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

Hi, everybody. Welcome to the Deutsche Bank Technology Conference. And we are here today hosting Dell and 2 members of Dell: Deepak Patil, the SVP of Dell Technologies Cloud Platform; and Matt Baker, the SVP of the Infrastructure Solutions Group strategy. Before I begin, let me read a preamble regarding Dell, and then we will jump right in. So 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 the 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 assumes no obligation to update its forward-looking statements. Finally, regarding the amended 13D filing on July 15 disclosing that Dell Technologies is exploring potential alternatives with respect to its ownership interest in VMware, the company will not take additional questions related to this topic.

All right. And with that, we are going to jump right in. So I guess I'll start with Deepak. You've had a background building Infrastructure-as-a-Service platforms at Oracle and Microsoft, combined spent about 18-plus years between these 2 companies before joining the Dell Technologies family of brands. Could you start off by describing your role at Dell Technologies for the investors who are looking to get up to speed?

Absolutely, Jeriel. I would be happy to. Thank you for the opportunity to speak to everybody. You're right, I have been in the cloud business for a while now. I was one of the early members of Microsoft Azure, where I contributed to the design and development of the Microsoft Azure platform. I also was one of the early members of the Oracle Infrastructure-as-a-Service platform work as well as the Oracle SAP business. And then over the last couple of years, I worked in Virtustream, which is one of the Dell Technologies brands, as Senior Vice President of Engineering Technology, Chief Technology Officer. And then about a year ago, I switched over to Dell to lead our cloud business. In my role as the quarterback or the leader of our cloud business, I have a 3-pronged responsibility. I'm responsible to set the vision, strategy, operating road map for our company around cloud. This includes our strategy and plans around portfolio transformation, our multi-cloud offers, our partnerships, our customer experience transformation, our sales force transformation. Then secondly, my team is also responsible for building the platform that orchestrates our cloud operating model experiences for our customers. We expect our customers to have modern commerce provisioning support development experiences when they engage with Dell Technologies and that this engagement mechanics of how this commerce is transacted, how our assets are provisioned as services, how our offers are supported is delivered through this orchestration platform that my team is building. And thirdly, in my role, I'm also accountable for overseeing the delivery of our assets and our offers as a service in a hybrid cloud world for the first and best integration between Dell infrastructure and the VMware virtualization and life cycle management capabilities wherever appropriate. So it's been a year, and it's been a phenomenal journey so far. And I'm looking forward to chatting with you more about our cloud strategy and our status.

Awesome. Thank you so much. I'm going to bounce over to Matt. Thank you for offering your time with investors here. As the SVP of Strategy and Planning for Dell EMC and the broader ISG portfolio, could you talk a little bit about your responsibilities at Dell? Dell sells a pretty full suite of products, and we'd love to understand where your responsibilities exactly begin and end.

Yes. I sort of -- I grew up on the water, so I liken it to roles on a ship, right? So before departing, I'm like the navigator, right? So what is our business plan for the next 5 years? Where are the opportunities, so on and so forth? Where might the pitfalls be? When we're on a journey, I'm like the helmsman, making sure we avoid any hazards and adjusting course accordingly. And then where it gets really critical is when we're reaching like key junctures on our journey as a company, these key inflection points, be they things like cloud, edge, so on and so forth. And then I take over as the pilot, sort of navigating us through more difficult waters, and ultimately kind of like the tugboat, ramming my head against the bow of the ship to get us to move in the right direction. And that's what I've been doing for the past 10 years here at Dell. There's never been a more exciting time to be in our industry, and there's just so much opportunity for us to create value for our customers. I think in this current environment, it certainly has proven that digital technologies and technology in general is more important than ever. And so I spend my time really looking at what those opportunities are; how our customers are reacting to those opportunities; where we can help them more with tailored solutions; and ultimately then kicking off key strategic programs, which, for example, prior to Deepak taking over, I drove the Dell Technologies Cloud strategy, which ultimately Deepak now runs. And so that's sort of how it works, a broad, horizontal portfolio view not just of ISG but across the totality of Dell technologies to see how we build value for our customers. Are you on mute?

I'm sorry. I was on mute. You guys reported Q2 earnings a couple of weeks ago amidst an uncertain IT spending environment. I think there's a tendency to lump all enterprise IT products together, and there's some sense that maybe enterprise PCs, specific laptops and accessories have been stronger given work-from-home. But I think there's also been a blanket label that maybe storage and servers are just generally weak. Could you help investors add some nuance and depth to their understanding of the demand picture? And what are some pockets of strength and weakness for...

Sure, sure. It's a great question because, I mean, we're certainly in uncharted territory, right? We have departed the curve, so to speak. And so now, understanding at a more fine grain level where the opportunities exist, I think just generally speaking -- and I'll look at my notes here so I get the right numbers, right. So on the CSG, so the client laptop/ desktop/workstation business, saw unprecedented demand in the first half. And consequently, those who watch the industry like IDC have revised their forecasts continuously throughout because they've continually undercalled the opportunity. We've gone from a period where, in many cases, folks at home would have a PC or 2 for the home, where now everyone needs a PC or 2 in the household. So it's nx1 or nx2 to be productive. And the PC has become the standout productivity platform. When we were in a different time not too distant in the past, we're really talking about home PCs and PCs sort of attached to the family as consumption devices and always talked about things like tablets, so on and so forth, phones. But this has proven that productivity, not consumption, productivity occurs on a PC-like device, and that is driving the growth that we're seeing on that side. And so we are seeing a demand environment that we believe continues forward for some time as we settle into a new normal of work from home, learn from home. And ultimately, as the coast becomes clearer, it's going to have a long-term impact on how we operate as employees, and it will be work from anywhere, learn from anywhere, so on and so forth. On the ISG side, certainly demand in the first half has been a little bit lower than expected, and I think that stands to reason as customers sort of were faced with the realities of the current situation and therefore shifted investment to get their employees productive, so on and so forth, and not forestall some degree of investment. But it was interesting, on a discussion prior to this with one of the attendees, what I said was that it isn't a -- you're right, it's not a segment broad brush or even segment by segment. It really comes down to opportunity by opportunity. And the areas that we've really seen significant growth is we continue to see strong growth in HCI as people use that as the platform to build their private and hybrid cloud platforms; HPC as the scientific community has ramped up their efforts to unlock new therapeutics, so on and so forth, given the current situation. People found themselves, I think, in a little bit of a not quite ready for disaster recovery because their concept of disaster was flood, fire, earthquake, et cetera, not global pandemic, which means many have had to rethink how they do that, which has created opportunities around remote manageability, so on and so forth. And then, of course, you have opportunities, as companies go into cash preservation mode, to shift the mode in which you're monetizing those sales, right? So as-a-service consumption, so on and so forth has become a part of it. But at the end of the day, the leading indicator of where investment is occurring actually has to do with the maturity of any individual customers. Those customers that self-identify as sort of digital leaders in their industry continue to invest and, as a result, continue to, relatively speaking, thrive in this current environment. There's then a broad base of customers who are in the middle that have had to make smarter choices and balance between end user solutions versus data center solutions. And then you have the laggards. And the laggards are the ones who are really struggling to get reestablished, and that is where our relationships with our customers, those direct relationships, are really paying huge dividends. There's an opportunity in this environment to really leave a positive mark on our customers as we help them navigate through this opportunity. And so from our perspective, yes, there are pockets of growth. And because of our model and the largest sales force on earth and a broad partner network, we're able to understand the needs of our customer at a fine grain basis and then adjust and capture those opportunities as they struggle to figure their way out forward. But HPC, HCI, private cloud, data protection, high-end storage, those have all been pockets of growth just throughout ISG.

All right. Appreciate that. And Deepak, I guess given the softness in ISG so far this year, there are some dislocations, I'd love to get a sense of compare and contrast given your background. In some ways, the investor perspective, and I'm painting scenes somewhat in broad strokes here, would be that your prior experience really -- it was building products that compete directly to Dell kind of on-premise, data center-based business model. In your opinion, is the public cloud and Infrastructure-as-a-Service platform at odds with the core Dell model?

No. I don't think so. I think the public cloud, private, hybrid cloud models are complementary. And the world's not going to be public or private, it's going to be both. And let me actually explain that from our point of view, from a public cloud provider's point of view because I was part of the public cloud ecosystem, as you mentioned, and then also from the customer point of view. From our point of view here at Dell, we look to cloud as an operating model, not a destination. If you look at the most foundational, most defining characteristics of what a cloud is, it's infrastructure to run workloads, it's modern ways of doing commerce, it's delivery of resources and services over the network, it's massive simplification of IT and it's democratization of software development. So if that is the most basic definition of cloud, there is no reason why it needs to belong only in a public cloud data center or even a private cloud data center. We are committed to really treating cloud as an operating model and bringing that operating model to wherever our customers' workloads are and really truly delivering more hybrid and multi-cloud services. The announcement, for example, we made back in May, where we are offering our world-leading file services storage solution on Google Cloud is an example of that strategy; or the partnership that VMware has with Azure, with Google, Alibaba, with IBM, with Oracle is an example of our embracement of that broader hybrid multi-cloud ecosystem. Similar points of views exist within the public cloud world as well. If you look the work that the Google guys are doing with Anthos or Microsoft Azure with ARC or with -- even AWS with Outposts, it's a validation of the fact that the world is increasingly becoming a hybrid multi-cloud world, we're in the middle of it; and customers' workloads are going to span from their data centers to public clouds, do it with 5G, now to the edge, and we all have to bring our assets and our services and our offerings to wherever customers' workloads are. And now lastly, let's look at all of this from a customer point of view. IDC recently published a report that said that 92% of our customers already have public and private cloud environments installed. 88% of our customers have more than one cloud -- are working with more than one cloud provider. So the customers are at a point where they don't -- they are far less concerned about whether it is public or private cloud and far more concerned about how they can achieve their business imperatives: improved performance and efficiency, increased reliability and business innovation and agility, increased extensibility and elasticity. Some of these things are -- our customers actually acknowledge that there are going to be some -- there are going to be business imperatives where private hybrid cloud solutions are best -- are going to be best suited, and there are going to be some workloads where public clouds may be best suited. So we truly are in the middle of this public, private hybrid cloud ecosystems coming together and working together to really help our customers focus on their business imperatives and transform cloud as an operating model and not a destination mode. So I do feel that both private and hybrid and public clouds are complementary to each other.

Got it. Appreciate that. And I guess I'll stick with you. I guess speaking specifically to your responsibilities, I guess when -- based on my conversations, when the Dell Technologies Cloud comes up, there's a great deal of, I would say, skepticism and, frankly, probably in addition to a lack of understanding around what that really means. I've heard it described to me as kind of like a middleware, kind of software layer that helps Dell customers who have a lot of Dell products manage them across storage, virtualization, all-flash arrays, HCI, servers, et cetera. So basically acts as a platform to encourage Dell to -- Dell customers to use more Dell products and then manage some kind of integration amongst all these tools. So I guess in your words, could you describe the relevance of the Dell Technologies Cloud to the rest of the core Dell business model? And how is it integrating or simplifying IT for business? And how does this exactly work?

Absolutely. Sounds great, Jeriel. So I think it's important to look at the Dell cloud portfolio from 3 kind of separate lenses. Number one is, at the core of our offering is what we call the Dell Technologies Cloud platform. It's something that our customers buy today. Hundreds of customers over the last 9 months have bought the Dell Technologies Cloud platform for their digital transformation. The Dell Technologies Cloud platform offer consists of our hyperconverged infrastructure, VxRail, with first and best, really tight integration between the VMware virtualization, service life cycle management and developer software brought together to deliver a rail -- VxRail, VMware Cloud Foundation private cloud offer that our customers are buying. So the Dell Technologies Cloud platform is at the core of a lot of our offerings. So that's one element of the Dell Technologies Cloud. A second element of our Dell Technologies Cloud is the work we are doing to offer both private, hybrid and multi-cloud services through a fairly extensive transformation of our portfolio. Storage, data protection, backup, DR, compute, networking and many other of our assets are transformed -- are being transformed to be delivered as a service. And then we are in the process of essentially offering all of these assets as services not only on our cloud, the Dell Technologies Cloud and Dell Technologies Cloud platform, but on other hybrid and multi-cloud ecosystems as well. The announcement that I mentioned previously about our file storage being offered on Google Cloud is an example of such multi-cloud offers, and there are many more examples like that. And then the third component of our overall cloud strategy is to really -- the work that we're doing to truly modernize the mechanics in which our customers can transact, provision and manage our cloud offerings. We are one of the broadest mechanics for conducting commerce on our cloud portfolio called as Dell Tech On Demand. Our customers can buy our assets as a capital purchase. Or Flex On Demand, the financed offer, Datacenter Utility offer, subscription, pay as you go and so on and so forth. So Dell Technologies Cloud platform, which brings together the best of Dell with the best of VMware and the first and best integration, an array of multi-cloud, hybrid cloud, cloud services that work consistently and seamlessly across multiple cloud platforms and fundamental modernization through which we engage and commerce with our customers are the 3 core components of our overall cloud strategy and investments.

Got it. Appreciate that. And just jumping on that VMware versus Dell topic, and this is for both of you, back in July, Dell articulated a desire to conduct a spin-off. I guess for either of you guys, would a spin-off potentially impact anything long-term around strategy? And then -- and I guess broadly as well, could you touch -- could you guys touch on the extent to which VMware integration is important to the cloud strategy?