networking, and storage to meet the evolving needs of our customers and drive better business outcomes. With our extensive portfolio and our commitment to innovation, we offer secure, integrated solutions that extend from the edge to the core to the cloud, and we are at the forefront of AI, software-defined, and cloud native infrastructure solutions. Our vision is to become the most essential technology partner. We intend to realize our vision by executing our strategy of leveraging our strengths to extend our leadership positions and capture new growth.We are organized into two business units which are also our reportable segments: Infrastructure Solutions Group and Client Solutions Group.• Infrastructure Solutions Group (“ISG”) — ISG includes our servers and networking offerings and our storage offerings. Our server portfolio includes high-performance general-purpose and AI-optimized servers. Our networking portfolio includes wide area network infrastructure, data center and edge networking switches, and cables and optics. Our comprehensive storage portfolio includes modern and traditional storage solutions, including all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined storage. ISG also offers software, peripherals, and services, including consulting and support and deployment.
• Client Solutions Group (“CSG”) — CSG includes offerings designed for commercial and consumer customers. Our CSG portfolio includes branded PCs, including notebooks, desktops, and workstations, branded peripherals, and third-party software and peripherals. CSG also includes services offerings, such as configuration, support and deployment, and extended warranties.
39Table of ContentsOur other businesses primarily consist of our resale of standalone offerings of VMware LLC (formerly VMware, Inc. and individually and together with its subsidiaries, “VMware”), referred to as “VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”). These businesses are divested businesses or their offerings are no longer actively sold, and are not classified as reportable segments, either individually or collectively. Their operating results are reported within Corporate and other. On October 21, 2024, Secureworks announced that it had entered into a definitive agreement providing for its sale to Sophos Inc., an affiliate of Thoma Bravo, L.P., a private equity and growth capital firm. The transaction was completed on February 3, 2025, subsequent to the close of the Company’s fiscal year ended January 31, 2025, in an all-cash transaction for a purchase price of approximately $0.9 billion.
For further discussion regarding our current reportable segments, see “Results of Operations — Business Unit Results” and Note 18 of the Notes to the Consolidated Financial Statements included in this report.
We offer customers choice in how they acquire our solutions, including traditional purchasing and offerings under the Dell Payment Solutions portfolio. These offerings provide both payment and consumption solutions, including as-a-Service, subscription, utility, leases, and loans, which allow our customers to pay over time and provide them with operational and financial flexibility. Dell Financial Services and its affiliates (“DFS”) support financing solutions and services as part of the portfolio. For additional information about our financing arrangements, see Note 5 of the Notes to the Consolidated Financial Statements included in this report.Business Trends and ChallengesFiscal 2025 Significant Developments — During Fiscal 2025, we executed our strategy with strong operating results, generating net revenue and operating income growth. The following trends and conditions affected the environment in which we operated:
• Macroeconomic environment: The demand environment was strong for our servers and networking offerings, which contributed to overall net revenue growth. Additionally, we saw modest demand improvement in our commercial offerings within CSG. Given the demand dynamics for the year, we experienced a shift in the mix of the business towards our ISG 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 fiscal year.
• Supply chain: Notwithstanding the increased demand for AI-optimized solutions, our supply chain continued to operate efficiently. We experienced a modest increase in input costs, primarily driven by both component and logistics costs.
• Broadcom’s acquisition of VMware: On November 22, 2023, Broadcom Inc. (“Broadcom”) completed its acquisition of VMware, leading to changes to our relationship with VMware as described below.
We expect demand growth across our servers and networking offerings and, to a lesser extent, our storage offerings, which we expect will result in ISG net revenue growth in Fiscal 2026. We expect modest CSG net revenue growth for the full fiscal year, driven in part by the anticipated PC refresh cycle in the latter part of Fiscal 2026. Additionally, we expect a continued reduction of our Corporate and other net revenue as we no longer act as a distributor of VMware’s standalone products and services.
We expect a modest decline in input costs during the first half of Fiscal 2026. 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.
We remain focused on executing our key strategic priorities, building long-term value creation for our stakeholders, and addressing our customers’ needs while continuing to make prudent decisions in response to the environment. We expect margin rate pressure resulting from a continuing shift in mix towards our AI-optimized servers and a competitive environment. We look to balance profitability and growth while maintaining disciplined pricing as we navigate through competitive pricing pressures.
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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. We remain committed to disciplined cost management in coordination with our ongoing business modernization initiatives and expect continued reductions in operating expenses as we 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 additional reductions in our overall headcount. We believe our unique operating advantages provide a foundation to foster growth, drive efficiencies, and continue to position us for long-term success.
Relationship with VMware — On November 22, 2023, VMware was acquired by Broadcom, and subsequently announced changes to its go-to-market approach for VMware offerings that impacted our commercial relationship with VMware. On March 25, 2024, 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 Broadcom’s VMware standalone products and services, although 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 selected 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.
VMware was a related party until the date of its acquisition by Broadcom. The acquisition terminated the preexisting related party relationship with VMware such that no related party relationship exists with either Broadcom or VMware effective as of November 22, 2023. For more information regarding the impact of the Broadcom acquisition of VMware and our prior related party transactions with VMware, see Note 19 of the Notes to the Consolidated Financial Statements included in this report.
ISG — We expect ISG will continue to be impacted by the evolving nature of the IT infrastructure market and competitive environment. With our scale and market-leading solutions portfolio, we believe we are well-positioned to address the ongoing competitive dynamics and trends in technology and customer needs. Through our collaborative, customer-focused approach to innovation, we strive to deliver new and relevant solutions and software to our customers quickly and efficiently. We continue to focus on customer base expansion and the lifetime value of customer relationships.
We anticipate ISG will continue to benefit from technology advancements and interest in AI as customers continue to adopt and integrate AI into their operations. The timing of customer purchases reflects the varying stages of adoption of AI by different customer segments and drives variability in our revenue. To meet the growing demand and increasing complexity of our AI-optimized offerings, we have increased our purchases of certain components with suppliers, which has resulted in increased inventory levels, higher purchase obligations, and new working capital dynamics. Additionally, frequent component part updates or transitions create additional challenges in managing demand and supply levels. While we have seen lead times shorten, we anticipate the next-generation of these components will be subject to supply constraints as demand for these components remains high.
We expect that growth in data will continue to generate long-term demand for our storage solutions and services. Cloud native applications are expected to continue to be a key trend in the infrastructure market. We continue to expand our offerings in external storage arrays, which incorporate flexible, cloud-based functionality. We benefit from offering solutions that address software-defined storage, hyper-converged infrastructure, and modular solutions based on server-centric architectures. 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 with a focus on commercial and high-end consumer computing devices, which we believe 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.
Competitive dynamics remain an important factor in our CSG business and continue to impact pricing and operating results. We are committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio. We expect that the CSG demand environment will be subject to seasonal trends and influenced by the timing and scale 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. We define recurring revenue as revenue recognized that is primarily related to hardware and software maintenance, as well as operating leases, subscription, as-a-Service, and usage-based offerings.41
Table of ContentsStrategic Investments and Acquisitions — As part of our strategy, we will continue to evaluate opportunities for strategic investments through our venture capital investment arm, Dell Technologies Capital, with a focus on emerging technology areas that are relevant to our business and that will complement our existing portfolio of solutions. The technologies or products these companies have under development are typically in the early stages and may never have commercial value, which could result in a loss of a substantial part of our investment in the companies. In addition to these investments, we may also make targeted acquisitions of businesses that advance our strategic objectives and accelerate our innovation agenda.
Foreign Currency Exposure — We manage our business on a U.S. Dollar basis. However, we have a large global presence, generating approximately half of our net revenue from sales to customers outside of the United States during 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. We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.
Other Macroeconomic Risks and Uncertainties — The impacts of trade protection measures, including increases in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility, and global macroeconomic conditions (including those in China) may affect our ability to conduct business in some non-U.S. markets. We monitor and seek to mitigate these risks with adjustments to our manufacturing, supply chain, and distribution networks.42
Table of ContentsNON-GAAP FINANCIAL MEASURESIn this management’s discussion and analysis, we use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include non-GAAP product gross margin; non-GAAP services gross margin; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating income; non-GAAP net income; non-GAAP earnings per share attributable to Dell Technologies Inc. - diluted; free cash flow; and adjusted free cash flow. These non-GAAP financial measures are not meant to be considered as indicators of performance or liquidity in isolation from or as a substitute for gross margin, operating expenses, operating income, net income, diluted earnings per share, or cash flows from operating activities prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis.We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. Management uses these non-GAAP measures in financial planning and forecasting and when evaluating our financial results and operating trends and performance. We believe, when used supplementally with GAAP financial measures, these non-GAAP financial measures provide our investors with useful and transparent information to help them evaluate our results by facilitating an enhanced understanding of our results of operations and enabling them to make period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented in this report. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.Non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP earnings per share attributable to Dell Technologies Inc. - diluted, as defined by us, exclude amortization of intangible assets, stock-based compensation expense, other corporate expenses and, for non-GAAP net income and non-GAAP earnings per share attributable to Dell Technologies Inc. - diluted, fair value adjustments on equity investments and an aggregate adjustment for income taxes. As the excluded items may have a material impact on our financial results, our management compensates for this limitation by relying primarily on our GAAP results and using non-GAAP financial measures supplementally or for projections when comparable GAAP financial measures are not available.Reconciliations of each non-GAAP financial measure to its most directly comparable GAAP financial measure are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. The discussion below includes information on each of the excluded items as well as our reasons for excluding them from our non-GAAP results. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent, or unusual.
The following is a summary of the items excluded from the most comparable GAAP financial measures to calculate our non-GAAP financial measures.• Amortization of Intangible Assets — Amortization of intangible assets primarily consists of the amortization of customer relationships, developed technology, and trade names. In connection with our acquisition by merger of EMC, referred to as the “EMC merger transaction,” and the acquisition of Dell by Dell Technologies Inc., referred to as the “going-private transaction,” all of the tangible and intangible assets and liabilities of EMC and Dell, respectively, were accounted for and recognized at fair value on the transaction dates. We exclude amortization charges for the amortization of intangible assets as they do not reflect our current operating performance and charges are significantly impacted by the timing and magnitude of our acquisitions and, as a result, may vary in amount from period to period.
• Stock-based Compensation Expense — Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of performance-based awards containing a market condition, we use the Monte Carlo valuation model. For other share-based awards, the fair value is generally based on the closing price of the Class C Common Stock as reported on the New York Stock Exchange on the date of grant. 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.
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• Other Corporate Expenses — Other corporate expenses consist primarily of severance expenses, payroll taxes associated with stock-based compensation, incentive charges related to equity investments, facility action costs, transaction-related expenses, and impairment charges. Severance costs are primarily related to severance and benefits for employees terminated pursuant to cost management initiatives. During Fiscal 2025, Fiscal 2024, and Fiscal 2023, we recognized $0.7 billion, $0.6 billion, and $0.5 billion, respectively, of severance expense related to workforce reduction activities. During Fiscal 2023, other corporate expenses also included $0.9 billion of net expense recognized within interest and other, net, in connection with an agreement to settle the Class V transaction litigation. See Note 11 of the Notes to the Consolidated Financial Statements included in this report for information about this matter. 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. Although we may incur these types of expenses in the future, we exclude other corporate expenses as they can vary from period to period, are significantly impacted by the timing and nature of these events, and are not used by management in assessing operating performance of the business.
• Fair Value Adjustments on Equity Investments — Fair value adjustments on equity investments primarily consist of the gain (loss) on strategic investments, which includes recurring fair value adjustments of investments in publicly-traded companies, as well as those in privately-held companies, which are adjusted for observable price changes and any potential impairments. See Note 4 of the Notes to the Consolidated Financial Statements included in this report for additional information on our strategic investment activity. We exclude fair value adjustments on equity investments given the volatility in ongoing adjustments to the valuation of these strategic investments and because such adjustments are unrelated to the operating performance of our business.
• 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 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 U.S. 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. The tax effects are determined based on the tax jurisdictions where the above items were incurred. See Note 12 of the Notes to the Consolidated Financial Statements included in this report for additional information about our income taxes. Beginning in Fiscal 2025, our non-GAAP income tax was calculated using a fixed estimated annual tax rate that is determined based on historical trends and projections for the current fiscal year. We may adjust our estimated annual tax rate during the fiscal year to take into account events that would significantly impact our income tax expense, including significant changes resulting from tax legislation, material changes in geographic mix of revenue and expenses, changes to our corporate structure, and other significant events.44
Table of ContentsThe following table presents a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP measure for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 % Change February 2, 2024 % Change February 3, 2023(in millions, except percentages)Product gross margin $ 11,258 — % $ 11,237 (15) % $ 13,221Non-GAAP adjustments:Amortization of intangibles 238 331 416
Stock-based compensation expense 56 51 52
Other corporate expenses 22 23 32
Non-GAAP product gross margin $ 11,574 (1) % $ 11,642 (15) % $ 13,721
Services gross margin $ 9,992 2 % $ 9,832 4 % $ 9,465Non-GAAP adjustments:Stock-based compensation expense 96 98 100
Other corporate expenses 148 72 141
Non-GAAP services gross margin $ 10,236 2 % $ 10,002 3 % $ 9,706
Gross margin $ 21,250 1 % $ 21,069 (7) % $ 22,686Non-GAAP adjustments:Amortization of intangibles 238 331 416
Stock-based compensation expense 152 149 152
Other corporate expenses 170 95 173
Non-GAAP gross margin $ 21,810 1 % $ 21,644 (8) % $ 23,427
Operating expenses $ 15,013 (4) % $ 15,658 (7) % $ 16,915Non-GAAP adjustments:Amortization of intangibles (429) (502) (598)
Stock-based compensation expense (633) (729) (779)
Other corporate expenses (670) (661) (748)
Non-GAAP operating expenses $ 13,281 (4) % $ 13,766 (7) % $ 14,790
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Fiscal Year EndedJanuary 31, 2025 % Change February 2, 2024 % Change February 3, 2023
(in millions, except percentages and per share amounts)
Operating income $ 6,237 15 % $ 5,411 (6) % $ 5,771Non-GAAP adjustments:Amortization of intangibles 667 833 1,014
Stock-based compensation expense 785 878 931
Other corporate expenses 840 756 921
Non-GAAP operating income $ 8,529 8 % $ 7,878 (9) % $ 8,637
Net income $ 4,576 36 % $ 3,372 39 % $ 2,422Non-GAAP adjustments:Amortization of intangibles 667 833 1,014
Stock-based compensation expense 785 878 931
Other corporate expenses 830 793 1,796
Fair value adjustments on equity investments (177) (47) 206
Aggregate adjustment for income taxes (816) (407) (642)
Non-GAAP net income $ 5,865 8 % $ 5,422 (5) % $ 5,727
Earnings per share attributable to Dell Technologies Inc. — diluted $ 6.38 39 % $ 4.60 42 % $ 3.24Non-GAAP adjustments:Amortization of intangibles 0.93 1.13 1.35
Stock-based compensation expense 1.09 1.19 1.24
Other corporate expenses 1.16 1.08 2.39
Fair value adjustments on equity investments (0.25) (0.06) 0.27
Aggregate adjustment for income taxes (1.15) (0.55) (0.86)
Total non-GAAP adjustments attributable to non-controlling interests (0.02) (0.02) (0.02)
Non-GAAP earnings per share attributable to Dell Technologies Inc. — diluted $ 8.14 10 % $ 7.37 (3) % $ 7.61
46Table of ContentsIn 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 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.
Free cash flow and adjusted free cash flow provide useful information to management and investors in part because we use these metrics in our long-term capital allocation framework. 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 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 flow from operations for the periods indicated:Fiscal Year EndedJanuary 31, 2025 % Change February 2, 2024 % Change February 3, 2023(in millions, except percentages)Cash flow from operations $ 4,521 (48) % $ 8,676 143 % $ 3,565Non-GAAP adjustments:Capital expenditures and capitalized software development costs, net (a) (2,563) (2,753) (2,993)
Free cash flow $ 1,958 (67) % $ 5,923 935 % $ 572
Free cash flow $ 1,958 (67) % $ 5,923 935 % $ 572Non-GAAP adjustments:Financing receivables (b) 951 (309) 461
Equipment under operating leases (c) 188 (7) 500
Adjusted free cash flow $ 3,097 (45) % $ 5,607 266 % $ 1,533____________________(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 financing receivables.
(c) Equipment under operating leases represents the net impact of capital expenditures and depreciation expense for leases and contractually embedded leases identified within flexible consumption arrangements.
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RESULTS OF OPERATIONS
Consolidated Results
The following table summarizes our consolidated results for the periods indicated. Unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages and per share amounts)
Net revenue:Products $ 71,420 74.7 % 11 % $ 64,353 72.8 % (19) % $ 79,250 77.5 %
Services 24,147 25.3 % — % 24,072 27.2 % 4 % 23,051 22.5 %
Total net revenue $ 95,567 100.0 % 8 % $ 88,425 100.0 % (14) % $ 102,301 100.0 %Gross margin:Products $ 11,258 15.8 % — % $ 11,237 17.5 % (15) % $ 13,221 16.7 %
Services 9,992 41.4 % 2 % 9,832 40.8 % 4 % 9,465 41.1 %
Total gross margin $ 21,250 22.2 % 1 % $ 21,069 23.8 % (7) % $ 22,686 22.2 %
Operating expenses $ 15,013 15.7 % (4) % $ 15,658 17.7 % (7) % $ 16,915 16.6 %
Operating income $ 6,237 6.5 % 15 % $ 5,411 6.1 % (6) % $ 5,771 5.6 %
Net income $ 4,576 4.8 % 36 % $ 3,372 3.8 % 39 % $ 2,422 2.4 %
Earnings per share attributable to Dell Technologies — diluted $ 6.38 39 % $ 4.60 42 % $ 3.24
Cash flow from operations $ 4,521 (48) % $ 8,676 143 % $ 3,565Non-GAAP Financial Information
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023
Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue(in millions, except percentages and per share amounts)Non-GAAP gross margin:Products $ 11,574 16.2 % (1) % $ 11,642 18.1 % (15) % $ 13,721 17.3 %
Services 10,236 42.4 % 2 % 10,002 41.6 % 3 % 9,706 42.1 %
Total non-GAAP gross margin $ 21,810 22.8 % 1 % $ 21,644 24.5 % (8) % $ 23,427 22.9 %
Non-GAAP operating expenses $ 13,281 13.9 % (4) % $ 13,766 15.6 % (7) % $ 14,790 14.5 %
Non-GAAP operating income $ 8,529 8.9 % 8 % $ 7,878 8.9 % (9) % $ 8,637 8.4 %
Non-GAAP net income $ 5,865 6.1 % 8 % $ 5,422 6.1 % (5) % $ 5,727 5.6 %
Non-GAAP earnings per share attributable to Dell Technologies — diluted $ 8.14 10 % $ 7.37 (3) % $ 7.61
Free cash flow $ 1,958 (67) % $ 5,923 935 % $ 572
Adjusted free cash flow $ 3,097 (45) % $ 5,607 266 % $ 1,533
Non-GAAP product gross margin, non-GAAP services gross margin, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, non-GAAP earnings per share attributable to Dell Technologies - diluted, free cash flow, and adjusted free cash flow are not measurements of financial performance prepared in accordance with GAAP. 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.
48Table of ContentsOverviewDuring Fiscal 2025, net revenue increased by 8%, driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other 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. Corporate and other 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 attributable to a decrease in sales of our consumer offerings.
During Fiscal 2025, operating income and non-GAAP operating income increased by 15% to $6.2 billion and 8% to $8.5 billion, respectively. During Fiscal 2025, the increases in operating income and non-GAAP operating income were primarily attributable to an increase in ISG operating income that was driven by our servers and networking offerings and, to a lesser extent, our storage offerings, which was partially offset by a decrease in CSG operating income.
During Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue increased 40 basis points to 6.5% and remained flat at 8.9%, respectively. The operating income and non-GAAP operating income rates during the current year were affected 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. The favorable impact of a decrease in operating expense rate was offset 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.
Cash provided by operating activities was $4.5 billion during Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics. Working capital was primarily impacted by AI, which led to higher inventory, accounts receivable, and accounts payable levels. During Fiscal 2024, cash provided by operating activities was $8.7 billion, which was primarily driven by profitability coupled with strong inventory management and cash collections performance. Cash provided by operating activities during Fiscal 2024 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.
We continue to see opportunities to create value and grow as we respond to long-term demand for our IT solutions driven by a data- and AI-enabled world. We have demonstrated our ability to adjust to changing market conditions with complementary solutions and innovation across both segments of our business, an agile workforce, and the strength of our global supply chain. As we continue to innovate and modernize our offerings, we believe that Dell Technologies is well-positioned for long-term profitable growth.Net RevenueFiscal 2025 compared to Fiscal 2024
During Fiscal 2025, net revenue increased 8%, primarily driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other 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 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 Corporate and other 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 Fiscal 2025, services net revenue was flat as the growth within CSG services net revenue and, to a lesser extent, ISG services net revenue was offset by a decline in Corporate and other services net revenue. The increase in CSG services net revenue was primarily due to CSG third-party software support and maintenance as well as support and maintenance associated with products sold in prior periods. The increase in ISG services net revenue was primarily due to support and maintenance associated with products sold in prior periods. Corporate and other services net revenue declined as we no longer act as a distributor of standalone VMware offerings.
49Table of ContentsA 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 during Fiscal 2025 in the Americas and, to a lesser extent, APJ and remained flat in EMEA.
Fiscal 2024 compared to Fiscal 2023
During Fiscal 2024, net revenue decreased 14%, primarily driven by declines in CSG net revenue and, to a lesser extent, ISG net revenue. See “Business Unit Results” for further information.
• Product Net Revenue — During Fiscal 2024, product net revenue decreased 19% due to declines in CSG product net revenue and, to a lesser extent, ISG product net revenue. CSG product net revenue decreased primarily as a result of a decline in units sold, which impacted both our commercial and consumer offerings. The decline in ISG product net revenue was primarily attributable to a decrease in product net revenue attributable to our servers and networking offerings that was driven by a decrease in units sold and, to a lesser extent, a decline in our product net revenue attributable to storage offerings.
• Services Net Revenue — During Fiscal 2024, services net revenue increased 4%, driven primarily by growth within services net revenue attributable to CSG and Corporate and other. The increase in services net revenue attributable to CSG was driven primarily by third-party software support and maintenance and hardware support and maintenance. The increase in services net revenue attributable to Corporate and other was driven primarily by VMware software maintenance arrangements. See “Introduction” for additional information about the impact of Broadcom’s acquisition of VMware on our relationship with VMware.From a geographical perspective, net revenue decreased in the Americas, EMEA, and APJ during Fiscal 2024, most notably within APJ.
Gross MarginFiscal 2025 compared to Fiscal 2024
During Fiscal 2025, both gross margin and non-GAAP gross margin increased 1%, to $21.3 billion and $21.8 billion, respectively, driven by an increase in ISG gross margin that was largely offset by a decrease in CSG gross margin. The increase in ISG gross margin was primarily attributable to growth in our AI-optimized server offerings and, to a lesser extent, our storage offerings. The decrease in CSG gross margin was primarily attributable to a competitive pricing environment.
During Fiscal 2025, gross margin and non-GAAP gross margin percentage decreased 160 basis points to 22.2% and 170 basis points to 22.8%, respectively. The decreases in gross margin percentage and non-GAAP gross margin percentage were primarily driven by a shift in mix towards AI-optimized server offerings and a competitive CSG pricing environment.
• Product Gross Margin — During Fiscal 2025, product gross margin and non-GAAP product gross margin remained flat at $11.3 billion and decreased 1% to $11.6 billion, respectively, as the decrease in CSG product gross margin was largely offset by an increase in ISG product gross margin. The decline in CSG product gross margin was primarily attributable to a competitive pricing environment. The increase in ISG product gross margin was primarily due to growth in our AI-optimized server offerings and, to a lesser extent, our storage offerings.
During Fiscal 2025, product gross margin percentage and non-GAAP product gross margin percentage decreased 170 basis points to 15.8% and 190 basis points to 16.2%, respectively. The declines were primarily attributable to a shift in mix towards our AI-optimized server offerings and a competitive CSG pricing environment.
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• Services Gross Margin — During Fiscal 2025, both services gross margin and non-GAAP services gross margin increased 2%, to $10.0 billion and $10.2 billion, respectively. 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 in CSG third-party software support and maintenance.
During Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage increased 60 basis points to 41.4% and 80 basis points to 42.4%, 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.
Fiscal 2024 compared to Fiscal 2023
During Fiscal 2024, gross margin and non-GAAP gross margin decreased 7% to $21.1 billion and 8% to $21.6 billion, respectively. The declines were driven by decreases in both ISG and CSG gross margin that were primarily attributable to a decrease in net revenue, the effect of which was partially offset by lower input costs.
Both gross margin and non-GAAP gross margin percentage increased 160 basis points, to 23.8% and 24.5%, respectively, during Fiscal 2024. The increases were primarily attributable to the impacts of an overall decline in input costs coupled with an increase in average selling prices across many of our offerings as we continued to exercise disciplined pricing in an increasingly competitive environment.
• Product Gross Margin — During Fiscal 2024, product gross margin and non-GAAP product gross margin both decreased 15%, to $11.2 billion and $11.6 billion, respectively. The decreases were primarily driven by declines in both ISG and CSG product gross margin, which were largely attributable to declines in product net revenue, partially offset by lower input costs.
During Fiscal 2024, product gross margin percentage and non-GAAP product gross margin percentage both increased 80 basis points, to 17.5% and 18.1%, respectively, primarily due to an increase in CSG product gross margin percentage. CSG product gross margin percentage increased primarily as a result of the impacts of an overall decline in input costs coupled with an increase in average selling prices across many of our product offerings.
• Services Gross Margin — During Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $9.8 billion and 3% to $10.0 billion, respectively. The increases were primarily attributable to growth within ISG services gross margin and, to a lesser extent, CSG services gross margin that were driven by support and maintenance associated with products sold in prior periods.During Fiscal 2024, services gross margin percentage decreased 30 basis points to 40.8% and non-GAAP services gross margin percentage decreased 50 basis points to 41.6%. The decreases were driven primarily by a shift in mix of services delivered.
Vendor Programs
Our gross margin is affected by our ability to achieve competitive pricing with our vendors and contract manufacturers, including through our negotiation of a variety of vendor rebate programs to achieve lower net costs for the various components we include in our products. Under these programs, vendors provide us with rebates or other discounts from the list prices for the components, which are generally elements of their pricing strategy. We account for vendor rebates and other discounts as a reduction in cost of net revenue. We manage our costs on a total net cost basis, which includes supplier list prices reduced by vendor rebates and other discounts.The terms and conditions of our vendor rebate programs are largely based on product volumes and are generally negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing and amount of vendor rebates and other discounts we receive under the programs may vary from period to period, reflecting changes in the competitive environment. We monitor our component costs and seek to address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross margins for Fiscal 2025 and Fiscal 2024 were not materially affected by any changes to the terms of our vendor rebate programs, as the amounts we received under these programs were generally stable relative to our total net cost. We are not aware of any significant changes to our vendor rebate programs that will materially impact our results in the near term.
51Table of ContentsOperating Expenses
The following table presents information regarding our operating expenses for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages)
Operating expenses:Selling, general, and administrative $ 11,952 12.5 % (7) % $ 12,857 14.5 % (9) % $ 14,136 13.9 %
Research and development 3,061 3.2 % 9 % 2,801 3.2 % 1 % 2,779 2.7 %
Total operating expenses $ 15,013 15.7 % (4) % $ 15,658 17.7 % (7) % $ 16,915 16.6 %Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023Dollars % of Net Revenue % Change Dollars % of Net Revenue % Change Dollars % of Net Revenue
(in millions, except percentages)Non-GAAP operating expenses $ 13,281 13.9 % (4) % $ 13,766 15.6 % (7) % $ 14,790 14.5 %
Fiscal 2025 compared to Fiscal 2024
During Fiscal 2025, total operating expenses decreased 4%, due to a decline in selling, general, and administrative (“SG&A”) expenses.
• Selling, General, and Administrative — During Fiscal 2025, SG&A expenses decreased 7%, 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 9% during 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 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 Fiscal 2025, non-GAAP operating expenses decreased 4%, driven by a decline in employee compensation and benefits expense, primarily resulting from a decline in overall headcount. The decline in employee compensation and benefits expense was partially offset by continued support of R&D initiatives.
We continue to make strategic investments designed to enable growth and innovation, while balancing our efforts to drive cost efficiencies in the business. We also expect to continue making investments in support of our own digital transformation, which aims to streamline and optimize our business processes.
Fiscal 2024 compared to Fiscal 2023
During Fiscal 2024, total operating expenses decreased 7% due to a decline in SG&A expenses.
• Selling, General, and Administrative — During Fiscal 2024, SG&A expenses decreased 9%, driven by a decrease in employee compensation and benefits expense, principally due to a decline in overall headcount and, to a lesser extent, a decrease in advertising and outside services expense as a result of continued disciplined cost management.
• Research and Development — R&D expenses increased 1% during Fiscal 2024 principally due to an increase in R&D-related employee compensation and benefits expense, partially offset by a decrease in outside services as a result of continued disciplined cost management.
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Table of ContentsAs a percentage of net revenue, R&D expenses for Fiscal 2024 and Fiscal 2023 were 3.2% and 2.7%, respectively. The increases in R&D expenses as a percentage of net revenue were attributable to continued R&D investments as we support R&D initiatives to innovate and introduce new and enhanced solutions into the market.During Fiscal 2024, non-GAAP operating expenses decreased 7% principally due to continued disciplined cost management, which resulted in a decline in employee compensation and benefits, outside services, and advertising expenses, among other items.
Operating Income
Fiscal 2025 compared to Fiscal 2024
During Fiscal 2025, operating income and non-GAAP operating income increased by 15% to $6.2 billion and 8% to $8.5 billion, respectively. During Fiscal 2025, the increases in operating income and non-GAAP operating income were primarily attributable to an increase in ISG operating income that was driven by our servers and networking offerings and, to a lesser extent, our storage offerings, which was partially offset by a decrease in CSG operating income.
During Fiscal 2025, operating income and non-GAAP operating income as a percentage of net revenue increased 40 basis points to 6.5% and remained flat at 8.9%, respectively. The operating income and non-GAAP operating income rates during the current year were affected 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. The favorable impact of a decrease in operating expense rate was offset 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.
Fiscal 2024 compared to Fiscal 2023
Operating income and non-GAAP operating income decreased by 6% to $5.4 billion and 9% to $7.9 billion, respectively, during Fiscal 2024. The decreases were driven by a decrease in ISG operating income, which declined primarily as a result of a decrease in net revenue that outpaced the favorable impacts of a decline in input costs and cost management measures. The decline in ISG operating income was primarily attributable to decreases in our servers and networking offerings and, to a lesser extent, our storage offerings. The decline in operating income was partially offset by decreases in other corporate expenses and amortization of intangibles.
During Fiscal 2024, both operating income and non-GAAP operating income as a percentage of net revenue increased 50 basis points, to 6.1% and 8.9%, respectively. The increases were due to an increase in gross margin as a percentage of net revenue, which was principally driven by a decline in input costs. The increase in operating income and non-GAAP operating income as a percentage of net revenue was offset by an increase in operating expense rate, principally within ISG, that was attributable to a decrease in net revenue which outpaced the impact of continued cost management measures.53
Table of ContentsInterest and Other, Net
The following table presents information regarding interest and other, net for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023(in millions)
Interest and other, net:Investment income, primarily interest $ 160 $ 305 $ 100
Gain (loss) on investments, net 177 47 (206)
Interest expense (1,394) (1,501) (1,222)
Foreign exchange (112) (199) (265)
Legal settlement, net — — (894)
Other (20) 24 (59)
Total interest and other, net $ (1,189) $ (1,324) $ (2,546)
Fiscal 2025 compared to Fiscal 2024
During Fiscal 2025, the change in interest and other, net was favorable primarily due to gains recognized within our strategic investments portfolio and a reduction in interest expense, partially offset by a decline in interest income on investments.
Fiscal 2024 compared to Fiscal 2023
The change in interest and other, net was favorable primarily as a result of $0.9 billion of expense recognized in Fiscal 2023 in connection with an agreement to settle the Class V transaction litigation, coupled with a gain on investments and an increase in investment income during Fiscal 2024. Favorable impacts within interest and other, net were partially offset by an increase in interest expense primarily associated with DFS securitization and structured financing programs. See Note 11 to the Notes to the Consolidated Financial Statements for additional information about the settlement of the Class V transaction litigation.Income and Other Taxes
The following table presents information regarding our income and other taxes for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023(in millions, except percentages)Income before income taxes $ 5,048 $ 4,087 $ 3,225
Income tax expense $ 472 $ 715 $ 803
Effective income tax rate 9.4 % 17.5 % 24.9 %
Fiscal 2025 compared to Fiscal 2024
For Fiscal 2025 and Fiscal 2024, our effective income tax rates were 9.4% and 17.5%, respectively. The change in our effective tax rates for Fiscal 2025 as compared to Fiscal 2024 was primarily attributable to discrete tax items. For Fiscal 2025, we recorded discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain U.S. statutes of limitations and $0.2 billion related to stock-based compensation.54
Table of ContentsOur effective income tax rate can fluctuate depending on the geographic distribution of our worldwide earnings, as our foreign earnings are generally taxed at lower rates than in the United States. The differences between our effective income tax rates and the U.S. federal statutory rate of 21% principally result from the geographical distribution of income, differences between the book and tax treatment of certain items, and discrete tax items. In certain jurisdictions, our tax rate is significantly less than the applicable statutory rate as a result of tax holidays. The majority of our foreign income subject to these tax holidays is attributable to Singapore and China. A significant portion of these income tax benefits relates to a tax holiday that will be effective until January 31, 2029. Most of our other tax holidays will expire in whole or in part during Fiscal 2030 and Fiscal 2031. 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 January 31, 2025, we were not aware of any matters of non-compliance. Our income tax benefits attributable to tax holidays and incentives of the affected subsidiaries were immaterial to our provision for income taxes and earnings per share for Fiscal 2025 and Fiscal 2024.
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 may increase in future years as a result of the global minimum tax, the tax did not have a material impact on our Fiscal 2025 consolidated results of operations and we do not expect a material impact for Fiscal 2026. 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 12 of the Notes to the Consolidated Financial Statements included in this report.
Fiscal 2024 compared to Fiscal 2023
For Fiscal 2024 and Fiscal 2023, our effective income tax rates were 17.5% and 24.9%, respectively. The change related to our effective income tax rates for Fiscal 2024 as compared to Fiscal 2023 was primarily attributable to the tax impact of foreign operations and benefits from U.S. research and development tax credits. In addition, our effective tax rate for Fiscal 2023 included the impact of an expense recognized in connection with the agreement to settle the Class V transaction litigation described in Note 11 of the Notes to the Consolidated Financial Statements included in this report.Net IncomeFiscal 2025 compared to Fiscal 2024
During Fiscal 2025, net income and non-GAAP net income increased 36% to $4.6 billion and 8% to $5.9 billion, respectively. Net income increased primarily due to an increase in operating income and, to a lesser extent, lower income tax expense. Non-GAAP net income increased primarily due to an increase in operating income.
Fiscal 2024 compared to Fiscal 2023
During Fiscal 2024, net income increased 39% to $3.4 billion, driven primarily by a favorable change in interest and other, net, partially offset by a decline in operating income. During Fiscal 2024, non-GAAP net income decreased 5% to $5.4 billion, driven by a decline in operating income, partially offset by a decline in income tax expense.55
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Business Unit ResultsOur reportable segments are based on the ISG and CSG business units. A description of our business units is provided under “Introduction.” See Note 18 of the Notes to the Consolidated Financial Statements included in this report for a reconciliation of net revenue and operating income by reportable segment to consolidated net revenue and consolidated operating income, respectively.Infrastructure Solutions Group
The following table presents net revenue and operating income attributable to ISG for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 % Change February 2, 2024 % Change February 3, 2023(in millions, except percentages)
Net revenue:Servers and networking $ 27,136 54 % $ 17,624 (14) % $ 20,398
Storage 16,457 1 % 16,261 (9) % 17,958
Total ISG net revenue $ 43,593 29 % $ 33,885 (12) % $ 38,356Operating income:ISG operating income $ 5,579 30 % $ 4,286 (15) % $ 5,045
% of segment net revenue 12.8 % 12.6 % 13.2 %
Fiscal 2025 compared to Fiscal 2024
Net Revenue — During Fiscal 2025, ISG net revenue increased 29%, driven primarily by strength in our servers and networking offerings.
Net revenue from sales of servers and networking increased 54% during 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 1% during Fiscal 2025 primarily due to an increase in our core storage offerings.
From a geographical perspective, net revenue attributable to ISG increased across all regions during Fiscal 2025, most notably in the Americas.
Operating Income — During Fiscal 2025, ISG operating income as a percentage of net revenue increased 20 basis points to 12.8% due to a decline in operating expense as a percentage of revenue that outpaced the decline in gross margin rate. Operating expense as a percentage of net revenue declined primarily 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.
Fiscal 2024 compared to Fiscal 2023
Net Revenue — During Fiscal 2024, ISG net revenue decreased 12%, driven primarily by servers and networking net revenue and, to a lesser extent, storage net revenue as global macroeconomic conditions continued to impact demand.
Revenue from sales of servers and networking decreased 14% during Fiscal 2024, driven by a decrease in units sold, the effect of which was partially offset by an increase in the average selling prices of our server offerings. The average selling prices of our server offerings increased as a result of the impact of attached offerings and richer configurations.During Fiscal 2024, storage net revenue decreased 9%, driven by a decline in net revenue across the majority of our storage offerings.56
Table of ContentsFrom a geographical perspective, net revenue attributable to ISG decreased in the Americas, EMEA, and APJ during Fiscal 2024.
Operating Income — During Fiscal 2024, ISG operating income as a percentage of net revenue decreased 60 basis points to 12.6% principally due to an increase in operating expenses as a percentage of net revenue. Operating expenses as a percentage of net revenue increased as a result of a decline in revenue that outpaced the impact of continued cost management measures coupled with continued investment in research and development. The impact of an increase in operating expenses as a percentage of net revenue was partially offset by an overall decline in input costs coupled with an increase in average selling prices.
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Table of ContentsClient Solutions Group
The following table presents net revenue and operating income attributable to CSG for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 % Change February 2, 2024 % Change February 3, 2023(in millions, except percentages)
Net revenue:Commercial $ 40,844 3 % $ 39,814 (13) % $ 45,556
Consumer 7,549 (17) % 9,102 (28) % 12,657
Total CSG net revenue $ 48,393 (1) % $ 48,916 (16) % $ 58,213Operating income:CSG operating income $ 2,972 (20) % $ 3,712 (3) % $ 3,824
% of segment net revenue 6.1 % 7.6 % 6.6 %
Fiscal 2025 compared to Fiscal 2024
Net Revenue — During Fiscal 2025, CSG net revenue declined 1% primarily 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% during Fiscal 2025 primarily due to an increase in units sold. Consumer net revenue decreased 17% during Fiscal 2025, primarily as the result of a decline in units sold and, to a lesser extent, a decline in the average selling prices of our consumer offerings.
From a geographical perspective, net revenue attributable to CSG decreased in APJ and the Americas and increased in EMEA during Fiscal 2025.
Operating Income — During Fiscal 2025, CSG operating income as a percentage of net revenue decreased 150 basis points to 6.1% primarily due to a decline in gross margin rate, which was 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.
Fiscal 2024 compared to Fiscal 2023Net Revenue — During Fiscal 2024, CSG net revenue decreased 16% driven by a decline in units sold as global macroeconomic conditions continued to impact demand.Commercial net revenue decreased 13% during Fiscal 2024. The decline was primarily due to a decrease in units sold, which was partially offset by the effect of an increase in the average selling prices of our commercial offerings. Average selling prices of our commercial offerings increased primarily as a result of richer configurations and the mix of offerings sold. Consumer net revenue decreased 28% during Fiscal 2024 principally due to a decrease in units sold and, to a lesser extent, a decline in the average selling prices of our consumer offerings.From a geographical perspective, net revenue attributable to CSG decreased primarily in APJ and, to a lesser extent, in the Americas and EMEA during Fiscal 2024.Operating Income — During Fiscal 2024, CSG operating income as a percentage of net revenue increased 100 basis points to 7.6% primarily due to the impact of an overall decrease in input costs coupled with an increase in the average selling prices of our commercial offerings, as described above. The impact of these factors was partially offset by an increase in operating expenses as a percentage of net revenue, which increased as a result of a decline in CSG net revenue that outpaced the impact of continued cost management measures.
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OTHER BALANCE SHEET ITEMS
Accounts ReceivableWe sell products and services directly to customers and through a variety of sales channels, including retail distribution. Our accounts receivable, net was $10.3 billion and $9.3 billion as of January 31, 2025 and February 2, 2024, respectively. Accounts receivable, net was up 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 January 31, 2025 and February 2, 2024, the allowance for expected credit losses was $63 million and $71 million, respectively. Based on our assessment, we believe that we are adequately reserved for expected credit losses.Dell Financial Services and Financing ReceivablesWe offer or arrange a portfolio of payment and consumption solutions and services for our customers globally, including as-a-Service, subscription, utility, leases, and loans designed to match customers' consumption and financing preferences. We believe these options provide operational and financial flexibility and strengthen our customer relationships. To support financing solutions and services as part of the portfolio, DFS originates, collects, and services customer receivables primarily related to the purchase of our product and services solutions. New financing originations were $8.4 billion for both Fiscal 2025 and Fiscal 2024 and $9.7 billion for Fiscal 2023.
Our leases are generally classified as sales-type leases or operating leases. On commencement of sales-type leases, we recognize profit up-front, and recognize amounts due from the customer under the lease contract as financing receivables. 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, net. We recognize product revenue and depreciation expense, classified as cost of net revenue, over the contract term.
As of January 31, 2025 and February 2, 2024, our financing receivables, net were $11.2 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 0.6% for Fiscal 2025 and 0.5% for both Fiscal 2024 and Fiscal 2023. The credit quality of our financing receivables remains strong due to the mix of high-quality commercial accounts in our portfolio. We continue to monitor broader economic indicators and their potential impact on future credit loss performance. We have an extensive process to manage our exposure to customer credit risk that includes active management of credit lines and collection activities. We also sell selected fixed-term financing receivables without recourse to unrelated third parties on a periodic basis, primarily to manage certain concentrations of customer credit exposure. Based on our assessment of the customer financing receivables, we believe that we are adequately reserved.
We retain a residual interest in equipment leased under our lease programs. As of January 31, 2025 and February 2, 2024, the residual interest recorded as part of financing receivables was $168 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. On a quarterly basis, we assess the carrying amount of our recorded residual values for expected losses. Generally, expected losses as a result of residual value risk on equipment under lease are not considered to be significant primarily because of the existence of a secondary market with respect to the equipment. 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 Fiscal 2025 and Fiscal 2024.
As of both January 31, 2025 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 Fiscal 2025, Fiscal 2024, and Fiscal 2023.59
Table of ContentsDFS offerings are initially funded through cash on hand at the time of origination, most of which is subsequently replaced with asset-backed financing. For offerings that qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations and is largely subsequently offset by cash proceeds from financing. For offerings that qualify as operating leases, the initial funding is classified as a capital expenditure and reflected as an impact to cash flows used in investing activities.
See Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional information about our financing receivables and the associated allowances, and equipment under operating leases.
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Table of ContentsLIQUIDITY, CASH REQUIREMENTS, AND MARKET CONDITIONS
Liquidity and Capital Resources
We rely on operating cash flows, which are impacted by trends in the demand environment, as our primary source of liquidity for our ongoing business operations. We monitor the efficiency of our balance sheet to ensure that we have adequate liquidity to support our business and strategic initiatives.
In addition to internally generated cash, we have access to other capital sources to finance our strategic initiatives and fund growth in our financing operations. Our strategy is to deploy capital from any potential source, whether internally generated cash or debt, depending on the adequacy and availability of that source of capital and whether it can be accessed in a cost-effective manner.We believe that our current cash and cash equivalents, together with cash that will be provided by future operations and borrowings and issuances expected to be available under our revolving credit facility and commercial paper program, will be sufficient over the next twelve months and for the foreseeable future thereafter to meet our material cash requirements, including funding of our operations, debt-related payments, capital expenditures, and other corporate needs.As part of our overall capital allocation strategy, we intend to return capital to our stockholders through both share repurchase programs and dividend payments and use the remaining available cash to drive growth and maintain our investment grade credit rating.
The following table presents our cash and cash equivalents as well as our available borrowings as of the dates indicated:January 31, 2025 February 2, 2024(in millions)
Cash and cash equivalents, and available borrowings:Cash and cash equivalents $ 3,633 $ 7,366
Remaining available borrowings under the revolving credit facility 5,999 5,999
Total cash and cash equivalents, and available borrowings $ 9,632 $ 13,365
During Fiscal 2025, cash and cash equivalents decreased by $3.7 billion primarily due to the return of capital to our stockholders, capital expenditures, net repayment of DFS debt and Senior Notes, and payments to settle employee tax withholdings on stock-based compensation, the effects of which were partially offset by cash flows from operations.
As of January 31, 2025, 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 January 31, 2025, 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 of up to 397 days from the date of issue. As of January 31, 2025, we had no outstanding issuances under the program.
We may regularly use our available borrowings from the revolving credit facility and issuances under the commercial paper program, generally on a short-term basis, for general corporate purposes. See the following discussion for additional information about our debt.
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Debt
The following table presents our outstanding debt as of the dates indicated:January 31, 2025 Change February 2, 2024(in millions)
Core debtSenior Notes $ 15,073 $ (534) $ 15,607
Legacy Notes 952 — 952
DFS allocated debt (3,028) (1,388) (1,640)
Total core debt 12,997 (1,922) 14,919DFS related debtDFS debt 8,711 (781) 9,492
DFS allocated debt 3,028 1,388 1,640
Total DFS related debt 11,739 607 11,132
Other 52 (119) 171
Total debt, principal amount 24,788 (1,434) 26,222
Carrying value adjustments (221) 7 (228)
Total debt, carrying value $ 24,567 $ (1,427) $ 25,994
The outstanding principal amount of our debt decreased $1.4 billion to $24.8 billion as of January 31, 2025, driven primarily by net repayments of our DFS debt and Senior Notes.
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 January 31, 2025 and February 2, 2024, respectively. See Note 7 of the Notes to the Consolidated Financial Statements included in this report for additional information about our debt.DFS related debt primarily represents debt from our securitization and structured financing programs. Our risk of loss under these programs is limited to transferred lease and loan payments and associated equipment, as the credit holders have no recourse to Dell Technologies.To fund the expansion of our DFS business, we balance the use of the securitization and structured financing programs with other sources of liquidity. We approximate the amount of our core debt used to fund the DFS business by applying a 7:1 debt-to-equity ratio to the sum of our financing receivables balance and equipment under operating leases, net, also referred to as DFS owned assets. The debt-to-equity ratio is based on the underlying credit quality of the assets. See Note 5 of the Notes to the Consolidated Financial Statements included in this report for additional information about our DFS debt.
The following table presents DFS owned assets as of the dates indicated:
January 31, 2025 February 2, 2024
(in millions)
Financing receivables, net
$ 11,231 $ 10,520
Equipment under operating leases, net
2,185 2,202
DFS owned assets
$ 13,416 $ 12,722We believe we will continue to be able to make our debt principal and interest payments, including payment of short-term maturities, from existing and expected sources of cash, primarily from operating cash flows. Cash used for debt principal and interest payments may include short-term borrowings under our commercial paper program, our revolving credit facility, or other borrowings. Under our variable-rate debt, we could experience variations in our future interest expense from potential fluctuations in applicable reference rates, or from possible fluctuations in the level of DFS debt required to meet future demand for customer financing.62Table of ContentsAt our sole discretion, we may purchase, redeem, prepay, refinance, or otherwise retire any amount of our outstanding indebtedness under the terms of such indebtedness at any time and from time to time, in open market or negotiated transactions with the holders of such indebtedness or otherwise, as we consider appropriate in light of market conditions and other relevant factors.Cash Flows
The following table presents a summary of our Consolidated Statements of Cash Flows for the periods indicated:
Fiscal Year EndedJanuary 31, 2025 February 2, 2024 February 3, 2023(in millions)
Net change in cash from:Operating activities $ 4,521 $ 8,676 $ 3,565
Investing activities (2,215) (2,783) (3,024)
Financing activities (5,815) (7,094) (1,625)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (179) (186) (104)
Change in cash, cash equivalents, and restricted cash $ (3,688) $ (1,387) $ (1,188)
Operating Activities — Cash provided by operating activities was $4.5 billion during Fiscal 2025 and was driven by profitability, partially offset by working capital dynamics. Working capital was primarily impacted by AI, which led to higher inventory, accounts receivable, and accounts payable levels. During Fiscal 2024, cash provided by operating activities was $8.7 billion, which was primarily driven by profitability coupled with strong inventory management and cash collections performance. Cash provided by operating activities during Fiscal 2024 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 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, the maturities, sales, and purchases of investments, and acquisitions and divestitures. Cash used in investing activities was $2.2 billion and $2.8 billion during 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 $5.8 billion during 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 DFS debt and Senior Notes, and the payment of quarterly dividends. During Fiscal 2024, cash used in financing activities was $7.1 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. For offerings that qualify as sales-type leases, the initial funding of financing receivables is reflected as an impact to cash flows from operations and is largely subsequently offset by cash proceeds from financing. For offerings that qualify as 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 $8.4 billion during both Fiscal 2025 and Fiscal 2024 and $9.7 billion during Fiscal 2023. As of January 31, 2025, we had $11.2 billion of total net financing receivables and $2.2 billion of equipment under operating leases, net.
63Table of ContentsSupply 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. The SCF Program does not impact our liquidity, as payments by us to participating suppliers are remitted to the financial institution on the original invoice due date. Further, we negotiate payment terms with our suppliers regardless of their decision to participate in the SCF Program. Payments made under the SCF Program are included in cash flows from operating activities on the Consolidated Statements of Cash Flows. See Note 20 of the Notes to the Consolidated Financial Statements included in this report for more information regarding the SCF Program.Material Capital Commitments and Cash Requirements
The Company’s material capital commitments include the following:Capital Expenditures — We spent $2.7 billion and $2.8 billion during 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 $1.3 billion and $1.2 billion during 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 — On September 23, 2021, our Board of Directors approved a stock repurchase program with no fixed expiration date under which we may repurchase up to $5 billion of shares of Class C Common Stock, exclusive of any fees, commissions, or other expenses related to such repurchases. On October 5, 2023 and February 27, 2025, subsequent to the close of Fiscal 2025, our Board of Directors authorized additional shares for repurchase under the stock repurchase program of $5 billion and $10 billion, respectively. Following the February 27, 2025 approval, we had approximately $11.5 billion of authorized shares remaining under the program.
During Fiscal 2025, we repurchased approximately 22 million shares of Class C Common Stock for a total purchase price of approximately $2.6 billion. During Fiscal 2024, we repurchased approximately 34 million shares of Class C Common Stock for a total purchase price of approximately $2.1 billion.
Dividend Payments — During Fiscal 2025 and Fiscal 2024, the Company paid $1.3 billion and $1.1 billion in dividends and dividend equivalents at a rate of $0.445 and $0.37 per share per fiscal quarter, respectively.
On February 27, 2025, we announced that the Board of Directors approved an 18% increase in the dividend rate to $0.525 per share per fiscal quarter beginning in the first quarter of Fiscal 2026.Additionally, the Company’s material cash requirements include the following contractual obligations:Debt — Our expected principal cash payments on borrowings are exclusive of discounts and premiums. As of January 31, 2025, the Company had outstanding debt for an aggregate principal amount of $24.8 billion, with $5.2 billion payable within 12 months. Included within the aggregate principal amount was $16.1 billion of corporate and other debt with varying maturities, with an immaterial amount payable within 12 months, and $8.7 billion of DFS debt, with $5.2 billion payable within 12 months.
As of January 31, 2025, future interest payments associated with outstanding debt were $7.4 billion, with $1.2 billion payable within 12 months. Included within total future interest payments is $6.9 billion of payments related to corporate and other debt, with $0.9 billion payable within 12 months, and $0.5 billion of payments related to DFS debt, with $0.3 billion payable within 12 months.Purchase Obligations — Purchase obligations are defined as contractual obligations to purchase goods or services that are enforceable and legally binding on us. These obligations specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include contracts that may be canceled without penalty.64Table of ContentsWe utilize several suppliers to manufacture sub-assemblies for our products. Our efficient supply chain management allows us to enter into flexible and mutually beneficial purchase arrangements with our suppliers in order to minimize inventory risk. Consistent with industry practice, we acquire raw materials or other goods and services, including product components, by issuing to suppliers authorizations to purchase based on our projected demand and manufacturing needs. Additionally, to meet the growing demand and increasing complexity of our AI-optimized offerings, we have increased our purchases of certain components with suppliers, which has resulted in increased purchase obligations. These purchase orders are typically fulfilled within 30 days and are entered into during the ordinary course of business in order to establish best pricing and continuity of supply for our production. Purchase orders are not included in purchase obligations, as they typically represent our authorization to purchase rather than binding purchase obligations.
As of January 31, 2025, the Company had purchase obligations of $6.5 billion, of which $5.0 billion was payable within 12 months.
Operating Leases — We lease property and equipment, manufacturing facilities, and office space under non-cancelable leases. Certain of these leases obligate us to pay taxes, maintenance, and repair costs. As of January 31, 2025, the Company had operating lease obligations of $0.8 billion, with $0.2 billion payable within 12 months. See Note 6 of the Notes to the Consolidated Financial Statements included in this report for additional information about our leasing transactions in which we are the lessee.
Tax Obligations — Tax obligations represent a one-time mandatory deemed repatriation tax on undistributed earnings of foreign subsidiaries. As of January 31, 2025, the balance of tax obligations was $60 million, with the full amount payable within 12 months. Excluded from the amounts above are $0.9 billion in additional liabilities associated with uncertain tax positions as of January 31, 2025. We are unable to reliably estimate the expected payment dates for any liabilities for uncertain tax positions. See Note 12 of the Notes to the Consolidated Financial Statements included in this report for more information regarding these tax matters.Market Conditions
We regularly monitor economic conditions and associated impacts on the financial markets and our business. We consistently evaluate the financial health of our supplier base, carefully manage customer credit, diversify counterparty risk, and monitor the concentration risk of our cash and cash equivalents balances globally. We routinely monitor our financial exposure to borrowers and counterparties.We monitor credit risk associated with our financial counterparties using various market credit risk indicators such as credit ratings issued by nationally recognized credit rating agencies and changes in market credit default swap levels. Our AI solutions to date have been purchased primarily by a small number of larger customers and cloud service providers. Such purchases generally involve larger amounts of credit, and could impact overall credit risk in trade and financing receivables. We perform periodic evaluations of our positions with counterparties and may limit exposure to any one counterparty in accordance with our policies. We monitor and manage our positions based on current and expected market developments.
We use derivative instruments to hedge certain foreign currency exposures. We use forward contracts and purchased options designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in our forecasted transactions denominated in currencies other than the U.S. dollar. In addition, we primarily use forward contracts and may use purchased options to hedge monetary assets and liabilities denominated in a foreign currency. See Note 8 of the Notes to the Consolidated Financial Statements included in this report for additional information about our use of derivative instruments.We are exposed to interest rate risk related to our variable-rate debt portfolio. In the normal course of business we follow established policies and procedures to manage this risk, including monitoring of our asset and liability mix and the use of derivative instruments. As a result, we do not anticipate any material losses from interest rate risk.65Table of Contents
Summarized Guarantor Financial InformationThe Company’s outstanding senior notes (“Senior Notes”) are registered, unsecured, and issued by Dell International L.L.C. and EMC Corporation (the “Issuers”), both of which are wholly-owned subsidiaries of Dell Technologies Inc. The Senior Notes are guaranteed on a joint and several unsecured basis by Dell Technologies Inc. and its wholly-owned subsidiaries, Denali Intermediate, Inc. and Dell Inc. (collectively, the “Guarantors”).
Basis of Preparation of the Summarized Financial Information — The tables below are summarized financial information provided in conformity with Rule 13-01 of the SEC’s Regulation S-X. The summarized financial information of the Issuers and Guarantors (collectively, the “Obligor Group”) is presented on a combined basis, excluding intercompany balances and transactions between entities in the Obligor Group. The Obligor Group’s investment balances in Non-Obligor Subsidiaries have been excluded. The Obligor Group’s amounts due from, amounts due to, and transactions with Non-Obligor Subsidiaries have been presented separately.The following table presents summarized results of operations information for the Obligor Group for the period indicated:
Fiscal Year EndedJanuary 31, 2025(in millions)Net revenue $ 8,507
Gross margin 4,328
Operating income 908
Interest and other, net (4,021)
Loss before income taxes $ (3,113)
Net loss attributable to Obligor Group (a) $ (2,167)____________________(a) Includes net loss from intercompany transactions with Non-Obligor Subsidiaries of $4,268 million, which primarily consists of interest expense, shared services, and the resale of solutions.
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The following table presents summarized balance sheet information for the Obligor Group as of the dates indicated:January 31, 2025 February 2, 2024(in millions)
ASSETSCurrent assets $ 3,132 $ 2,631
Intercompany receivables 175 281
Short-term intercompany loan receivables — 92
Total current assets 3,307 3,004
Goodwill and intangible assets 14,073 14,447
Other non-current assets 3,412 3,437
Total assets $ 20,792 $ 20,888LIABILITIESCurrent liabilities $ 4,097 $ 5,255
Long-term debt 15,824 15,353
Long-term intercompany loan payables 44,516 41,617
Other non-current liabilities 3,339 3,473
Total liabilities $ 67,776 $ 65,698
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Critical Accounting Estimates
We prepare our financial statements in conformity with GAAP, which requires certain estimates, assumptions, and judgments to be made that may affect our Consolidated Statements of Financial Position and Consolidated Statements of Income. Accounting policies that have a significant impact on our Consolidated Financial Statements are described in Note 2 of the Notes to the Consolidated Financial Statements included in this report. The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical. We consider an accounting policy to be critical if the nature of the estimate or assumption is subject to a material level of judgment and if changes in those estimates or assumptions are reasonably likely to materially impact our Consolidated Financial Statements. We have discussed the development, selection, and disclosure of our critical accounting policies with the Audit Committee of our Board of Directors.
Revenue Recognition — We sell a wide portfolio of products and services offerings to our customers. Our agreements have varying terms and conditions depending on the goods and services being sold, the rights and obligations conveyed, and the legal jurisdiction of the arrangement. While most of our agreements have standard terms and conditions, more complex agreements may contain nonstandard terms and conditions. There are significant judgments in interpreting agreements to determine the appropriate accounting for nonstandard terms and conditions.
Our contracts with customers often include multiple performance obligations for various distinct goods and services such as hardware, software licenses, support and maintenance agreements, and other service offerings and solutions. We use significant judgment to assess whether these promises are distinct performance obligations that should be accounted for separately. In certain hardware solutions, the hardware is highly interdependent on, and interrelated with, the embedded software. In these offerings, the hardware and software licenses are accounted for as a single performance obligation.
The transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to the customer. If the consideration promised in a contract includes a variable amount, we estimate the amount to which we expect to be entitled using either the expected value or most likely amount method. Estimates are updated each reporting period as the variability is resolved or if additional information becomes available. Generally, volume discounts, rebates, and sales returns reduce the transaction price. When we determine the transaction price, we only include amounts that are not subject to significant future reversal.
When a contract includes multiple performance obligations, the transaction price is allocated to each performance obligation in proportion to the standalone selling price (“SSP”) of each performance obligation.
Judgment is required when determining the SSP of our performance obligations. If the observable price is available, we utilize that price for the SSP. If the observable price is not available, the SSP must be estimated. We estimate SSP by considering multiple factors, including, but not limited to, pricing practices, internal costs, and profit objectives as well as overall market conditions, which include geographic or regional specific factors, competitive positioning, and competitor actions. Our SSP estimates rely, in part, on company pricing trends. Market conditions could impact the selling price in the current period which may not be reflective of trends, and could lead to revenue timing, classification, and segment differences when compared to similar contracts in other periods. SSP for our performance obligations is periodically reassessed.
For transactions that involve a third party, the Company evaluates whether it is acting as the principal or the agent in the transaction. This determination requires significant judgment and impacts the amount and timing of revenue recognized. If the Company determines that it controls a good or service before it is transferred to the customer, the Company is acting as the principal and recognizes revenue at the gross amount of consideration it is entitled to from the customer. Indicators that the Company controls a good or service before transferring to a customer include, but are not limited to, the Company being the primary obligor to the customer, establishing its own pricing, and having inventory and credit risks.
Goodwill and Indefinite-Lived Intangible Assets Impairment Assessments — Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third fiscal quarter and whenever events or circumstances may indicate that an impairment has occurred.
To determine whether goodwill is impaired, we first assess certain qualitative factors. Qualitative factors that may be assessed include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events. Based on this assessment, if it is determined to be more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform a quantitative analysis of the goodwill impairment test. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.68Table of Contents
Significant judgment is exercised in the identification of goodwill reporting units, assignment of assets and liabilities to goodwill reporting units, assignment of goodwill to reporting units, and determination of the fair value of each goodwill reporting unit. The fair value of each of our goodwill reporting units is generally estimated using a combination of public company multiples and discounted cash flow methodologies, which is then compared to the carrying value of each goodwill reporting unit. The discounted cash flow and public company multiples methodologies require significant judgment, including estimation of future revenues, gross margins, and operating expenses, which are dependent on internal forecasts, current and anticipated economic conditions and trends, selection of market multiples through assessment of the reporting unit’s performance relative to peer competitors, the estimation of the long-term revenue growth rate and discount rate of our business, and the determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the fair value of the goodwill reporting unit, potentially resulting in a non-cash impairment charge.
The fair value of the indefinite-lived intangible assets is generally estimated using discounted cash flow methodologies. The discounted cash flow methodologies require significant judgment, including estimation of future revenue, the estimation of the long-term revenue growth rate of our business, and the determination of the weighted average cost of capital and royalty rates. Changes in these estimates and assumptions could materially affect the fair value of the indefinite-lived intangible assets, potentially resulting in a non-cash impairment charge.For our annual impairment test during the third fiscal quarter of Fiscal 2025, during which the Company elected to quantitatively test the Infrastructure Solutions Group and Client Solutions Group reporting units, we determined that the fair value of each of these reporting units substantially exceeded its carrying amount. For more information about our goodwill and intangible assets, see Note 9 of the Notes to the Consolidated Financial Statements included in this report.Income Taxes — We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgments are required in determining the consolidated provision for income taxes. We calculate a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. We account for the tax impact of including Global Intangible Low-Taxed Income (GILTI) in U.S. taxable income as a period cost. We provide related valuation allowances for deferred tax assets, where appropriate. Significant judgment is required in determining any valuation allowance against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence for each jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of ongoing tax planning strategies. In the event we determine that all or part of the net deferred tax assets are not realizable in the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.
Significant judgment is also required in evaluating our uncertain tax positions. Although we believe our tax return positions are sustainable, we recognize tax benefits from uncertain tax positions in the financial statements only when it is more likely than not that the positions will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits and a consideration of the relevant taxing authority’s administrative practices and precedents. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. We believe we have provided adequate reserves for all uncertain tax positions.
Legal and Other Contingencies — The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Significant judgment is required in determining whether a loss should be accrued, and changes in these factors could materially impact our Consolidated Financial Statements.69Table of Contents
Inventories — We state our inventory at the lower of cost or net realizable value. We record a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. We perform a detailed review of inventory each fiscal quarter that considers multiple factors, including demand forecasts, product life cycle status, product development plans, current sales levels, product pricing, and component cost trends. The industries in which we compete are subject to demand changes. If future demand or market conditions for our products are less favorable than forecasted, or if unforeseen technological changes negatively impact the utility of component inventory, we may be required to record additional write-downs, which would adversely affect our gross margin.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements included in this report for a summary of recently issued accounting pronouncements that are applicable to our Consolidated Financial Statements.70Table of Contents