Dell Technologies Inc. (DELL) Earnings Call Transcript & Summary

Perfect. Good morning, or good afternoon, everyone. We're delighted to have you all with us. By way of introduction, my name is Amit Daryanani. I cover the IT hardware and networking space here at Evercore. And we're delighted to have with us Tom Burns, who's the SVP and General Manager at Dell EMC for integrated products and solutions. Before we get started into the presentation and the fireside chart, just a couple of housekeeping items. The goal is to keep this discussion to around 45 minutes. If you have any questions that I can ask on your behalf to Tom, please send me an e-mail. You should have plenty of e-mails for me that I can reply to. If not, you can see my e-mail up on the screen, and I will get them addressed on your behalf. So with that out of the way, excited to have Tom with us. Tom has more than 25 years of tenure at Dell EMC, and his responsibilities when it comes to the integrated products and services actually span an entire range of products, including networking, converged and hyper-converged solutions, service provider solutions, data center workload and solutions. So we clearly have a lot to cover over here. Before we do all that, I need to read the safe harbor statement on behalf of Dell Technologies. Statements that relate to future results and events are forward-looking statements and are based on Dell Technologies' current expectations. Actual results and events in future periods may differ materially from those expressed or implied by these forward-looking statements because of a number of risks, uncertainties and other factors, including those discussed in Dell Technologies' periodic reports filed with the SEC. Dell Technologies assumes no obligations to update its forward-looking statements. So with that out of the way, and I really, really appreciate all the Investor Relation professionals that do this every day now, Tom, thanks a lot for being with us and spending a few minutes with us this today morning.

Given the fact that you run Dell Technologies integrated products and solutions, can you maybe perhaps give us an overview of the products and offerings that you're in charge of Dell? Just give a sense on the portfolio you're responsible for, and we can kick things off from there.

That's great, and Amit, thank you for inviting me this morning. So in integrated products and solutions, my team kind of refers to ourselves as the fabric that connects the Dell Technologies portfolio together to help our customers through the digital transformation. We're comprised of networking, converged infrastructure and hyperconverged infrastructure. Those are kind of our product groups that even they are somewhat horizontal because they cut across all of the portfolio, our networking products are around connecting the fabric for our compute, our storage, our hyperconverged, our work with VMware with NSX on the underlay and overlay. The hyperconverged there, obviously, combining the best-of-breed vSAN software with our PowerEdge, with our HCI system software to create VxRail, and we have other HCI platforms -- integrated platforms, such as VxBlock and PowerONE. On the solutions side, we've got kind of 3 areas that I manage today. One is what we call operational automation. This is really based upon our Cloud IQ technology, which is the SaaS-based platform that helps monitor and record anomalies, capacity capabilities primarily in our storage products today, but we're carrying that across the entire ISG portfolios, including servers, networking, CI and HCI. I also run what we call data-centric applications in HPC. So we bring together all the server storage, networking, data protection and, frequently, VMware products and build reference designs for high-value workloads, such as SAP and Oracle, but also new emerging workloads, such as AI, ML and big data and analytics. And we combine that with our HPC team, which is very specific around helping our customers in the life sciences and health area, which has been an exciting time right now, especially during COVID. And then there's a group called enterprise infrastructure, which is really our parts business, not really a great way to say it other than we help our customers extend the life of their infrastructure by giving them Dell EMC certified memory, SSDs, optics, mix and so forth, and our resale business for third-party technologies that are combined with Dell EMC, which is also part of kind of a horizontal organization. So kind of a large breadth of portfolio.

Yes. That almost seems like a 3-person job, not a 1-person job.

Well, I've got a very good team. I thank them. A very strong team.

Perfect. And I guess to kind of kick things off in the discussion, right, given what's going on in the world with the current pandemic and the implications in terms of the shift from -- shift towards work from home, I would say, can you perhaps give us a perspective on the state of IT spend? What are some of the near-term priorities that your customers have talked to you about? And then on a long-term basis, how does the tech infrastructure IT market evolve in a post-COVID world as well?

Yes. It's a great question, and no one has a crystal ball. But if you look at Gartner and IDC, they estimate that the non-telco market is going to decrease anywhere from 5% to 10%, and the GDP is estimated to be somewhere between a minus 3% to 5%. I would say our customer conversations, however, have changed from what do I need to do today versus what do I need to have in the future. They're moving from traditional kind of infrastructure to what I need to have, about the much larger remote workforce, the capability to have their employees connected to create data and have access to data, to secure and to protect that data and really what do they do when they come out of it. So most of our customer conversations and channel conversation doesn't show any type of change in really the long-term area of digital transformation. And really, COVID has brought out the importance even more of that capability. I think even if we look at Dell EMC ourselves, where we had a large part of our organization move from being in the office to being remote, we're still collaborating. We're still innovating. We're still delivering products because we have these capabilities. And more and more companies are kind of looking at this, how do we keep this business continuity going, and how do we come out of this even stronger than we entered. So while it's very difficult to predict where the market is going to be going, we're just focused on supporting our customers. We're looking at those markets that are continuing to do relatively well and really helping them through this transformation that's going to continue. Data is being created. It's moving more from the core out to the edge, and we have the depth of the portfolio that really goes from desktop to data center, from core to cloud to edge. We can really help our customers during this challenging time.

That's great. And I guess, Tom, I think on the last earnings call, Jeff Clarke talked about -- and since he talked about a flight to quality, a narrative that we're seeing is the flight to quality happening. And I think the implication really was, as you see a flight to quality happen, it should enable share gains for someone like Dell Technologies as you go forward, especially in the current IT environment. Can you maybe spend a few minutes talking about the breadth and depth of Dell's solution and your portfolio and your ability to deliver results at a premium to what the market is expecting right now?

Yes. I remember Jeff's comment on this. And I think, first, it's customers that are really looking at suppliers becoming partners and many customers looking at potentially reducing the number of suppliers they have. So when they look at a supplier, they need to choose a company that does have a large depth of portfolio and capability. I think there's a couple of key areas. One is the depth of our portfolio. We do have everything from desktop to data center to virtualization to security, so all the various aspects that a company needs in a digital transformation. We're not just a server company or just a storage company. We really have the breadth and depth of the portfolio that's really needed in this digital transformation. The second thing is our credibility to deliver lots of challenges around the supply chain and services, and the capability that we have from the strength of our supply chain to deliver to customers no matter where they're located and be able to support them with a very large services organization is very strongly differentiated. And then lastly is we're continuing to innovate. Just over the last 3 months, despite the pandemic and the challenges, we continue to introduce great products for our customers. We introduced PowerStore, which is our new mid-range storage solution. We announced the first and only open source distribution of a network operating software called SONIC, the first in the industry. We made several announcements around the Dell Technologies Cloud, including working with OneFS with Google Cloud, combining our Isilon storage technology with the Google Cloud analytics capability and also upgraded VxRail to 7.0, which incorporates vSphere 7, a lot of the capabilities from that perspective. So really, I think it's 3 things: One is the breadth and depth of our portfolio, being able to deliver end-to-end; the execution and capability around supply chain services; and then thirdly, the capability to continue to innovate and help our customers through this transformation journey.

No, absolutely helpful. And I guess we have talked to a couple of folks maybe on the call asking questions related to this. And I guess maybe the gist of the question really is when we talk about share gains at Dell, broadly or even in the current environment, when you talk about share gains, does that mean we're winning new logos, new customers? Or is that more about we're able to upsell or incrementally sell a broader set of products to our existing customers? Hopefully, I make sense.

I believe it's -- yes. It's a combination of all. I mean if you look at one thing, it's the consolidation of share. So maybe the -- I'll take networking as an example. The networking according to Delaware on Q1 declined by 8%. We declined by 1%. So we actually gained share. I think it's about consolidating share in a several product category areas and performing better than the market. I think I've heard Tom and Jeff say -- and Michael, over the years, no one can predict necessarily the market and all the various changes that could happen, from a pandemic to geopolitical issues to tariffs, all these various things. We believe if we continue to focus on the depth of our portfolio and the strength of our technology, we can continue to take share, both in a net new customers. So for example, in our VxRail product, we actually increased the number of customers in our first quarter. But also in the consolidation and, let's say, add-on of existing customers with new technologies.

Got it. Since you mentioned VxRail, I guess, maybe we can touch on hyperconverged markets a little bit. And I'd love to get your perspective on sort of -- help me understand what are the use cases for hyperconverged today as we look at it. How big is this TAM from a Dell perspective? How big is the TAM in hyperconverged? And how does Dell with play it? I know you touched VxRail, but I think there's other levers as well.

No, it's absolutely right. So according to IDC, in 2020, the HCI market will be about $9.2 billion and growing to about $13.3 billion, $13.4 billion by 2023, I believe, about $14 billion in 2024. According to IDC, again, in the fourth quarter of last year, we were clearly #1 with about 33% share. #2 was Nutanix, which is just under 14% share. And then you had Cisco at around 6% share. So while the market right now kind of is very dynamic, this is certainly an area that's continuing to grow per IDC, and we continue to grow as well. And I think it's because we have a very balanced approach. Yes, we have our VxRail platform, which is obviously our fastest-growing portion of our HCI portfolio, and a strong combination of assets between Dell EMC and VMware. We also offer VxRack FLEX, which give customers an alternative around our FLEX software-defined storage platforms. And we continue to honor our XC customers, which is our relationship with Nutanix from that standpoint. And we have a growing relationship with Microsoft as it relates to Azure HCI. So I think, depending upon the workload, the use cases, which you talked about a little bit, we have a depth of our HCI portfolio that's really, in my view, second to none in the industry, and that's clearly how we see ourselves gaining share in the space.

I guess maybe a follow-up to this. And to your point, you touched on the breadth of the product, the VxRail is one of the solutions. Can you just help me maybe and help everyone contrast how does something like VxRail stack up against Nutanix? And what applications are you guys putting up that might be nuanced or different versus them?

Well, I think there's 2 aspects. There's a technology aspect and then there's the go-to-market and support aspect. Clearly, from Dell Technologies, Dell EMC's capability on go-to-market, our reach, our sales force, our indirect channel capability, our supply chain, our services organization, clearly, I think, is strongly differentiated versus Nutanix. From a technology standpoint, let's look at a recent release around VxRail 7.0, which incorporates DCF with Tanzu, applying Kubernetes, very aggressive innovation, both from a software capability and integration capability with the VMware suite of products, but also new form factors, extending GPUs, the capabilities to expand the number of use cases. I mean VxRail is built for VMware with VMware, really leveraging all the aspects of customers that are VMware customers. And with Nutanix, if the customer is using vSphere, that's a challenge for them because they need the customer to potentially switch to their hypervisor Acropolis, which allows them to get into some of their enterprise capabilities, but that's a challenge for a VMware customer. And so therefore, we really capitalize on the capability to take advantage of VMware's position, bringing in the best-of-breed PowerEdge portfolio, our HCI system software. So we have approximately several hundred engineers that are building on enhancing the capability around automation, life cycle management, the full cycle of really making sure that our customers' experience is very positive, great customer satisfaction on the product, and I believe one of the first, for sure in the industry, with the integration of DCF and Tanzu as of right now. So I think just that strength and capability, combining the breadth of VMware and Dell EMC, the supply chain to go to market, it's just a strong differentiation versus Nutanix.

And I guess ahead of this call, Tom and I spoke with a bunch of folks on what we should focus on. One of the things that came up that would be helpful getting a perspective on the hyperconverged side was the wins you guys have, right? It looks like with VxRail. But broadly, how much of those -- is there a way to think about how much of that is new applications that need a hyperconverged solution that you're winning versus perhaps customers that are using some combination of existing Dell solutions on compute and storage that are going to this HCI?

There was recently a study by ESG research where orgs were asked, as they look at their transformation of their on-prem data center, what is one of the -- what are several of the technologies they're looking at. And 24% or the #1 response was they're going to look at hyperconverged. So I would say that all customers are looking at ways to extend their existing environments using hyperconverged. So it can be an extension, both net new customers, but also current Dell EMC customers that are looking to "modernize" their data center. We're moving up the stack, I would say, as far as the specific workloads and applications. Certainly, when VxRail was first launched, DDI, which, by the way, is very hot right now, based upon COVID, was primary -- the primary workload. And in fact, still today, it represents over 30% of our sales and workloads from that perspective. But we're moving up in as far as artificial intelligence and machine learning, as we add additional GPUs to the VxRail as an example. We've been certified now by SAP HANA. So I think we continue to see the number of applications and use cases increasing. But I think from our perspective is that we just try to build great products, either converged, hyperconverged or traditional, and work with our customers to pick what's best based upon their use cases and the outcomes that they're looking for. We do see a huge opportunity with Rail in the Edge environment. We sell a lot into retail, warehouses. We're on ships. So this capability to move workloads out to the Edge on a smaller form factor with server, storage, capability and then adding our SmartFabric services with our networking product, it really provides a strong differentiation, I think. So we don't really focus as much on how many workloads. We look at the use cases and try to provide our customers with the best solution that fits their requirements, and the market certainly is shifting towards hyperconverged.

Yes. And I guess this is a question that's not about hyperconverged, but perhaps a much broader question. But Tom, how has the engagement with the channel changed at Dell, if at all, through COVID or through this current time period? And how do you think it changes longer term, if at all?

The channel continues to be a really strong focus for us. I'm not aware of any differences. In fact, I participated in a channel advisory council just a few weeks ago. So we're continuing to remain very engaged with our channel partners. We made some announcements around helping them with MDF and financing to both our channel partners and our end customers during this time because of the economic concerns and challenges. And so we're working to really strengthen our capability with our indirect channel. I think moving forward, it's going to continue to be a very strong focus. There's areas and opportunities where they add tremendous value. And I think Joyce Mullen, who runs our channel organization, is doing a marvelous job to make sure that the partners are seeing the benefits of working with Dell. And we're offering them some of the best innovation and technology that's available in the market.

Perfect. I guess if you just kind of shift gears a little bit. One of your -- one of the product areas you're responsible for is the networking business broadly. And I would admittedly say your Dell investors don't probably appreciate your presence and just what you guys do in the networking space enough. So maybe it's worthwhile for you to provide us with a brief overview of Dell's networking business and just touch on the networking portfolio and the markets you guys serve.

Sure. So I mean, broadly, top level, we have both a data center and campus networking portfolio. We partner in the wireless area with Ruckus. That being said, our strong focus is in the data center and in the SD-WAN area. Why? The reason is if you look at the Dell Technologies networking portfolio, the areas of most substantial growth or opportunity is around 3 or 4 areas. The first is layer 2, layer 3 data center switching. As customers are looking to modernize their data center, make it software-defined, there's still a decent amount of spending that's going in that particular area, whereas the campus market is relatively flat to down. Some say it may pick up here a little bit, but I think the data center layer 2, layer 3. The other areas are around network virtualization and security. And obviously, with the capabilities that we have with VMware, NSX and XT, we have strong capabilities and, obviously, a strong player in the market as it relates to network virtualization and security, very fast growing area. And lastly, SD-WAN. VeloCloud's -- VMware's acquisition of VeloCloud, our OEM of the VeloCloud SD-WAN solution, this is a market that's somewhere around $700 million, $800 million today, but growing to around $5 billion over the next 5 years. We believe we have a very strong position there. So data center, network virtualization and security and SD-WAN, that's where we're focused. And while we are a small player, I will say that we have grown above market, I believe it's 13 out of the last 14 quarters in a row. And we've done quite well with the model around disruption. We want to eliminate the conversation around networking. It's been for too long, too complex. It's been kind of the wall in helping customers really move to a software-defined area. So our focus is really around disruption, commoditization, simplification, tight integration between the underlay and the overlay and really taking the complexity of networking away for customers and having to operate much more like a server environment. So that's kind of our strategy and our position. And I think, over the last several quarters, as I stated, we've done above market, which is our goal across all of our portfolio.

That's a great overview, by the way. And I guess maybe if I dig into the switching side a little bit more, right, and switching has always been a fascinating market where you have this one vendor that has a high degree of share, and then you have 2, 3, 4, 5, and you guys are one of them, where the shares are much more -- they're still relevant, but not as a company's lion's share, I guess. I guess maybe you could spend some time helping me understand where would you like to be in the switching market 5 years from today. And what are the opportunities, from your perspective, as you think about the 400 gig cycle that comes up?

Sure, sure. So it's interesting because years ago, I think it was Gartner that coined the term Cisco and the 7 dwarves. But if you look at the last 2 to 3 years, that's changed quite a bit. I mean there was once the time that someone had 65% to 70% share. I think it's below 50% now. So it's still significant. But you have companies such as Arista, Juniper, H3C, Huawei and Dell EMC that are starting to make traction. And as I've said, in the data center space, we continue to outgrow the market 13 over the last 14 quarters. So I think the market is ripe for disruption and right for new players. And the data center transformation that's occurring at both the core and at the Edge provides an opportunity for new players to take a position. And obviously, with the Dell brand and the Dell Technologies capabilities, we have a strong opportunity. We don't really like to give share predictions over long periods of times. We barely give share predictions in the current quarter, but we're going to continue to push to have double-digit -- not double digit, we'll continue to push to have above-market share gains in the data center. On the area of 400 gig, I think it offers a tremendous opportunity as it will be the core spine in the modern data center. And so as customers continue to upgrade with software-defined data center, they go to more of a spine and lease technology versus a 3-tier architecture. 400 gig is going to be very incredible. And an interesting side fact that maybe the listeners don't know, while several of our competitors announced their 400 gig platforms last year, we had quietly outshipped them in ports against any one of them individually and have a pretty good share position in ports today in 400 gig. So we certainly see some of that transformation as customers are upgrading, and we continue to see that as a tremendous opportunity. And we've been performing relatively well in the market on 400 gig.

Got it. I have a few questions from folks on the call related to this, and let's see. I guess one -- I'll give you 2 of them at the same time. One is why not focus on the campus side more aggressively versus with data center? So maybe just the contrast of campus and data center and why one is more important to you versus the other. And then on the 400 gig adoption, are you seeing the engagement with -- I guess are you seeing with service providers, hyperscale or traditional enterprise? Where is this initial adoption coming from?

Sure. So maybe the campus question first. I think one thing is, is that there's more disruption opportunity at the data center and at the Edge. As I said, those are the fastest-growing markets. The campus market is relatively flat to down. So one, the opportunity for growth and differentiation is there for Dell EMC and Dell Technologies, more importantly, network virtualization, security, data center switching and SD-WAN. The second thing is, I believe, we have a very disruptive story around open networking and disaggregation and we can truly capitalize on our #1 position in compute, our #1 position in storage, our #1 position in hyperconverged and our #1 position in overlays with NSX. And so that's why we put a tremendous amount of focus around the data center. And then with the acquisition and the OEM of VMware's VeloCloud solution, we believe we can disrupt at the Edge as well. Now over time, I could see the campus disruption as these 2 worlds start to come together, as more and more remote workforces, as we see the introduction of 5G wireless capabilities, maybe private LTE, maybe we'll start to look at campus later, but in a very disruptive area -- a disruptive way. So that's why we focus primarily in those areas. The question around 400 gig and who's adopting it, certainly, it's hyperscale. It's service provider and telco CSPs as well. But we also see it in very large enterprises, both in the finance area, retail and several different verticals. And I think slowly but surely, I mean, it's still early parts of the market. Certainly, the initial was in hyperscale, but we're starting to see adoption in other areas where -- but mostly in higher-end enterprise.

Got it. I guess another one related to this topic for you, Tom. I guess when you look at your switching business in aggregate -- I think this is the gist of the question. When you look at it in aggregate, what percent of your existing customers, especially in compute and storage, are actually using Dell's networking gear? And how big is that opportunity if you could scale that more aggressively in terms of just penetrating the installed base that you make?

Well, I mean, as I said, while we've been growing in share, our overall position is still not huge. In ports, we have a good share in the data center side in #2, #3, overall, I think, #5. I can't -- off the top of my head, I don't know the percentage. But obviously, the size of our compute business and our storage business versus the size of our networking business, it's not a huge attach. And it's not -- I would say, the majority of our Dell EMC networking customers are existing server or storage customers, probably around 75% to 80%. So we have the opportunity to up-sell networking. The upscale opportunity to attach more is very significant. The question is really getting that capability to disrupt, to introduce and so forth. And some of the things that we're doing to improve that around technology is something -- 2 things, really, is one we call SmartFabric services. SmartFabric services is the capability to connect our switching portfolio with VxRail, as an example, and everything is automated and managed by our HCI systems management. So you don't need a Cisco CCIE. You don't need connections and integration and so forth. Everything is designed and managed by the VxRail manager. Same thing is true with our PowerEdge portfolio available in some of our ReadyNodes and our MX7000s. And then last year, we introduced the VMworld, a combined product between ourselves and VMware called SmartFabric Director. This very much automates the capability of connecting the underlay and the overlay. So Dell EMC underlay with NSX, reducing the time of deployment of a fabric from, say, 1.5 days to literally 3 steps, minutes, so really simplifying that capability. So I believe that the upside is significant, but we've got to continue, and we are delivering disruptive innovation between ourselves and VMware to make this transition from, I'd say, a traditional networking vendor to a Dell EMC or Dell Technologies point of view is going to take a bit of time.

That's great. And I guess, maybe if I could just shift gears a little bit towards open networking discussion. You guys I think have been a big proponent of it. I think at the upfront of the discussion, you mentioned SONIC, which you guys are supporting. Obviously, VMware has NSX as well. You have a lot of assets that are fairly attractive, I think, in that marketplace. I'm curious what do you think an open networking world would look like for your customers and the vendors that are playing right now as you go forward.

Yes. So actually, I believe we are the pioneer in open networking approximately 5 years ago. We were the first to disaggregate hardware and software. And the reason for that is the hardware is becoming commoditized. The shift to merchant silicon is moving much more rapidly, and the speed and capability and latency of merchant silicon is moving much more quickly than proprietary silicon. So the hardware is becoming commoditized. And then we saw the introduction of network operating softwares from third party that were just providing the software layer, companies such as Cumulus, which was recently acquired by NVIDIA; Big Switch, which was acquired by Arista. But we also started one of the first discussions with Microsoft, which is the originator of SONIC for open -- for SONIC, which is software for open networking in the cloud, which they run across their Azure footprint, thousands and thousands of switches. But we are the first to work with them on the OCP project, introducing the switch abstraction interface. This is the capability to standardize the SDK, so you can move from switching vendors and silicon vendors without a lot of challenges and difficulties, but continue to make contributions to SONIC over the years. So one is we really turned the switch very similar to a server. Customers can come to Dell EMC and they can look at a traditional NOS, which is our OS10, or they can look at third-party NOS or now an actual open-source NOS that we support. So a little bit more on SONIC. We just announced at OCP just a month ago, the first supported distribution of an open networking NOS, which is SONIC by Dell Technologies. So it's now the culmination of dozens of companies contributing to an open source in OCP, really showing the scalability and the capability of SONIC that we've also contributed to. I believe, we're now the second largest contributor of SONIC on a global basis next to Microsoft. And we continue to contribute with engineers that are dedicated to making contributions around the capabilities and protocols of SONIC. More importantly, though, what we've done is we've taken the distribution and built the distribution, which has been fully tested, fully automated for many different environments. And we're going to support the entire staff on a global basis. So similar to maybe a Red Hat OpenStack distribution, we're going to take an open-source distribution of a network operating software, SONIC, which has now massive contributions from the community. And we're going to support it from a global basis, both from the software and the hardware for our customers. And I think, looking out, what this does is it gives customers choice. They're not locked into a proprietary stack. It gives them more flexibility to operate both the underlay in the NOS that they need based upon the use cases and location. The capabilities or the need for 1,100 features and protocols at the Edge is no longer required. And I think customers are recognizing this, that they've got to -- particularly with COVID, they've got to reduce the complexity of managing these remote network capabilities and significantly be able to do this from a software or from a virtualized fashion. And so I think that it really gives them the choice and capability to run the software that they need based upon the use cases and the locations. And lastly, it gives them, I think, the flexibility around spend management and so forth. It's -- we've got several documents and reference studies that show how it's -- it's saved companies a tremendous amount of money, not just from a CapEx standpoint, but from an OpEx standpoint as well. So I think, while all the vendors have talked about their support for SONIC, it's only on the hardware. We're supporting both. They talk about how they're supporting open source, but we're really contributing more than any other supplier in the industry. And they really have a lot to protect from the standpoint of that proprietary stack as it relates to their business model. And lastly, I'll just close with, Dell has a history of doing this. Michael did this with PCs. I think that the CEO of digital equipment, when Michael started the company stated, "Who's going to need a PC in their home?" Now obviously, we took that from home to commercial, the supply chain, the support and logistics we've expanded. 20-some years ago, we entered the compute market, traditional proprietary area with companies such as IBM and so forth. And we completely transformed that to x86, and the markets have completely shifted now between x86 and mainframe. And so I think the networking world is ripe for this level of disruption, and Dell has a history of carrying across successfully.

That's a really good background and understanding of SONIC, by the way. And I have a couple of follow-ups to you on this. And I guess, 2 of them, maybe if I can synthesize them together. This is a fairly a new offering, so I don't know if you have wins broadly with SONIC and what you guys are doing over here. But to the extent you've had any description, any sense on what these wins look like. And then secondly, how does that make money in this engagement? Is it something that you sell services and ancillary premium services essentially? Or what's the revenue model look like?

Sure. So we have several customers that are -- a few that are actually deployed. Hopefully, we'll have some announcements around that in the coming months, but it's still a little bit early. These are primarily in the service provider and large enterprise space. And we have several other customers primarily in large enterprise that are in proof-of-concept, in trials, as we speak. And our goal is that, by the end of this year, we'll have a dozen or so active customers up and running on SONIC. And then that will grow over time as SONIC continues to mature and companies continue to look for it from an adoption standpoint. We -- there is a charge for the distribution of SONIC, but the goal is to really make money on the overall services capability and support capabilities. That is where -- I mean we make money on our hardware and we make money in representing the entire stack from a support standpoint -- from that standpoint. And we also believe that there's an opportunity around professional services engagement as far as installation and support and so forth. The first couple of customers, as an example, we're helping them with the proof-of-concept, with engineering resources capability to bring SONIC up and running. So I think there's several opportunities there. We will be continuing to work with SONIC in other connections as we look up the stack through our overlay as well. I don't want to talk too much about that. So there's strong interest of expanding SONIC in the Dell Technologies portfolio. And we've had some recent discussions with some telcos with some specific use cases around SONIC at the Edge as well. And so I think, for us, making money isn't specifically just about one product. It's about the entire portfolio of solutions we can bring to the customer and how do we attach those from that perspective. Amit, I can't hear you right now. There you go.

It's the joy of using web technology these days, as you know. You try to mute yourself , but it's on mute. I don't want to talk about running out of time here, but I do want to go through 2 things with you quickly. One, you talked -- you mentioned this initially, but can you just talk about your SD-WAN offering? And what are your expectations here as we go forward?

It's a great question. So we announced at VMworld the OEM of the VMware VeloCloud solution. So similar to VxRail, it's based upon Dell EMC hardware and VMware software. The SD-WAN market, as I said earlier, is about $700 million today. VMware has a very strong position in the Gartner Magic Quadrant as a leader, and it's done very, very well. And so I think with the announcement, we've added the capability to really expand the capabilities to get to new markets with that product. If you look at our global supply chain, our services organization, our sales organization being one of the largest in the industry, it's going to provide a tremendous opportunity to get SD-WAN adopted and VMware VeloCloud with Dell EMC in several of these customers. So I gave a comparison to VxRail, not just from a technology standpoint. It was some several years ago that we introduced VxRail. And today, we have over 8,000 customers, so that shows the scalability and capability of the Dell EMC engine, along with our best-of-breed hardware, to really push newer technologies into the market. So I believe that it provides a tremendous amount of upside. Whether we'll get to 8,000 customers, we'll see, but we believe that it could have a trajectory that's quite significant.

Perfect. One of the questions I wanted to -- there's a few different variations from folks, but I think the common thread really has been around, can you talk about Dell or your engagement with VMware specifically and how has that changed since the deal was done today? How tightly integrated are you from R&D, product development and go-to-market perspective? Just where are you today? And how has that evolved? Where does it go?

I think you've heard Michael and Pat and Jeff talk a lot about this. And in fact, later today, I have a product review with Jeff and Pat and our 2 product organizations on several different areas. And this happens at least once a quarter, if not twice a quarter, in addition to lots of day-to-day engagements in several areas. And VxRail is one perfect example that has shown the capability around collaboration and the capability to execute for our customers in the area of HCI. Some other areas include Workspace ONE, the capability to combine some of the VMware assets with our desktop capabilities, which we announced, I believe, at DT World last year, continuing to work the capabilities and assets around there. Again, very pandemic COVID-related, how do we protect, how do we serve our customers as it relates to their connectivity and their management of their devices. So Workspace ONE is another area. I mentioned the SmartFabric Director, which is really a joint development between the network security business unit of VMware under Rajeev and Tom Gillis, with my team delivering this software layer that tightly integrates NSX to Dell EMC underlay and really helping our customers scale their fabric much, much faster and much easier. So there's tremendous amount of collaboration. There's new areas of innovation. There's regular cadence. So I'd say -- I can't speak too much of the history because this was a large focus of Jeff Clarke when he took over ISG. And now that Jeff Boudreau is managing it, it's continuing to happen and will continue to happen for many years to come.

Perfect. I know we're up on the time, but I do want to -- we've covered a lot of this ground today, I think, talking about hyperconverged to what's going on with COVID, to your networking portfolio in depth. But I do want to turn this back over to you, Tom, and see if you have any closing comments you want to leave us with, anything we didn't touch on that you think all of us should be aware about.

No. I think we covered a large area. I think, again, the Dell technology advantage and capability is around the depth of our portfolio. A lot of people have questioned this, and I think it's shown over the last several quarters that we have the capability to support our customers in different verticals and in different environments. And I think that's a very strong asset from an IP standpoint. And then as I mentioned a few times, our supply chain and support organization, very strong differentiation, obviously contributed to some of our share gains in the first quarter that's now been announced between IDC, and I think primarily IDC in certain areas. So I think that's what's guiding us to kind of come across with. We believe we're very strongly differentiated to continue to capitalize on the digital transformation. We're going to continue to show, we believe, above-market gains in most categories of products. And we're going to continue to innovate. Our innovation engine because of COVID hasn't stopped. We continue to introduce new products, new technologies. And it's been, from my standpoint, a very proud moment to be working at Dell from the standpoint of my team and the broader teams, just continuing to focus on our customers, which has been fantastic.

Perfect. Well, I really appreciate your time. This has been extremely informative for me and for everyone else on the call. So thank you for your time, Tom. And thank you, everyone, for listening in. Take care.

Thank you very much, Amit. Thanks, everybody.

Thanks.