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

I hope everyone is staying safe and healthy at home. I'm Katy Huberty, IT hardware analyst at Morgan Stanley, and I am excited to host Jeff Clarke, COO and Vice Chairman of Dell Technologies, this morning. Yvonne McGill, the Corporate Controller, is also on the line with us. Working alongside Michael, Jeff is responsible for day-to-day operations, including Dell's world-class supply chain, as well as setting strategic priorities across what is now one of the most diverse technology portfolios in the industry. Dell has, of course, played a big part in enabling remote work and digital transformation during this global crisis, so the conversation today is quite timely. Jeff, thank you so much for joining us today, Yvonne as well. Really appreciate your time.

Our pleasure. Thanks for having us.

Before we begin the conversation, let me just read a few disclosures. 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 obligation to update its forward-looking statements. You can also find Morgan Stanley disclosures at morganstanley.com/researchdisclosures.

So with that behind us, Jeff, I want to start the conversation at the crux of Dell's strategy, which is to profitably outgrow the market. Dell, last year, grew revenue when many of your peers saw declines in their business. Last quarter, Dell revenue was flat. Most of your peers faced double-digit revenue decline. So talk about what has allowed Dell to outgrow competitors. And why are you confident that there's still capacity for more share gains?

Sure. Thanks for the question, Katy. Look, an inherent part of our strategy, which has 2 pillars, if you will, and one of them is around consolidation or winning in the consolidation of our core market segments. And we've had a long history of doing this. If I reflect back, looking at our Q1 performance last year, that's not new. We've been on a share gain, March for some time now. Over the last 3 years, for example, in PCs, we've gained 355 basis points of PC share. But more importantly, in the highly valuable commercial PC space, we've gained 600-plus basis points of in share. In Mainstream servers, over the last 3 years, we've gained 160 basis points a share. In external storage, we've turned around the share of losses that we had 3-plus years ago. And over the last 3 years, we've gained 220 basis points of share. And then what I think is the emerging category and an important of modern data center and modern architecture around HCI and its high-growth attributes, we've gained 600 basis points of share over the last 3 years. And for us, it's just the way that Michael has laid out the company, it's certainly the operating cadence and the measurement systems that we put in place is how do we consistently outperform our peers in the terms of share gain. We look at it inside the company as relative share performance. And as we look at our journey of becoming the most essential technology company in the data era, we think it's important to drive share gains in the edge, in the core data center and into the cloud and modern infrastructure. I think I was to play out why -- to answer your question, why are we able to do this? I think there are 4 specific things that come to mind that are driving forces behind this share gain. One of them is, you mentioned in your opening comments, so thank you, we have the broadest, the most end-to-end portfolio and portfolio of products and services and technology, serving customers, small business, medium business to the largest multinational companies in the world. It's a distinct advantage. It's a distinct advantage in the best of times. And clearly, during a time of crisis, customers want more assurance if their suppliers will be able to provide them the necessary technology, and we've been able to do that. The second one, which I think is a hallmark of our company over my 33-plus years now, is the speed of which we can move. We think it's unmatched in the marketplace. It's primarily driven on our direct model and in millions of customer touch points that we have at any given time. And if we think about what happened in Q1 and the significant shift literally overnight from work from home and learn from home, our ability to respond and build solution bundles and get product ready for our customers and our service organization to be able to respond to the new needs, I think, was largely unmatched in the marketplace. And then lastly, I think our commitment to innovation is paying off. We have a pretty big portfolio, and it's backed by 20,000-plus engineers, 85% of them write software; a portfolio of patents of 25,000 plus. We spent $14 billion of R&D over the last 3 years, and we're privileged to have a leadership position in every major category and technology that our customers need. So to summarize, I think scale and capability matters. We saw, I mentioned this in our earnings call a month or so ago, a flight to quality in Q1. Customers, big and large, came to Dell. They could depend on Dell. We've become a trusted partner over the years, and I think customers remember that, and they will certainly remember how we serve them in the toughest of times. And I think that backdrop is why we've been able to do this over the long run and why I'm optimistic looking forward.

Okay. So that lays out confidence around taking share. I want to spend a couple of minutes talking about the end market. And before we started the webcast, we were talking about investor focusing on public cloud adoption as a theme. And we've seen this in our data. The CIOs in March, about 90% said they were accelerating their spend on public cloud. That was almost double the rate from February. And so when you think about this theme, is it a risk for Dell's end markets around providing on-premise data center infrastructure? And also, how is Dell positioned to actually participate in public cloud growth?

Well, it's a question we certainly spend a lot of time thinking about. Cloud in itself is good for NL. We view the world of being many, many different public and private clouds that our customers utilize. It probably starts with the fundamental premise that we view cloud as an operating model, making IT easier to consume, easier to deploy, easier to provision and so on as part of our customers' broad IT strategy. And we think that spans both the public cloud and private cloud and increasingly the needs at the edge as we believe edge clouds will evolve where latency and regulation, power and what have you are going to drive very unique environments at the edge going forward. And there's no doubt -- and if your data says it, and we saw it as well, there's no doubt that the current business environment, IT is essential to business continuity, and it's critical for every industry and particularly think opportunities in education, health care and government are very large opportunities with respect to cloud. Everything that we saw in Q1 and since reinforces the world as a multi-cloud world. There's no change in our customers' view. They will have many clouds. They're going to have AWS, Azure, Google, and they're going to have many, many private clouds. We think that presents a problem for customers as you see a growing complexity in their environments of disparate tools, multiple SLAs, multiple operation attributes to juggle around. And we think that's the opportunity for Dell Technologies. If you think about what we announced a little over a year ago at Dell Technologies World with our Dell Technology Cloud strategy, hybrid cloud solutions expand the public and private cloud worlds that allows customers to begin to address how to simplify management of clouds, drive consistent automation between their cloud environments, help them lower their cost and improve overall security. We think that's a sweet spot for us. And with the rate of cloud growth that you mentioned, I think that's a huge opportunity, going forward, for Dell Technologies. And when we think about Dell Technologies cloud platform and the work we've done since last May, we've added, let's see, Dell cloud platform specifically, so VxRail plus VCF in the marketplace. We have VNC and Dell EMC. We've added subscription service, various consumption models with Dell Technology On Demand, a 14-day time to value. VMware just launched, which we've integrated these capabilities into our platforms; vSphere 7.0 with Kubernetes; VCF 4.0 with Tanzu, all part of our multi-cloud strategy for the company. And we think we are building those solutions and services for this multi-cloud world. I won't argue, there's no doubt clouds are growing, but it's more than just public cloud. Public cloud is growing, no denying, so are private clouds. And I think the edge presents a great growth opportunity for us as well. I think we were talking before the call this morning, we saw a surge from our customers in SaaS-based collaboration and communication tools that drove a significant upside in public cloud infrastructure. We didn't see the same thing in IaaS. You've seen the same IDC data that we have seen. We think digital transformation accelerates, and public cloud and private cloud environment is going to grow by 15% through 2023.

Okay. Great. Let's talk about...

We think that's a huge opportunity for the company.

Yes. And the VMware integration is a key differentiator versus a lot of your competitors that are more point product focused?

I think that's right, and it allows us to really take advantage of what we think will happen is -- look, many companies start with a public cloud environment. They realize public cloud is part of their IT strategy. They need private cloud as well. We look at workloads being balanced in the future, 30% on the public cloud, 40% private cloud and 30% on traditional infrastructure. All of those play well to our end-to-end strengths as a company, so we're excited about cloud growing.

Great. Let's talk about macro for a minute. Over the past 2 months, just about every enterprise technology company has either pulled guidance or lowered their outlook, yet macro data points are improving and showing a lot of evidence of recovery. And as you talked about, technology has been integral for the survival of companies during COVID-19. So is there a scenario where the trough in IT demand is shallower or more V-shaped than we all thought maybe a month ago?

Oh, I'm no economist, and I'm certainly not going to play one on the conference today. I don't know. I've learned more about V U, L, W and economic recovery than I thought was possible. I step back and look at the signals the macro is sending us. Our industry analysts across every sector have taken down their views of growth in Q2 and for the balance of the year. 6 months ago at the beginning of the year, we had a global GDP on the positive side. Now we're looking at global GDP in the minus 3% to 5% for 2020. On our last earnings call, we indicated that our Q2 would be below normal sequential growth. So that's the reality of what we have. Where we are in the trough, I don't know. I tend to step back and go what are the long-term characteristics. I'm a technology optimist, been at this a while. I think we've learned that technology is more important than ever right now. It plays a huge role in fighting the virus, finding the vaccine, but more importantly, it will be a catalyst in the recovery. And as I just mentioned, every signal we see says that this pandemic and coming out of the digital transformation is going to accelerate, moving us quicker, faster, whatever you prefer, into this data decade. It's going to drive us faster to the fourth industrial revolution where we see the world of data enablement of AI and NL breakthroughs that are going to drive automation, autonomous machines, smart cities, a digital world. The world is going to become more online. We're going to find new ways to educate the world's youth. Telemedicine will be commonplace in the near future. This new normal has put technology front and center like never before. So I summarize going, what's not to like? Well, I can't predict what Q2 or Q3 or Q4 may look like. The long-term prospects of technology look very, very good and particularly for us as I think about our strategy of winning in the consolidation of our core marketplaces and then building highly integrated and innovative solutions for the data era. So again, I know I didn't answer your question about specifically Q2 and the rest of the year. When I look downfield, all of the signals and signs suggest technology accelerates, becomes more important and is part of the answer going forward.

And to your point, we recently surveyed a large number of CFOs and COOs, and they told us that their #1 priority going into the back half of this year would be to maintain technology investment. And that's because they either were able to successfully operate through this period because of their digital investments, so they saw their peers up form because of those digital investments. So I couldn't agree more. Obviously, the big question in the room is the timing of when we see that inflection.

Right. But I think we saw 2 things which I think reinforce that. One is you saw companies that were technically prepared for what happened really distance themselves from companies that were ill-prepared for what happened. And then the second attribute, which we talked about this a little bit earlier, too, is, for a lack of a better way to describe them, customers have embraced digital transformation versus customers who haven't necessarily embraced fully digital transformation. We're seeing their business performance separate. So they're going to have to -- we believe those who have not invested are going to have to invest long term to catch up or risk being less relevant in their particular market sectors.

Yes. I couldn't agree more. You spend a lot of time and focus on the new midrange storage platform that Dell just launched called PowerStore, and competitors have been dismissive. But I will tell you, the channel checks that we've done, and we hosted a public call on this recently, the feedback is that this is the most innovative storage platform in a long time, and it's absolutely going to drive share gains. And so I would love to get just updated views on how the sales pipeline is growing. And what are you doing to ensure that this can help you regain some of that lost storage market share after the EMC acquisition?

Sure. Look, I've talked about PowerStore on calls like this for every bit of the last 2.5-plus years I've been in this role, and we're very excited about PowerStore. It completes, if you will, the modernization of the journey that I started, I guess it's almost 3 years [ coming ] in September, of modernizing the entire legacy EMC storage portfolio and building it for tomorrow's workloads. Wen simplified the portfolio. You'd probably remember, I've mentioned we had 88 products 3 years ago. We're down to 20 now. They've been rebuilt into this power context, which basically means they're cloud-enabled. They use modern media. They're software-defined. They have artificial intelligence and machine learning enabling the base systems. They're trusted. They're scaled out, and these attributes now are consistently applied against the overhaul of the portfolio. So I couldn't be more excited about what PowerStore means in completing the journey and reestablishing Dell EMC as the leadership brand and innovation going forward. PowerStore began shipping in April. Our sales force is trained up. The feedback from our customers has been fantastic. We've seen unprecedented interest, and the pipeline is building. Without giving you specific numbers, whatever records we had in the fastest-growing pipeline in the annals of Dell EMC's history, PowerStore has broken every one of them in its first 6 weeks into the marketplace, which is pretty exciting for us -- I mean, 7 weeks into the marketplace. The reviews from the technical press are very much what you said as the most important development in store and data storage hardware in a very long time. We think that's because it's all about architecture. We spent a tremendous time in this architecture, getting the architecture future-proof. And I think it's got 3 elements in it. One of them is just that. It's a data-centric architecture. We've built it for the next decade. It is a data-driven architecture, container-based, optimized around system performance, scalability, storage, efficiency, support any workload. The early results are very significant for us, 7x the IOPS against the previous product, 3x lower latency. It scales up. It scales out, giving our customers ultimate flexibility while still delivering and guaranteeing a 4:1 data reduction rate. What's equally important, I think, is why we picked NVMe and the data path that we've optimized. So a lot of time spent around the core architecture of the data path, all flash-based, so we don't have the overhead of the old [ SKUs ] protocols. We can do higher degrees of paralyzation in the data path. We can ultimately have faster response time to application needs, and that is fundamentally the first attribute of the architecture that we put in place. The second one I mentioned as well on our last earnings call is quickly was this notion of intelligent automation. We built in machine learning for autonomous storage, which enables us to reduce time-consuming task of storage administrators for our customers. What's really cool about this is we can take data automatically in an automated fashion, place it, monitor it, look at the real-time attributes of how it's being used and move the data in a way that optimizes performance and usage from our customers. It's -- we have a programmable, seamless interface with VMware. And we've put our leading cloud-based monitoring tool, Cloud IQ, which brings customers predictive analytics and being able to use this in a very modern way. The other cool feature that I think is really distinguishing itself in the marketplace is this notion of a flexible architecture that allows applications to be run on the array itself, which simplifies task, puts tremendous flexibility in the hands of different organizations. They can run their applications absolutely right on the array. And if I package those 3 things up, it's unmatched in the marketplace. That's why we're beginning to hear the technical press really view this as a very differentiated hardware platform, very much capable of doing things that you would not have thought of an array 2, 3, 5 years ago. We've built on a VMware hypervisor which allows us even more flexibility. And I guess that's my long-winded way of saying, yes, we're pretty excited about it. We think this is a game changer in midrange storage. It is certainly an area that we have been most challenged in, in terms of our share performance. We think this absolutely solidifies our mid-band or midrange storage price bands, and we're excited about the prospects. You couple that with, we launched PowerScale last week. We launched OneFS on Google 3 weeks before that, and there will be another announcement coming this week on our storage portfolio. We're firing on all cylinders. The innovation engine is working at Dell, and we couldn't be more excited about our prospects and all of storage and specifically in midrange storage. I know that was a lot, so I apologize.

Yes. No. That was really helpful. If you think about sales cycles and storage, when should we start to see share gains on the back of PowerStore?

As you know, converted, the selling cycle is longer in storage. I would like to think that we will -- we have a ramp plan of the product. And as we hit which cycle of the big storage buying season this Q4, Q4 will begin to see a significant impact of our PowerStore platform.

So if you pull together the excitement around the storage portfolio, the sales capacity that you have added over the last couple of years and just the overall strategy of taking share in end markets, is there a path to growth for ISG, which was certainly the outlook coming into this year? But clearly, a lot of things have changed on the macro, which we talked about earlier.

Yes. I don't think we all planned on day 103 of working from home. We didn't have that in the plan. But clearly, the macro has changed. Our focus, which will surprise you, is focusing on the things that we control, which, quite frankly, is our performance relative to our peers in the market. The market will be what the market is. Our job is to take share and outperform our competitors in the space, and that's what we're focused on doing. We think there's tremendous opportunity here. If you look at what we've built over the past now 2.5-plus years, there's a refresh of the entry, the high end, now the mid-range. We have our PowerScale on the unstructured side. We rebuilt the portfolio on the data protection side. Our server portfolio is in great shape. I like our prospects in ISG to continue to outperform the market. We think -- we believe we have an advantaged product line top to bottom, and it's the broadest in the marketplace. You add to that the success we've had in HCI, working with VMware with our VxRail product. Again, it's the broadest portfolio and a privileged position of being a leader in all of them. Our storage leadership position is we're larger than #2, #3 and #4 combined. That scale is important, and I think it's going to be particularly important in the maybe tough times ahead of us. We're going to continue to invest in R&D. You've heard me talk, I don't know how many times, Katy, about the investments that you referenced in go to market. The teams are ramped. They're higher. They've been trained. They're excited about the portfolio. We've invested in channel programs. We are working on at building and growing our buyer base, how do we acquire more customers, how do we build cross-sell. I'm excited about the prospects that we have in front of us here. Equally important, I think, customers are telling us they want to consume and digest our products differently, and we're building out a range of capabilities around our Dell Technology On Demand. So whether it's pay as you go, pay as you grow, consume it as a service, you will see us offer customers more flexibility in payment and consumption solutions, going forward, from our company. We think that would help us long term as customers think about OpEx buying rather than CapEx buying, and putting that degree of flexibility into our entire portfolio is advantageous. So I guess, again, another long-winded answer to say we have the right portfolio. It's never been stronger. It's a leadership position from server to storage to data protection to converge to hyperconverged infrastructure, the integrated software stack that goes with it. We've added more flexibility to buy and consume the product for our products and services for our customers. I like our chances. My job is to go drive a share consolidation in the marketplace. That's what we intend to do.

You just mentioned cross-sell. One of the advantages of bringing in the EMC portfolio was the cross-selling opportunities with VMware. Originally, you talked about something like $1 billion of cross-sell, which I think at this point, you've surpassed. When you look at the Dell Technologies portfolio, where do you see the biggest incremental opportunities for cross-sell?

I think they are twofold. The first one is within our core businesses themselves. We'll go and maybe a little detail is we have desktop customers that don't buy notebooks. We have notebook customers that don't buy desktops. We have notebook and desktop customers that don't buy our accessories. Those are huge opportunities in our current customers, that small, medium and large businesses. We have PC customers that don't buy our servers. That's an opportunity. We have server customers that don't buy our PCs. That's an opportunity. We have storage customers that don't buy our servers and so on. We have -- what I've done since the beginning of the year is put together a very specific program with a bunch of operational drivers that go focus on that conversion of the cross-sell and upsell in our portfolio. I think that's a significant opportunity. The second one is you alluded to, and I think there's even more to do is the cross-selling we have with VMware in this notion about building highly innovative and integrated solutions in the marketplace. How do we take this first and best notion that we have with our colleagues at VMware and apply that across a broad portfolio of solutions for our customers? We're working together in storage, compute, networking, data protection, 2 solutions that we've put in the marketplace that I think distinguish or show what the potential of the partnership is, is our Dell Technology Cloud and Unified Workspace. We continue to build upon that. So I think the cross-selling of taking those highly integrated solutions across both VMware's customer set and the Dell EMC customer set is pretty significant. Particularly as I look again downfield, accelerating digital transformation, looking at this data era of multi-cloud world, there is just a huge opportunity to bring answers to our customers to help them with their IT challenges. That's how I'd respond to that.

Great. Let's shift the conversation to the other part of core Dell, which is the PC business. And this has driven a lot of the outperformance over the last 12 to 18 months, but you came into this year expecting a slowdown. Does a more distributed remote workforce, are you for structurally higher PC demand? And how would you foot that with the slowdown that your CFO, Tom, talked about on the last earnings call that started in April and a bit of a weaker outlook for PCs in the back half of this year?

Again, in terms of a market forecast or what the second half demand is, I don't know. There's as much uncertainty out there that I can't predict or project and wouldn't want the second half demand would be. But the first part of your question, I think, is, in my mind, the profound part, which is there is no question in my mind that the pandemic and what's coming out of the pandemic is going to drive demand for the PC for a long time. So I think the long-term prospects for PC and its ecosystem is pretty darn good. I think we've learned a lot over the last 100 days. And most notably is the PC is still the primary productivity and learning device on the planet. I like the phrase it's essential technology. And as a result, I think we're going to see it take even a stronger role in this new world, this new normal that's been created. You've seen much of the same market research that I have, this working from home or working remote is here to stay. Our research, other research that I read suggest that we'll see a 20-point uplift in companies of all sizes, small, medium, large, super large across all sectors and their workforce working from home. I think that's generally understated. I look at our own experiences at Dell. We were 25% roughly working from home and remote pre-COVID-19. My estimate is we'll be 50-plus percent COVID-19 in short order. I think it's very reasonable to believe that 50% of the professional workforce around the globe over the next 3 to 5 years will be working from home. That's up from 20% today. We think it's such a huge opportunity. We think it comes in 3 flavors: do it light, get something done now to get people working from home and learning from home and giving business continuity in place that's largely behind us. We think now the focus is doing it right, optimizing productivity for the workforce that's at home or working remote. And then long term, the prospects around innovation and driving or building a modern PC experience is pretty profound. I think about what we could do long term, knowing this is the way people will work, I think, is a very large opportunity. And it drives infrastructure with it, too. The opportunities around VPN, BDI, SD-WAN, I think, are very important certainly for our company and the Indian portfolio we have. We've got to solve 3 barriers that get in the way in my mind: cultural barriers, technology barriers and policy and procedures. I'll focus on the technology ones near and dear to my heart. How are we going to manage those assets in the field? How do we do remote imaging, provisioning, patch and application updates? How do we do remote services? How do we do security? I think those are all attributes that have to be solved as half of the workforce may be working outside of the 4 walls of the company. It's why it's important or why something like Unified Workspace with Carbon Black, for us, is very important in building an integrated PC hardware platform with our services and the software stack from VMware. The technology themselves, with that much opportunity, the PCs will matter. The technology will matter. We're going to continue to innovate to make sure that we build and design differentiated notebooks, desktops, workstations and displays. Last month, which I think presses the point of the innovation, we launched 30 new commercial notebooks and desktops, 19 new consumer notebooks and desktops and 7 new XPS and Alienware notebooks and desktops. So I think innovation is alive and well. I think it's going to be a differentiator long term on the PC side. And then if you want one last data point, which I think is fascinating, roughly 1.7 billion units in the PC install base that are actively in use today, more than 700 million of them are 4 years or older. That means they're not great Zoom, Skype, your tool experiences. That's an upgrade cycle right to happen. The rate and when, I don't know. But clearly, with work from home and learn from home is here to stay, that install base has to be upgraded to be able to work productively and learn productively in this environment. I hope that helps.

No. That all makes sense. One of the other differentiating factors is that Dell has been able to meet the surge in demand in PCs and in servers, whereas your competitors have dealt with significant backlog and longer lead times. Talk about how Dell's supply chain is structured and why you've been able to meet that demand and outperform competitors? And how long do you think that advantage will last?

Well, maybe answering the last part first. We've had a distinct advantage in [indiscernible] for multiple decades now, and it's certainly my job to make sure that we don't give up that advantage going forward. And let me tell you why I think that's the case going forward. I mean, clearly, scale matters in the supply chain. We certainly have scale being the largest supply chain in the IT sector. That clearly helps. But I think there are more dynamics around speed and resiliency, coupled with that scale that enabled us to have the flexibility to work through the most recent crisis. For us, it's not the first crisis. We've had floods, volcanoes, multiple viruses to contend with before, ongoing tariff discussions between the United States and China that our supply chain is battle-tested. And it's very nimble as a result. So we've used that scale, the relationships that we have across our global network in 20 years of experience operating in China to maneuver through and around COVID-19, and our response is great. Within 48 hours of China shutting down, we had an assessment of our 1,500 second or secondary and tertiary tier supply base. That's unheard of. We knew exactly our inventory positions, their production views in a short period of time, and we began to make real-time decisions. I will tell you that all sounds good, but it wouldn't -- that wouldn't have been able -- or that, alone, wasn't enough for us to navigate the situation. We started our own digital transformation journey, I guess, it's now 3 years ago in the supply chain, where we've been really digitizing what we've been doing in the core supply chain. So we put automation in our supply chain planning, delivery, procurement, manufacturing and warehousing. We now have a common data lake and the data transparency for us to look at what's happening real time end to end from what's coming out of our suppliers to what we're shifting to our customers and everything in between is now not a bunch of spreadsheets or a bunch of human touch points. It is actually a digital tool that allows us to do this. And as a result, we were able to apply a bunch of predictive analytics and model outcomes and associated responses for us to be able to serve our customers in a differentiated way. In my mind, that was the breakthrough, the work that we started 3 years ago and digitally transforming our supply chain that allowed us to weather this current problem better than others and I think is a continued source of differentiation going forward, which I think is going to be important because, longer term, we think the world is going to value resiliency in the supply chain more than it does its scale. We think as a result, we're going to see the supply chains decentralize a bit, be less global, more local in nature, different components of it. And our ability now to be able to navigate that with the tools and capabilities that you put in place, again, I think is differentiated and certainly helps us. It allowed us to fuel this notion of what I called out earlier this flight to quality because we had this advantage. And our customers found out quickly if they came to us that we could deliver, the supply chain really, I guess, helped endorse this notion of flight to quality, and Dell was predictable, Dell was someone you could trust to be able deliver my PCs to get my workforce up, to get business continuity restored that certainly distinguished itself, and we expect to be able to do that on an ongoing basis.

There were a lot of management teams that we speak to are worried about a potential second wave, and so it sounds like you are positioned to continue to outperform, if that, in fact, plays out later this year and into early '21.

I think so. I won't give you the specifics, but I'll give you an example of the nimbleness and the speed of which our supply chain can operate. We have 1 facility in the network of 25 that was challenged for a variety of reasons. We moved the entire production within 36 hours to a site on a different continent.

Unbelievable.

They can order anywhere and be able to build anywhere and deliver it anywhere is certainly a hallmark of the supply chain that we've built, and that's what we use. We can sell it anywhere, build it anywhere and deliver anywhere.

How would you characterize the supply and the pricing environment when it comes to components, particularly some of the commodity components that were expected to drive some margin pressure coming into this year?

Yes. As we said on our most recent call, as we look out in time for the balance of the year, we look to Q2 beginning to move towards deflationary, and we think that continues throughout the year, principally driven by DRAM and NAND. What I can tell you, there's been no time that I've been in this industry where if demand softens or continues to soften or if the market outlooks are correct that the commodity base will stay in a state of inflation. I don't know what will happen, but I do know that if the demand falls as if some of the outlooks are correct that we will see, long term, a deflation environment rather than inflation. But right now, we're calling -- inflation is what we see to date. Nothing has changed in that regard, and we'll see how the second half demand profile looks.

And Yvonne, maybe we'll pull you into the discussion because an inflationary environment would clearly put some pressure on margins. You had talked about coming into fiscal '21 an operating margin this year that looks like fiscal '19, so a bit lower. Is that still how investors should think about profitability in fiscal '21?

Katy, as you know, we've pulled our guidance, and so I think that's something to definitely consider. I can talk you through the factors, though, that impact margin, right, component costs, the pricing environment, demand, mix, et cetera. So right now, we do see that the -- we think that the environment will remain inflationary for the rest of the year, and we know that we're going to be in a continued competitive environment. So our jobs remain disciplined and balanced and make sure that we are making the appropriate price changes as required with the dynamics that we can control. So we'll be thoughtful on how we position ourselves in the short term and for the long term as we navigate the environment.

Great. Jeff, let me ask you one more question, then we'll see if there's one from the audience before we wrap up. How, if at all, does the fact that Dell trades at a discount to it some of the parts come into the conversation around business strategy and long-term capital allocation? And in your mind, what are some of the paths Dell can take to close that valuation disconnect over time?

Yes. We get that question a fair amount. The valuation and discount and the financial experts of the industry figure out that we're very disciplined in how we look at this. We launched or talked about last year, it was last September on our business update with the financial community, around 5 levers of value creation in the company: current operations, synergies, new opportunities, corporate structure and capital structure, if I remember the 5 correctly. And that's where we're focused on. Value creation for us gets down to how do we run the business against our stated strategy, which is to win in the consolidation of our core markets and to drive innovative and differentiated solutions across the portfolio. Those are the 2 tenets of the strategy. We're executing or driving the business to that. The first element is how do we drive differentiated performance over our peer sets, which we certainly did in Q1. Now we have to continue to do that. We've been doing that. We have to continue to work on communicating the value long term of building these first and best, highly integrated and innovative solutions across our portfolio that our customers need long term. That's -- maybe -- that's my job and what I spend time driving and working with the organization to do. The valuation piece doesn't enter the execution of our core strategy. It's really those 5 levers, executing our business around how to win in the core, how to drive and expand into new categories and to drive innovation. And quite frankly, that's what I spend my time on.

Great. Let me -- as I said, I'll take one question from the webcast because we're coming up on time. But I think this is an important one because Michael Dell was speaking at a conference recently, and he talked about having a very aggressive sales force that can help drive storage share gains in particular. And so the question is how does Dell think about pricing as a lever to gain share in the storage market now that you have a fully refreshed, innovative product line?

I think the pricing lever is important. Well, look, Yvonne said it just moments ago. We're going to remain disciplined. I think we've demonstrated over the past handful of years that we are very disciplined. We all hear about the large deals and the aggressive pricing in the marketplace. We are going to stay focused on the right balance of growth and profitability. That said, for the strategic acquisition of customers, that's important. We will be aggressive to acquire new customers. If they don't buy my storage today and I have an opportunity to get them to buy my storage and a few points of prices, the differentiation, we're going to price to win a new customer because the long-term value creation of a new customer is very important to us. Whether that's the initial storage sell, but then the opportunity as we explored earlier, Katy, the ability to sell the rest of the portfolio. So we have this program inside the company that we're -- that I'm leading with our sales -- My sales colleagues is around strategic acquisition pricing. We will absolutely be aggressive, reasonably aggressive to win new customers because at the end of the day, our business grows as we grow the customer base. That's where I want to be aggressive. In terms of being aggressive for share's sake, that's not what we've done. I don't project us doing that anytime soon. But where it's in our strategic interest of growing the customer base, improving the opportunity to cross-sell the rest of the portfolio, you should expect us to go win new customers. Yvonne, anything I missed on that you would add?

No, no. I think you covered it well, Jeff.

We covered a lot of topics. This was really helpful color. Jeff, thank you for your time. Congratulations to you and the team for executing so well in what's been a really volatile year so far. Thank you, everybody, for joining us. As I said in the beginning, I hope everybody remain safe and healthy, and we'll talk soon.

Thanks for having us, Katy.