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

Please welcome Rob Williams, Senior Vice President of Investor Relations.

Thanks for joining us for our 2023 Dell Technologies Securities Analyst meeting. Our press release, presentation and related materials are available on our Investor Relations website. I definitely encourage you to look at those materials. There's additional information and content in that -- in those materials. But before I get started, I get to do the fair disclosure and safe harbor and Reg G disclosure. So here we got. During this meeting, unless otherwise indicated, all references to financial measures refer to non-GAAP financial measures, including non-GAAP gross margin, operating expenses, operating income, net income and diluted earnings per share. A reconciliation of these measures to our most directly comparable GAAP measures can be found in our meeting materials and SEC filings. In addition, statements made during this meeting that relate to future results and events are forward-looking statements based on current expectations. Additional results -- or actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our materials of SEC filings. We assume no obligation to update our forward-looking statements. Turning to the agenda. Based on your feedback, we will focus most of our time today on Q&A. We'll begin with short presentations from Michael, Jeff, Arthur, Sam and Yvonne. We'll then take a short break and reconvene for Q&A with the full team, including Jeff Boudreau. After the meeting, we'll host the management reception outside, and that will be directly following the meeting. With that, I'd like to turn it over to Michael.

All right. Thank you, Rob. Good morning, everyone, and thank you for joining us. It's great to be with all of you today. Meeting with customers, the interest in the technology and the solutions that we provide is high. And the amount of data in the world continues to grow at a tremendous rate. And whether it's the workplace solutions or multi-cloud and as-a-service made simple or intelligence at the edge, and now AI and generative AI, all of that takes a lot of what we offer to our customers. And we are incredibly well positioned for the next wave of expansion, growth and progress in the industry. This spring, it will be 40 years since I launched Dell from my dorm room at the University of Texas. And in each wave of those 40 years, our company has innovated, evolved and succeeded. When customers -- the conversation with customers was moving beyond PCs to the data center, we did too with PowerEdge, which is now the #1 leading server line in the world. And when some question the future of the PC, we doubled down on PCs. When some thought that data centers were going to disappear into the cloud, we became the largest storage company on the planet. And with each wave of innovation, an echo chamber proclaims the depth of everything that came before it. But the reality is that the TAM continues to expand with new use cases. And by seeing opportunities that others often ignored, we've grown and strengthened through every shift. In FY '23, we delivered $102 billion in revenues. And this year, we are in a bit of a down cycle as customers digest those enormous investments in the past few years. And we expect to deliver revenues of almost $90.5 billion. And regardless of where we are in the cycle, we effectively translate our revenue into cash and earnings per share. Over the past 5 years, we've delivered more than $36 billion in adjusted free cash flow and $30 in non-GAAP earnings share. And since we met 2 years ago, we've grown earnings per share at a 10% compounded annual growth rate and generated $10.8 billion of free cash flow. And since the VMware spin, we have returned more than $5.5 billion to our shareholders. And since the inception of our Capital allocation policy, we've returned more than 90% of our adjusted free cash flow to our shareholders. Solid performance and proof that our model is tuned to deliver results consistently over time. Excelling in the [ up ] markets, but also optimize when the underlying demand is more challenging. We also deliver on our promises. We delivered on a long-term value and capital allocation frameworks, and we announced further improvements this morning. We simplified our capital structure. We reduced our core debt by $38 billion since the EMC transaction. And we distributed our VMware shares to Dell shareholders in a tax-efficient way. If you held on to them, you're very happy now. We've repurchased $4 billion of our stock. And we instituted a dividend and increased that dividend by 12% at the beginning of the year. And let me be very clear, future cash flows will be returned to our shareholders. We've also strengthened our governance and enhanced our Board. Earlier this year, we elected Ellen Coleman as our Lead Independent Director. In this past week, we appointed Steve Mullen, as our newest Independent Director. All of our Board committee members are independent. And we established a separate compensation committee, independent of our Nominating and Governance Committee. We are happy as a publicly traded company, and we plan to stay that way. We're also encouraged about the potential for future inclusion in the S&P 500 Index. And as I look to the future, we have a simple but powerful strategy, leveraging our strengths to extend our leadership and capture new growth. We're utilizing our unique operating advantages including leading end-to-end solutions, the industry's largest go-to-market engine, the world's leading supply chain, our services and global footprint in 180 countries. We are #1 in 20 categories; #1 in external storage, #1 in high-end storage, #1 in x86 servers, #1 in mainstream servers, #1 in client revenue and many, many more. And with all these leading positions in so many areas, we make it easy for customers to choose Dell. And we're extending those leading positions through consistent share gains. These categories are also growing, and we're positioned to capture that new growth. Infrastructure is increasingly multi-cloud, and there's going to be significant growth at the edge. Multi-cloud is becoming the norm as companies look to avoid vendor lock-in, optimize costs and meet regulatory requirements. Customers have evolved their thinking to understand that multi-cloud is the answer. 90% of customers already have on-prem, colo and public clouds. And there are many reasons for this. First, when you move workloads to the public cloud, customers end up with multiple silos and begin looking for ways to make all of the clouds, including the on-prem cloud, look like one system. Customers have also learned that some workloads cost far more to run in the public cloud. Three years ago, many CIOs thought that lift and shift was a good idea. While it does technically work, the vast majority have now come to learn that it often costs twice as much as a modern cloud -- a modern data center solution. For those cloud-native apps that do work well in public clouds, customers are increasingly architecting those apps so that they are not locked into a specific cloud provider, including the ability to run them on their own infrastructure. Also, the cost of replicating data in every single cloud is very excessive, giving rise to many customers, putting their data in a neutral co-location facility that's one hop away from accessing services from many different clouds. And for many customers, there are regulatory security or other sovereign data requirements and challenges. And we continue to win significant projects as customers rebalance their cloud mix. In addition, our fast-growing Apex cloud services give customers a public cloud-like experience that runs in their data center or in colos. And it's offered in an OpEx and consumption model. To be clear, we're also partnering significantly with all of the public clouds to make multi-cloud a reality for customers. AI and now generative AI is the latest wave of innovation. And AI -- fundamental to AI are enormous amounts of data and computing power, 2 of our 4 businesses. Most companies have figured out that the data that they have is among their most valuable assets. And most of the enterprise data is stored on-prem. And while companies want to use these new AI capabilities, they don't want to give away their data. Also don't be surprised to see massive growth of data at the edge in the physical world. And because data has gravity, we expect it will be more common to bring AI to your data as opposed to the other way around. It's also becoming clear that the recent advances in generative AI could represent a 20% to 30% productivity and efficiency improvement opportunities for many activities across the economy. That has never happened before. And for us and for many of our largest customers, it's become our #1 priority. If you look on the skyline here in Manhattan, all the big companies that have logos on their buildings, inside every single one of them, they are turning the place upside down to figure out how they can use generative AI to advance their business in a meaningful way. And that initiative is driven from the CEO and the Board, not so much from the IT organization. As a result, it feels to us like we are at the front end of a significant TAM expansion. In a moment, our Vice Chairman, Jeff Clarke, will get into much more detail about our strategy and competitive positioning. Our CFO, Yvonne McGill, will walk you through our financial performance and our business unit presidents, Sam Burd and Arthur Lewis will share a deeper look into our PC and infrastructure businesses. But first, a couple of closing thoughts. Over the last 40 years, I've had the privilege of leading this company to be at the center of 4 decades of technology innovation which I believe has been the greatest force of human progress in history. And throughout each of those waves of innovation, new technology has emerged, and our opportunity grows. And each time we have been able to extend our leadership and capture that new growth. And we stand today at the beginning of the new generative AI era, perhaps the biggest opportunity in Dell's history and for the next wave of human progress. And I couldn't be more engaged, optimistic and excited for our future. And with that, I'll turn it over to Jeff Clarke, our Vice Chairman.

Good morning, everyone, and welcome. It's good to be here. It's been a long time since we've been in New York. [ Ben ] and I were talking earlier it's been 4 years since we've held a live event. I'm going to build on what you just heard from Michael. And what really makes Dell incredibly special, uniquely positioned to win and deliver the long-term growth that Yvonne will talk to in a few moments. But I want to start with a fundamental and undeniable fact. Michael hit on it, but I'm going to hit it right in the middle, which is technology and data are central to, well, everything; home, work, school, our social lives, how we do commerce. Technology is so essential to everyday life. Can you imagine a day without it? It's core to how businesses run today, tomorrow and beyond. And I certainly believe having been at this a long time, it's only going to get better. It's here to stay, it's not going anywhere. And through this broad use of technology in this ever-digitizing world, data is growing exponentially. A 100 zettabytes of data was generated this past year, and IDC projects that it will nearly triple by 2027. Technology spend continues to outpace in GDP. It continues to increase. It's up 3% or up 70 basis points over the past 5 years. And by 2027, the technology market is projected to grow to $6.2 trillion. And we're even excited about what's the future and looking at even more growth, because we view generative AI as an inflection point. In many ways, we spent the last 40 years innovating to build the foundation for generative AI to be the fastest ever adopted technology in our industry. AI -- or generative AI will change the way we work. It will change the way we service and support our customers. It will change the way we innovate and deliver products. It will improve decision-making and business outcomes. And my personal favorite that allow all of that to happen faster at the speed of Dell. And if you think about how companies are dealing with today, Michael talked -- touched on this briefly. The business leaders today, 64% of them believe generative AI will help them gain an advantage over their competitors. 70% of enterprises think AI changes the rules of the game. 65% of enterprises think AI changes the core fundamental cost structure and will disrupt their industry. And 60% I think AI will upend the fundamental product delivery and product differentiation they have in their business today. As such, 4 use cases are emerging very quickly in generative AI. They center around customer experience and servicing your customers differently. Software development, the world of sales and content creation and management. And as Michael pointed out, this is a topic for all companies, maybe my sense of this or interpretation. And I'd like to be so crystal clear about this. Generative AI will change the basis of competition. It's a fact. And it will leave those companies who don't embrace it, don't figure this out behind and uncompetitive. And generative AI brings an entirely new perspective on data and computer computation. The data sets are comprised of symbols, images, text. They all grow. And the projected growth of tokens, which is a good proxy of what is coming our way is going to grow by 100x by 2028. That's a 100x by 2028. Purpose-built, accelerated computing, big and small, for training, for tuning, for inference will be needed. These will be highly optimized for these generative AI workloads. And organizations need a data strategy to harness the massive amounts of unstructured data being generated by machines, sensors, smart systems, all outside of the data center. And to maximize the benefits of generative AI, an end-to-end solution is required; the rightsized infrastructure, a data plan, likely open source software models and the services that are wrapped around that to enable workloads to move across the clouds, on-prem and at the edge. Generative AI is clearly a case of one model, one size, one infrastructure architecture does not fit all. There will be many, many instances and permutations of how generative AI will be deployed. And most organizations, as Michael said, have data that's too sensitive for training off-premise with compliance challenges fundamental IP about their business that are critical about how they run and their unique competitive advantages. They're not going to want to see that data leave the premise. In fact, Gartner has recently said ,83% of all data is on-prem. That plays to our strength. IDC projects that 50% of GPU accelerating computing spin is expected to be on-prem and at the edge by the end of the year. And this will be in various forms. I mean, if you think about accelerated computing and the way the generative AI is evolving, it's going to be fascinating to see customers take that and to really create and use domain-specific field of study specific and process-specific models on their own data -- or with their own data, I should say, to train and tune those models and run inference where the data is created. Think about a smart factory, doing heavily processed automation, creating real-time data, AI is going to follow where data is generated, where the data is created. Those resources are going to be at the edge of the network, doing computations, storing information, and that's an exciting opportunity for us. I think about these AI workloads being very, very different than traditional applications in the data center. We know from our research and our understanding of the technology that these workloads require various of accelerated computing, typically optimized for massive parallel data processing. That's very different than how traditional applications to the data center have been built. Most traditional applications can't take advantage of that type of parallel processing and won't benefit from accelerated computing. Thus, we're bullish that AI expands the TAM for technology spending. The AI hardware and services market is projected to grow at an 18% CAGR over the next few years to $124 billion. This creates a tremendous opportunity for us to innovate and serve our customers better. For example, the PowerEdge XE9680 is the fastest ramping solution in the history of our company. The 9680 is the fastest ramping new technology solutions that we've ever done in history of our company. And is built on many years of success selling GPU-based servers. And if I think about our first half, we talked about this in our latest earnings call, in the first half of this past quarter -- or first half of the year, 20% of our server order revenue is AI-based, it was a sizable backlog and maybe an exciting category, given my background. And we have AI assistance coming to the PC. And you're going to need a brand-new high-performance PC to take full advantage of what I think is the next killer app on the world's greatest productivity device. This will drive a refresh cycle for commercial PCs, where we are the industry leader. I know Sam will touch upon this in his comments, but what an exciting opportunity to see AI extended from the edge of the network in factories into the data center, out to the cloud and back out to the PC, it's an incredible time. And to think about this and to summarize it, we're only in the top of the first inning in generative AI. There is so much more to come. This is a multi-decade cycle, a multi-decade with tremendous opportunity and with a ton of change; silicon architecture, models, algorithms yet to come. This is very different. I hope you can tell it's very exciting for us, and we're ready. It's a tremendous opportunity for us, thinking about where data is, the computational resources that exist and are going to be needed, plays to our strength and what we'll be doing going forward. Michael touched on our strategy earlier, and I'd like to go deeper on talking about how we're going to address those opportunities. And he hit upon this, which I think is important. There's a key word. We're leveraging our strengths in this word of extend, extending our model, our leadership, our way of doing business into these new opportunities for incremental growth. Our operating model is very unique. It's something that has differentiated us in the industry for 40 years now. And if I think about it and applying it to some of the new categories that Michael mentioned, PCs and a historical category. But our ASPs are 2x the industry. We have the unique ability to sell a richer configuration than our competitors, primarily driven by attached services and a plethora of peripherals, most notably flat panel monitors and docs. We're extending -- that word, it's going to be used a lot. We're extending our model to provide and sell a broader range of Dell-branded peripherals. And we're going to use our data from our services organization, our telemetry data to build more tailored services and use AI to provide those differentiated services around PC going forward. And telecom, we're using our industry standard hardware and software-defined architecture to accelerate the telcos modernization of their networ,k, to help them modernize with virtualization and containerization using our infrastructure blocks all around and supported by our carrier-grade services on the way to O-RAN, which is still futuristic as we think about it. In multi-cloud, the preferred operating model of our customers. We're simplifying cloud complexity by supporting workloads on-prem at the edge or in public cloud, delivered through Apex with our SaaS control plane on our proprietary software-defined storage substrate. At the edge, our Native Edge platform is built to simplify edge operations by enabling centralized deployment, life cycle management and a zero-touch manner with Zero Trust infrastructure. And if I wasn't clear, Generative AI is an extension, extending our compute basis further, with the upside opportunity for our unstructured storage assets like PowerScale and ObjectScale, all surrounded by Dell Services. Our model with its unique operating advantages differentiates us in the marketplace. Michael talked about our #1 positions in our leading industry solutions that go from the edge of the PC, all the way through the data center. We have the largest go-to-market engine in our industry, 29,000 go-to-market team members and 240,000 global partners that give us the broadest reach from consumer to the largest multinational companies around the world, which gives us great insight and the ability to build deeper relationships. And our omnichannel approach gives customers the choice of -- all the customers of all types, the choice and how they want to learn, buy, consume and be supported by Dell. We have the industry's leading supply chain that runs at global scale, nimble and agile enough to respond to the macro and market fluctuations with built-in resilience. We are very capital efficient in our supply chain. We have the industry's leading inventory levels while providing our customers with maximum choice. You couple this with our global direct service organization, which is unmatched in our industry with more than 30,000 service and support team members and 2,200 service centers in 170 countries. We can get parts and people anywhere. We can service our customers anywhere in the world. And what's really rich about a direct service organization? We get the telemetry data from our installed base mashed with that broad reach, and we can tailor our offers and change our products and offers that best serve our customers. So this foundation of leading solutions, the largest go-to-market engine, the leading supply chain, the largest direct service organization in our sector is the foundation that drives our operating model. It's the basis of our consistent execution. And I know Yvonne will build on this, but you couple that with the financial discipline of our company, you get a tremendous ability to generate consistent, significant cash flows. Our operating model, coupled with our financial discipline, gives us the ability to drive consistent and significant cash flow. And Yvonne will touch on this in just a few minutes. And perhaps our greatest superpower that we don't talk a whole lot about, but it was on the bottom row of Michael's chart and bottom row of mine here is the culture that we built. We built a special culture over the past 40 years. And as this gritted determination to overcome, adapt and improvise anything, we've encountered. We're customer first, we're can do, and we're tech optimists. And our team, the culture we built gives Michael and me this confidence that we can deal with the pace and change of our industry. Heck, we've been doing it for 4 decades now. So we get excited about what's coming. AI, just the next thing. And there's a whole slew of things coming beyond that, whether that's quantum, whether it's digital twins, whether it's neuromorphic computing. Our industry is not static, it's dynamic. We've built a culture and a team that does not panic, in fact, embraces change. And there's no doubt there's some more coming. There's more beyond AI. AI has got the time today. I think it's multi-decade in nature, but there's more an opportunity coming. But in the meantime, we have plenty to do. So in closing, this is my 37th year at Dell, and I've never been more optimistic about the future of our company. I love this company. I love our team. And most importantly, I really love our hand with where we are today. We have plenty to do, and we're focused on maximizing our opportunities. And with that, I'll turn it over to Arthur Lewis. Thank you.

Thank you, Jeff. Good morning, everybody. I'm really excited to be here to talk about our ISG strategy. As you've heard and as you know, data is growing at an exponential rate and is becoming the world's most valuable asset. In addition to volume, the nature of the data, its health is changing. Including more unstructured data in the form of text videos and images, more latency-sensitive data and more data being created at the edge. Infrastructure is adapting. Compute is following data to the point of the data's creation, accelerated compute and memory bandwidth are growing, and more customers are leveraging AI/ML. With the data era in full swing, it's good that we know a little something on the topic, being the world's largest provider of data storage systems. Artificial intelligence, leveraging machine learning, deep learning and now generative AI will be a force multiplier to digital transformations around the world in that it will drive record levels of productivity and allow businesses to serve customers in new and unique ways. To unlock the power of artificial intelligence, however, a modernization is required. In order to train, fine-tune and inference off of data effectively, customers will have to standardize and automate processes, tool chains, workflows. They will have to rethink data storage and data pipelines breaking down silos to mobilize data more than ever before, and they will need to think through intrinsic and Zero Trust security. In short, architectural silos will be dismantled. And the dismantling of architectural silos and the simplification of IT will not only unlock the power of artificial intelligence, it will also allow businesses to shift research and development dollars away from managing complex walled gardens of technology towards a much more valuable work of creating infrastructure that enables the developer community. To accommodate for this, business transformation, modern architectures and open ecosystems will be needed. These modern architectures will be software-defined. They will be dense. They will be flexible. They will be secure. But most importantly, they will be built to support AI from edge to core to cloud. Our strategy does just this. The breadth and depth of our portfolio and that of our talented team puts us in a uniquely advantaged position. We continue to demonstrate innovation in our portfolio that's led to long-term growth, margin expansion and share gains. Over the last 6 years, ISG has grown revenue at a CAGR of 3%, operating income at a CAGR of 8% and expanded operating margins 330 basis points. On a go-forward basis, with AI as a tailwind, we would expect -- we expect ISG revenue to grow at a CAGR in the range of 6% to 8%. We are #1, as Michael and Jeff have noted, in server and storage by a wide measure. And we are a structural share gain leader. 16 generations deep into our PowerEdge portfolio. We are the leader in compute systems with products that are purpose-built to support a wide range of workloads across every industry use case. Intelligent with high levels of automation and operational efficiency and cyber resilience. Our portfolio is further optimized for artificial intelligence. With the XE9680, the XE9640 and the 760xa leading the way for accelerated compute and the balance of the portfolio for general purpose AI optimized compute. Given our high level of innovation and strong customer adoption, we are #1 in mainstream server revenue share and have been for 21 consecutive quarters. Over the last 10 years, we have gained 980 basis points of share. That's 2,000 basis points in North America, 1,900 basis points in EMEA worldwide. And over this same period, the market has grown $26 billion. Dell has captured 43% of [ that's ] growth. That is more than the next 4 competitors combined. We are also #1 in data storage systems and have been for 21 years. We are larger than #2, #3 and #4 combined. We lead in every storage category; block, file, object, hyper-converged infrastructure, all-flash arrays and data protection. Our primary storage portfolio has seen major launches over the last 12 months, where we've added 500 new features to PowerMax, PowerStore, and PowerFlex. PowerStore is the leading mid-range array in the market in the fastest-growing segment of the market, #1 in customer satisfaction and has grown every single quarter for 12 consecutive quarters since its launch in March of 2020. PowerFlex is our software-defined solution for primary storage and has grown for 8 consecutive quarters growing triple digits in Q2 as customers look for more software-defined, flexible, scale-out storage architectures. Our unstructured portfolio is the undisputed leader in Gartner Magic Quadrant due to the many offers and services across workloads as well as the vertical platform integration that gives customers choice in hardware. Our unstructured portfolio is further optimized for AI with technologies like GPU Direct and NFS over RDMA. Since the EMC acquisition, we have gained 250 basis points of share in storage, 620 in North America, basis points that is, 850 basis points in EMEA. Worldwide and over this period, the market has grown $7.6 billion. And Dell has captured 38% of that growth, more than any single competitor in the market. Our various #1 positions put us in a position of strength of deep enterprise expertise, and we serve 99% of the Fortune 500. And with a total available market of $265 billion, we have ample room for growth as we continue to take share. Building from a portfolio of strength. The technology trends also are heading in our favor. Number one, it's a multi-cloud world, and Dell delivers multi-cloud by design. We are building public cloud extensions from our software-defined portfolio that will give customers common management and operational simplicity, both on-prem and in the cloud. And we are building even further flexibility for customers by connecting all of the storage protocols via a common storage substrate layer. Adding in capabilities like AIOps and FinOps gives customers the opportunity to truly optimize where their workloads are run. Moreover, in partnership with Microsoft, VMware and Red Hat, we're creating Apex cloud platforms, giving customers the ability to run hyperscaler services on-prem. Number two, distributed IT. As Jeff talked 50% of the world's data is being created, outside of the cloud and outside of the traditional data center. It is being created at the edge. This is where the real world lives. Our solution targets edge environments that are highly vertical, highly siloed and highly fragmented. The Dell NativeEdge is an incredibly elegant solution that marries infrastructure, infrastructure management and application orchestration in a Zero Trust, Zero Touch manner. Number three, the standardization of the telco stack. The radio access network is transitioning to industry standard specifications for virtual and Open RAN allowing for x86 compute all the way to the cell tower. We have a purpose-built portfolio of energy-efficient servers that meet the physical, extended temp and operational simplicity controls that telcos require. We have also built integrated solutions with Wind River and Red Hat to provide bare metal automation for life cycle management and remote field operations. Number four, the proliferation of open frameworks and tools. We provide developers with options for software and tools. We do it, because we want to allow them to take advantage of the rapid innovation in the industry and to foster a community approach to the standardization and democratization of technology. For example, developers can access a portal on dell.com and very easily download the latest APIs for Dell products, including CloudIQ, our AIOps platform. And number five, a cloud-like experience. Apex serves the dual purpose of providing customers with the operational consistency and common management that they need on-prem and in the cloud, while also offering customers a flexible consumption model for the entirety of the ISG portfolio. In addition to these 5, artificial intelligence with generative AI as a catalyst for even greater data utilization will drive a wave of growth for us. The explosion of unstructured data demands AI to process it. Today's compute makes that available in ways previously not there. While the early chapters of this story are around the brute scaling of parameters in large foundational models. We look forward to a future of algorithmic innovation that will drive enterprise demand and scale and efficiency. IDC projects the AI market to grow to $124 billion by 2027. In addition, 75% of enterprise customer survey indicate that they will be adding to their IT budgets to fund the build-out of IT infrastructure. These deployments will be hybrid. To the extent deployments leverage, confidential IP, customer financial data, they will trend on-prem. Those that don't, will be subject to a company's policy. And even where deployments leverage large public foundational models, prompts will often be engineered to take advantage of on-prem expansion, compute and storage to accommodate vector stores of embedded context data. Today, what we see is to build out a very large training infrastructure like the 9680 as the Tier 2 cloud service providers race to stand up infrastructure to support AI as-a-service companies. As enterprises grow, we would expect to -- we expect to see a much stronger balance of training and inferencing and a heterogeneous world in which accelerated and general compute optimized for AI are both needed. Today, enterprises face a number of issues in the deployment of a generative AI workload. Those issues range from use case targeting, model selection, data preparation, architecture and infrastructure options as well as user experience. We have a 3-pronged strategy to really simplify how customers tackle these very complicated problems. Prong #1 is a deep and broad AI portfolio. We have purpose-built optimized solutions that can be sold standalone or as part of a reference architecture that span compute, storage and networking. The XE9680 is differentiated in the market. As Jeff pointed out, it's the fastest-growing product in ISG history. And we've recently added to the portfolio. We launched the XE9640, which is the 4-way sibling to the 9680 as well as a 760xa. We can also provide customers with storage alternatives for the large amounts of unstructured data that's being created with our software-defined PowerScale and ObjectScale lineup. We wrap every solution with high-end ethernet fabrics to really enhance the performance and tuning of models. The second prong of our strategy is to partner with the broader software ecosystem. We will provide curated containers for Dell solutions across the more popular open source LLMs with ready-to-deploy automation for developers. We will also enable an enterprise hub environment to allow customers to manage their models and data sets with secure, governance and controls. And we will enhance the user experience by providing blueprints for data pipeline management, fine-tuning and model deployment. The third prong of our strategy is to really build out our professional consulting and professional services. And these services will include use case targeting, model selection, data strategy, architectural and infrastructure options as well as user experience. And of course, all of our solutions will be available as a fully managed service. In closing, the markets we serve are large and growing. The breadth and depth of our portfolio, that of our talented team, the technology trends, all coupled with Dell's unique operating advantages put us in a most enviable position to capture the opportunities afforded in the data era. Thank you. And with that, I'd like to welcome Sam to the stage.

Thank you, Arthur. Great to be here with you this morning and talk about our PC and Client Solutions Group. It's where Michael started our business nearly 40 years ago. And while in the ensuing 40 years, we've built an incredible breadth of leadership infrastructure capability that Arthur just covered. Today, we are more excited than ever about the future of the PC and its role as the world's preeminent productivity tool. We know this business well. We doubled down while others doubted and have built a differentiated approach that leaves us operating from a position of strength. We're #1 in the spaces that matter most; client revenue, workstations, high-end gaming, monitors. And we've gotten there by delivering on the needs of some of the most demanding customers in the world, customers who value systems that deliver unmatched performance, productivity, innovation to power their workforces and business success. We found along the way, helping customers is good for our business. We're consistent structural share gainers. We've gained nearly 10 points of share in commercial PCs, 9 points of share in displays over the past decade. We've delivered long-term revenue and operating income growth across economic cycles. How have we done that? We've done that by operating a differentiated business model with disciplined execution. Fundamental tenet of our business model is a belief that not all units are created equal. We focused on the segments that have durable growth and are highest value; commercial PCs, premium consumer, including high-end gaming. And as Jeff described earlier, we target these segments with a differentiated go-to-market team; a team that hears directly from customers and can anticipate their needs. Because of that, our mix in this business is differentiated. Over 80% of our units, more than 90% of our revenue come from these segments. This helps us drive differentiated results. Jeff talked about our total revenue per unit is nearly 2x our competitors, and that advantage is expanding. While industry revenue is back to pre-pandemic levels, our revenue, $5 billion is higher. And we've increased our share of the higher profit pool businesses. Our commercial revenue mix is 8 points higher. SMB mix, up 2.5 points. Software and peripherals mix, up 5 points. Our services attach rates, up 10 points. Why does that all matter? That leaves us poised to win and extend our advantage in a space where we expect long-term TAM growth. I'll share with you 3 reasons why we're excited about the future in this business. First reason, over the last 3 years, our industry shipped nearly 1 billion PCs, leaving us sitting on the largest commercial installed base in history. Now more biased to notebooks, ready to be refreshed. If you couple that with a Windows' upgrade cycle where we have hardware requirements that many older devices cannot meet. We're in a market that's poised for growth. Second reason, future workloads or AI workloads, and that is a winning opportunity for the PC. AI promises immense productivity benefits for PC users. And we believe the advances in Gen AI and the devices that power that capability will be as revolutionary as the early days of the PC. We're not new to AI, our commercial PCs are the world's most intelligent with AI-enabled software like Dell Optimizer. We're the leader in workstations where our systems are running 5 million to 500 million parameter AI models locally. And not surprisingly, last quarter, we saw demand for our workstations grow. In fact, if any of you are in the market for systems. We just launched some new systems that house up to 4 GPUs, can cost-effectively run complex AI workloads locally, with low latency, while keeping customers' proprietary data inside the 4 walls of their enterprise. Customers are eager to get better productivity tools in the hands of their end users. And the good news we have for them is that next year, we'll have PC architectures with next-Gen CPUs, GPUs, the addition of NPUs and accelerators that will effortlessly handle more complex AI workloads. In fact, we see a world where onboard AI processing will become an expectation in PCs, driving higher configurations and larger ASPs, our sweet spot. Third reason, I'm excited, hybrid work is here to stay. And the PC ecosystem, where we're focused on expansion is more important than ever. Hybrid works become the new normal. Many people in the room live that every day. In fact, 60% of U.S. workers are expected to work in a hybrid model by 2026. These customers, they need more than a PC to work from everywhere. They need a comprehensive ecosystem of peripheral software, support, services, to be as productive as possible in the place space pace at which they work. We are already the leader in the $30 billion display space. And we're going to extend that advantage and expertise into core peripherals. That's an additional $40 billion of TAM includes things like keyboards, mice, headsets, cameras and of course, docks where we already have a stronghold. Our intent capture our fair share of this TAM with a margin profile that's accretive to our business. To do this, we have spent the past year organically building out a full portfolio of peripherals, creating a superior customer experience through software and AI like Dell Optimizer, Dell Pair, Dell Peripheral Manager. These peripherals will create a seamless extension of a customer's PC experience to natural ways. Our unique operational advantages also work to our favor here. With the industry's largest go-to-market engine, we're creating a simple and effective purchase experience for customers to drive high attach with each system sale. And now before I hand it over to Yvonne, I'd like to leave you with this. Number one, we have a proven track record of execution excellence in this business. Number two, we are focused on the highest value segments in a space where we expect long-term TAM growth, a good thing. Number three, with our differentiated business model and unique operational advantages, we are well positioned to capture growth and expand our share. And finally, number four, this expectation of success is captured in our long-term framework revenue growth of 2% to 3% that we have communicated for CSG. Thanks for your time this morning. And now I'd like to invite Yvonne up to the stage.

Thank you, Sam and hello to everyone. I'm so happy to see you all, and I know I'm in between you and a break. So why don't we go ahead and jump in. Over the next few minutes, I'll walk you through our updated long-term value creation framework and capital allocation plan. But before I do, I want to reinforce something you've already heard today. Our operating model is unique. It underpins our track record of innovation, execution and shareholder returns. It allows us to adjust, remain agile and deliver results regardless of the market conditions. And over the last 4 decades, we've done just that, navigating numerous cycles while achieving steady growth, which is why we are so confident in our ability to keep growing and keep delivering value to our shareholders. So let's jump into the framework. We believe we can deliver revenue growth of 3% to 4%, outpacing GDP. We've increased our EPS growth target to 8% plus, growing faster than revenue. Given the growth we expect to see in the business, compounded EPS growth and our negative cash conversion cycle, we expect net income to adjusted free cash flow conversion of 100% or better. We're focused on executing a business model that consistently delivers strong cash flow. We target returning over 80% of adjusted free cash flow to our shareholders, up from 40% to 60%. And we've committed to grow the dividend 10% or more annually through FY '28. So let's talk about how we'll deliver against this framework. Our strategy is to leverage our strengths to extend our leadership positions and capture new growth opportunities. We drive this through a set of unique operational advantages. You've heard about them all already today. First, our broad portfolio of #1 positions. Second, the industry's largest go-to-market engine fueled by deep customer relationships. Third, the industry's leading supply chain. And finally, our world-class services organization. We believe the business will deliver revenue growth of 3% to 4% over the long term in excess of GDP. This is underpinned by 2% to 3% long-term growth in CSG and 6% to 8% growth in ISG. Across the business, we're focused on the most stable and profitable segments of the market. As you heard from Sam, this is commercial, peripheral, small and medium business, premium consumer and gaming and CSG. There's a large ecosystem around the PC. And our direct sales team is positioned to capture it. Our ASPs are approximately 2x the industry average due to our ability to sell a more richly configured PC with services and peripherals. We have a consistent track record of strong relative performance and are #1 in client revenue; North America PCs, monitors, high-end gaming and Workstations. The commercial PC alone, we've gained 10 points of share over the last 10 years and grown our commercial mix more than 8 points since FY '19. The story for ISG is similar. As Arthur said, we are far and away the #1 player in storage, larger than #2, 3 and 4 combined. We have leadership positions in virtually every storage category and a leading unstructured external storage portfolio. But we still have opportunity to grow, especially as we focus on high-margin IP software offerings like PowerFlex. In servers, we have a track record similar to commercial PC, gaining over 10 points of share over the last 10 years. As the team has outlined earlier, our business has significant tailwinds. AI drives incremental growth opportunity and an inflection in our business from the PC to the data center and out to the cloud. Now let's talk about EPS growth. We expect non-GAAP diluted EPS growth over the long term of 8% or better, faster than revenue. We have 3 key operational levers to enable EPS growth in any demand environment. First, gross margin accretion. We can achieve this through increasing our mix towards our more profitable segments like commercial PC, peripherals and overall mix to ISG. We've maintained strong gross margin rates over the past 6 quarters even in a declining demand environment. We remained focused on disciplined cost management. For example, since before the pandemic, we've pulled out operating expense of approximately $1.4 billion. And as we've demonstrated over the last 2 years, we will opportunistically repurchase shares. We've repurchased $3.4 billion of shares since introducing our dividend in the first quarter of FY '23. These are levers that, to a large extent, we control and will manage through all economic cycles. As we continue to optimize cash in all environments. Now let's talk about cash flow. We have a strong cash flow engine. This is not a new phenomenon for Dell. We've largely been cash flow positive for the last 4 decades. After the EMC transaction, we were focused on reducing debt and achieving investment grade. And we did that in over a 5-year period, reducing core debt by more than $25 billion. Since FY '19, we've generated over $25 billion of adjusted free cash flow and have demonstrated a strong track record of shareholder return. Over the last 6 quarters, we've averaged over 90% of adjusted free cash flow return to shareholders. We have a business model built to generate cash, and it starts with growth. We know we can achieve consistent GDP-plus growth over time by extending our leadership positions, making accretive investments and by optimizing our go-to-market engine. Our focus on financial discipline is a differentiator, disciplined pricing, laser focus on our main profit pools, leveraging our supply chain scale and cost management. And as always, we remain relentlessly focused on working capital. We have a differentiated cash conversion cycle of negative 50 days. We also have a low-inventory model and access lower cost components faster than our peers. All in, this allows us to achieve net income to adjusted free cash flow conversion of 100% or better, which sets us up nicely for our updated capital allocation framework. So let's talk about that. We target returning over 80% of adjusted free cash flow to shareholders. We have 2 levers to achieve this. First, we committed to grow the dividend 10% or more annually through FY '28. And second, we will continue to opportunistically buy back shares with the balance of adjusted free cash flow. And I want to highlight that the Board of Directors recently approved a $5 billion increase to our existing share repurchase authorization. We remain committed to our investment grade rating, our 1.5x core leverage ratio target and M&A, which remains focused on tuck-in IP accretive opportunities that accelerate our strategy. As we wrap up today's discussion, let me leave you with a few thoughts. We've built a company that's positioned to be the preeminent IT solutions provider. We have the broadest portfolio in the industry with leadership positions across all our core markets. We've innovated and demonstrated structural share gains across every economic and IT spending cycle. At the end of the day, our strategy is simple: extend our #1 leadership positions and use those leading positions to capture new market opportunities. This strategy, coupled with our P&L leverage strong cash generation drives a resilient long-term financial framework and capital allocation plan. And to reiterate what we've committed to today, we expect to deliver 3% to 4% revenue growth, 8% or better growth in non-GAAP diluted EPS, net income to adjusted free cash flow conversion of 100% or better, over 80% return of adjusted free cash flow to shareholders and annual dividend growth of 10% or better through FY '28. We believe the technology trends and tailwinds will continue to be strong over the long term. And our strategy, our unique operating model and culture position us to meet the evolving needs of our customers from end to end. We're excited about the future and confident in our ability to create meaningful long-term value for stakeholders. Thank you so much for your time today. We're going to take a short break and then meet back here for Q&A. [Break]

Alright, great. Thanks, everyone. Thanks for coming back here quickly. And we've got about 70 minutes allotted to Q&A. And I just want to spend a lot of time on Q&A today. Just as a reminder, please introduce yourself and your firm. It's a little hard for us to see sometimes with the light. So that will help us out to know who we're getting the question from. And I see someone here on the front row, who's ready to go right off the bat, and let's start with Amit.

Amit Daryanani, Evercore. I guess 2 questions, if I may. Yvonne, one of the questions, I guess, folks will struggle with is 3% to 4% revenue growth, 8% EPS growth. Can you just help us think about what's the baseline that you're assuming this on? Is it '23, '24, just help put that in context, that would be helpful. And then Michael, for you, if I think about the buyback that you folks are talking about, right? And assume it $6 billion, $7 billion of free cash flow, $1 billion in dividends, how do you think about the liquidity, because if I think about how much Dell liquidity is out there that you don't own, it would almost imply you could buy back 20%, 25% of the float that's not owned by you. Is that the magnitude of buybacks you intend to do? And how do you factor in the liquidity and the stock in that narrative?

Let me jump in. I will start with the 3% to 4% revenue growth, just to kick it off. As we're thinking through the opportunity that we have going forward, we did talk about the 2% to 3% in CSG, the 6% to 8% in ISG. And one of the things we want to make sure that we're also calling out is we do see a little bit of pressure in our other businesses, right, with the changes coming through with VMware. And so really balancing that out. But feel strongly about that 3% to 4% revenue growth over time. We talked a bit about the -- you're asking Michael, about the 80-plus percent return of capital and share buyback. And we feel, again, this mid-cycle on the 3% to 4%, you asked me where the starting point was. We're thinking of that as a mid-cycle starting point. So I'm going to kind of leave it up to you on when it starts and when it finishes over the 5 years and how you measure that. But we feel comfortable and confident on the ranges that we've provided. On the 80% plus, so we're going to buy back everything, we're going to run out. We just obviously had a new authorization go forward, and we feel good about the liquidity that we have, the availability that we have. And I think that's kind of where I would leave it.

Yes. Look, on the share count, I think there's a couple of things you can expect to see. One is, Silver Lake started with 137 million shares. I think now they have 90 million shares. So they've already distributed 1/3 of their shares. They've been very thoughtful and orderly how they do that. But 90 million shares is a lot of shares to be distributed over time. I've got quite a few more. And you're likely to see those shares end up over time in charitable vehicles. And so don't be surprised to see transfers of shares into charitable entities. So I can pursue some other good things to do in the world besides all this stuff.

Great. Okay. All right. Just in the interest of staying with As here, I'm going to go to Asiya Merchant here on the second row, then we'll spread out the alphabet here.

Great. Asiya from Citi Research. Maybe you can talk about just share gains, Yvonne, Michael, maybe the whole leadership team here. You guys talk about growth rate. You talked -- you guys obviously talked about expanding TAM. If you could talk to us about, is this a rising tide that lifts all boats with all your competitors? Or are you actively going after gaining more share in your core and then the expanded TAM markets? And then just a quick one on gross margins as well. You've talked about increasing gross margins in this expanding TAM opportunity. If you could dial it back a little bit, peel it back, is this on the CSG side? Is this on the ISG side? And what gives you confidence in that margin expansion, if it's different versus your other mid-cycle periods?

Okay. Let me address the margin first, right? So from an ISG perspective, historically, we've been traveling at a 10% to 13% operating margin. You heard this morning that over the last 6 years, we've increased at 330 basis points. So the new range for us is sort of 11 to 14. But let me unpack a little bit of that for you. Number one, we are in the very early innings of AI. There are a lot of numbers out there. There are a lot of forecasts out there. One of which is IDC, which pegs the market at $91 billion by 2025, $124 billion by 2027. And we have an opportunity with AI, as we talked about in the call backs and the Citi conference. We have an opportunity to start expanding the AI margins. We do that through broader customer adoption. We do that through building out the solution set. We do that through pulling through unstructured storage. We do that through pulling through more of the consulting services we talk about. But we have a maniacal focus, as you guys know, on profitable share gain. We talked about the fact that we are a structural share gain leader. We gained 10 points of share over the last 10 years in servers. We've gained 250 basis points in storage. And we've also expanded our operating margins 330 basis points. The other thing to consider in the guidance is while it's early innings and AI numbers are large and fluctuate, right, about 70% of what's in most of these forecasts is compute and then 30% is the pull-through of storage, right? So there is also a little bit of a headwind from a rate perspective whether you'll see a shift in mix of server versus storage. Which is a little bit of downward pressure on the rate. But again, with the growth, it will be all accretive dollars. But with the mix shift of servers to storage get a little bit of downward pressure on the rate itself.

And then I'd just add for Client Solutions Group, it's a bit of both on the question around growth. We see a TAM growth opportunity in client solution space. Think about the PC never being more important to the world as that kind of productivity tool. So that's a good thing for the space we're operating in. We have an approach where we target the most attractive segments in that space. And we deliver with the team and the advantages, Jeff and Michael talked about, we have been able to consistently gain share there, and we expect to continue to do that in the future. We've gone after most profitable segments too, which help us on the margin side, and that's where you see a differential margin versus our competitors. And we'd expect to sustain that and advance that as we go forward.

And Arthur talked to the 11% to 14% in ISG. And that there may be some rate dilution as we take off -- as AI takes off but margin dollar accretive. But we expect that as we move forward and have more penetration around large enterprise medium business, et cetera, that, that will improve -- that margin rate will improve as well as more services and wrap around. And then as Sam talked to, we're thinking in the 5% to 7% op margin range for CSG. And we've seen, obviously, most recently, we had 7.5% in second quarter. But this is a long-term framework, and we'll have quarters that are better. We'll have quarters that are in the lower end of the range, but we will always be better than our competitors.

Yes. I think maybe to put a bow on this, the word, structural share gainer, is how we talk about our business inside the company. Michael and I talk about share of profit pools. That's more important than absolute share of every unit. Share of profit pools drives our business, which is why Sam's business focuses on commercial PCs, premium consumer, gaming, Arthur's business looks at clearly the infrastructure stack around storage, around servers and services. And it's that combination that we really focus on driving the share performance of our company.

Thanks, Asiya. Let's go over to Wamsi Mohan.

Wamsi Mohan, Bank of America. I was wondering if you could double-click a little bit on your new ISG outlook versus your prior ISG outlook. You clearly raised that higher. Can you bridge maybe from the old to new, what are the different components at work? Clearly, generative AI, you've shown how excited you are about that. But is that all of it? Is part of it something else in sort of that long-term framework in bridging from your prior to current guidance?

Yes, Wamsi, thank you for the question. I think it's all of what you said. When you take a look at the overall TAM of $265 billion, that's growing 7%, right? And we're just using for purposes of this discussion. The IDC framework which has growing at 18% right? So AI is growing faster than the average, right? So that's definitely a leader. It's driving compute. And remember, it's driving accelerated compute, it's driving general purpose compute, and it's pulling through storage, especially the unstructured part of the portfolio to go after all of those tokens that Jeff was talking about, right? That's going to be mostly all unstructured data, right? So when we take a look at that and we couple it with our strategy around pushing, we're a leader in purpose built to raise, and we will continue to be a leader there. We're innovating and pushing hard into the software-defined world with PowerFlex, PowerScale and ObjectScale. We're pushing hard into the edge with the Dell NativeEdge. We're pushing hard into the telco stack. We're pushing hard into multi-cloud, right? And we're extremely excited about Apex Navigator and the value that, that can bring to customers to truly optimize where workloads are run, right? We look at all of that stuff and we say, hey, it makes sense to take our midpoint range from 4 to 7. So we nearly doubled the midpoint from previous guidance to this guidance. But our past performance, where we're innovating, how the technology market is evolving, right, made us think that this was a step in the right direction.

Michael, it was great to see the elevated capital return now as you had sort of mentioned prior end. I guess when we think about EPS growth using that framework where you've obviously raised that a couple of points from 6% plus to 8% plus. But you all alluded to productivity that is being driven through AI. So I'm curious, if that's kind of built into your model as well, what kind of productivity gains could be there from that? And effectively, I mean, when you're talking about 20% to 30% productivity gains at customers that they're looking at, how is Dell using that internally? And would that be an incremental driver for you?

Yes. Well, we're certainly going after the opportunity. Yvonne touched on some of the levers in our cost structure. And look, I think if we look at our business, we have a structural competitive advantage in many areas of the business. And it's hard to know how many of those advances get normalized across a set of competitors. Obviously, we'll try to be first and capture those. So all that's reflected in the long-term outlook that we provided you.

Tony Sacconaghi from Bernstein. I just wanted to push a little bit more on the margins. I think 5 years ago, when you gave out segment margins, you thought the PC business would be 5%. It's done 7% over the last 3 or 4 years. If you really believe it's 5% to 7%, then implicitly, you're saying PSG margins are going to go down 15% from 7% to 6% going forward, and that's a big part of the business. So isn't that a negative margin point? Or are you implicitly saying you actually believe 7% is sustainable? And then similarly, if I think about on the ISG side, you've talked about AI margins being lower as a percentage, operating margins, and that sounds like it's the big incremental driver. So if you're a big incremental driver has lower margins. Why don't we collectively see margin pressure across the portfolio because there seem to be potentially pretty big vectors in each business that might negatively impact margins, operating margins. And believe it or not, I have a follow-up.

Yes. So in the CSG space, Tony, we are targeting the most profitable spaces in that business. We talked about a differentiated approach, which has allowed us to deliver better results. We see those results depend on a lot of factors. So you can look at economic cycles, you can look at speed of cost declines. You can look at competitive intensity. And all that factored into what we see as that 5% to 7% range on operating margin.

Yes. And Tony, on the ISG side, reiterate, I think you answered to one of the previous questions. Today, we talked about the fact that a lot of the 9680 servers are below the server average and therefore, is rate dilutive, but the dollars are absolutely accretive to the overall P&L, right? The 9680 is not going to be the only product we sell, but we have ways in which we're going to go improve the margin rate on the 9680, but we have other platforms by 4 by 2 by 1 configurations that will also sell. We have broader solution sets. We have the pull-through of storage. We have the consulting services to be adding to it. So you'll see an improvement in AI margins -- or we'll see an improvement in AI margins. But we're not only focused on improving the margins of the AI portfolio. We're maniacally focused on always extracting value for what we sell, right? And the key to extracting value is innovation. And what I hope you took away from this morning is that we are innovating like no other in the spaces that matter most, right? And if you believe that, we should be able to extract value for that. And because of that, we've gained 330 basis points of margin expansion over the last 6 years. Which gives us the confidence to up -- to have a guidance range of 11% to 14%, even though you will see a mix shift between server and storage.

And then if I could just separately follow up. Maybe this is for Yvonne McGill and Michael. You've acknowledged that you have excess cash on the balance sheet, kind of about $10 billion in cash, and I think you need only $4 billion or $5 billion to operate the business. The capital return commitment today as a percentage of your ongoing cash flow generation, how do we think about the $10 billion on the balance sheet? Should we expect it to be at your normalized level within 2 years or 3 years? And how do you think about that in deployment in terms of return to shareholders, debt paydown acquisitions?

So Tony, you're spot on with -- we need a minimum, I would say, $4 billion to $5 billion cash to run the business. But there's a cyclicality to our business, and so we will always keep more available than what the minimum would require. We have leaned into the return to shareholders, and it's 80% plus. And so I think you'll see us following through with that over time. We talked about tuck-in IP accretive M&A. So don't expect anything significant there. But feel comfortable with the level of cash that we have on the balance sheet and the ability for us to then return that to shareholders. I don't know, Michael?

Yes. I would emphasize the plus in the 80%. And obviously, there's some debt we can retire. I mean there's lots of ways to use the capital effectively.

How about Dwight?

Dwight Blazin, Davis Advisors. A quick clarification on the 10% growth rate of the dividend. Is that on a per share basis or absolute? Because conceivably with share repurchase, the actual allocation of capital for the dividend could remain -- could grow much more slowly. And then a question for both, Arthur and Sam, if possible. Could you talk a little bit about the -- potentially the expanding role of ARM architecture in both, client and server. Is that an increasing profit pool? Or is it something that you could potentially more aggressively pursue in the future?

So I'll start with the dividend question. So I -- the dividend expectation is on a per share basis.

For sure. But I mean, I think it's important to remember that there's also plus after that? And it would be our intention. I've been -- I think we've been very, very clear on our intention to return capital to shareholders. And so having the flexibility in that plus to adjust the dividend.

I call it a minimum of 10, the opportunity to do more.

So your point is well taken it, Dwight. But I think you could expect us to be relatively consistent in returning that capital to shareholders over time. Correct.

That's a pluses on our slides.

I'll take the ARM question. ARM provides more choice. Choice is good for customers. So whether we start at the PC and we look at ARM and what's likely to happen over the next handful of quarters, we have options, particularly for Sam's notebooks that really changed the performance per watt of our products in the near term. x86 continues to improve long term in that area. And we ultimately have choice. And then you add NPUs to ARM processors for PCs. You had NPUs, the x86, and it's an exciting space. The same on Arthur's side on servers. ARM cores, we see today, we've experimented with them for a decade plus. They're not meeting the performance criteria of the data center today but it's promising new technology. Again, it's more on the performance per watt attributes. And then if you project [ Ford, ] there's new technologies, whether it's risk being other types of microarchitectures that get pretty exciting for the infrastructure business. So we look at them all, we're engaged with everyone that you might imagine in that category of ARM processors and beyond. And as developers on the stage here, we're pretty excited about having increasingly more choice.

Okay. Let's continue to move around here. We'll go to Aaron on the second row.

Yes. Aaron Rakers at Wells Fargo. And I appreciate the distinct presentation today. It's really well put together. I guess I want to tackle the AI discussion a little bit. I think last quarter, you talked about a $2 billion order of flow for your -- I think it was 9680 products. I guess what I'm thinking about is how would you characterize the ability to fulfill that demand? What's the lead times look like? Is there more diversification coming in the GPU architecture or landscape? I'm just trying to understand when maybe you see that inflection show up in the revenue, because in addition to the pipeline, you talked about anywhere from 3 to a 20x increase in the ASP. And then my follow-on question just real quickly is how would you characterize your views of competing against somebody like an NVIDIA? You talked about a lot of those workloads residing on-premise. But how would you characterize your positioning versus like NVIDIA's view that a lot of these workloads reside in the cloud and fulfilled in enterprises via the cloud?

I see a lot to untangle there. So first, I think in our earnings call, I said lead time for our 9680 was 39 weeks, they're still 39 weeks. And supply continues to improve, and demand continues to outpace supply. That's where we are today. Our job is to find the supply. We're working with the supply. Certainly, in the growth range that Yvonne talked about for this period, we're trying to understand how that demand gets fulfilled. Probably more interesting is, I think, the amount of competition that's coming into the accelerated computing space in the foreseeable future. And I think we've mentioned this before, but in the event that we haven't, we're tracking over 40 different accelerators today that are heading towards the marketplace again in the foreseeable future and a wide array of technologies and architectures. Not all of them are 80 billion transistor devices times [ 8 ] for unbelievable performance. Many of them are optimized for specific AI workloads and smaller data sets. So if I bridge that from the second part of your question, what we think happens, and we talked about it in a variety of ways, but we think AI follows the data, which leads us to believe that AI gets decentralized, not centralized. It gets decentralized to where the data is created. And then it's further amplified by the fact that we think domain-specific, process-specific and fields of study models, mostly open source will be run increasingly where that data is created, which is decentralized. And then over time, we think algorithm evolution is really what's going to be the game changer that algorithms will evolve to work on these smaller data sets. Then if you take algorithm evolution, decentralization of AI that follows the data, the computational intensity required to run a new algorithm on smaller data set isn't what's the computational intensity required to train a massive, large language model. So we actually think that helps us. The data is already on-prem as we established. It gets decentralized. AI follows the data. The computational intensity over time as the algorithms evolve, we think paint a good picture. And then we don't even talk about inference. And we think inference is at least an equally large opportunity as the training and tuning side and inference is clearly going to be run where the data is generated. Does that help?

Let's go to the fourth row in the center with Erik.

Erik Woodring of Morgan Stanley. Arthur, maybe I want to double-click on this AI opportunity because a lot of feedback that I get from investors is kind of questioning the longevity of the opportunity and maybe making comparisons to cloud servers and how those eventually competed away to Asia. And so maybe what I'm looking for is, can you help us understand why you will remain a player in this business for multiple years, not just 1, 2, 3 years for multiple years, what are your key points of differentiation? And how do you kind of keep that competitive advantage going?

Yes. Thank you for the question. Incorporate by reference everything that Jeff just said in response to the previous question. But look, if you believe in the promise of generative AI, which I think most people do, right? And then you think about how generative AI is actually highlighting further the use of other artificial intelligence like machine learning, right? This is a new trend in the market -- a trend that existed in a market that is now amplified because of what generative AI, the light that, that has shown on the power of artificial intelligence, right? This is a new way to process the vast amounts of data that are being created, especially of the unstructured variety, right? And then to Jeff's point, and was in my talk track, a lot of the initial use cases are going to be targeting the type of data that typically would not be moved to the cloud, that is going to stay on-prem. It's going to be proprietary IP data. It's going to be proprietary customer data, it's going to be proprietary financial data, right? And then you further expand to, all right, there's going to be algorithmic innovation to really focus on, hey, do I need billions of parameters, probably not. It's going to be very use case specific, right? And there'll be innovation for much smaller models that, as Jeff said, are going to follow the data but are going to track very specific use cases. This notion that one large language model can serve multiple different purposes, right, probably doesn't stay over the long term. You will see more model innovation, very specific to use cases and data types, right? So it's a new way of how to think about infrastructure build-out that's here for the long term. How we stay competitive is how we always stay competitive. We innovate in this space. We started on the 9680, 3 years ago. Joint engineering, the densest platform in the market, the best connectivity in the market, the most expansion slots in the market, the only product capable of housing XPUs in it. This architecture is not static. It's dynamic, right? It's going to shift to something else. TDPs are going up, package sizes are increasing, connectivity is changing, and Rack Scale infrastructure will be what's in play, right? And so we will continue to innovate and pace of innovation is something that we have proven over time that we are significantly good at. So, I think that, Jeff...

And if I could add to that, just if you think about modern AI stack, it really has kind of 3 elements. One is the infrastructure layer that's hardware, software and OSs. This has got platform [indiscernible] all the tool chains that everybody talks about today. And then there's the application layer. Then you've got to wrap up [ O-RAN ] services in regards to our customers. And we're going to actually participate in each layer. So what Arthur just talked about was the infrastructure layer. We're going to get in the platform were actually providing services and having opinionated stacks to help our customers to help ourselves actually drive a lot of these Gen AI use cases to be more productive or provide a better experience. And then we're going to create that open ISV ecosystem, if you will, in regards to how applications can come in. And we're one of the -- I guess, I believe we're one of the only that could actually bring that all together to our services. I think I was talking to Dave earlier, One of the biggest struggles I see with our customers is twofold. One, it's about data and the other side is about the technology. Everybody is running to the technology, but they're really struggling with the data elements of this. In regards to how do they identify the right data sources, how do they do the proper hygiene, how do they connect that, how do they build the models and the infrastructure? We play a role in all of that. And I think there's no one better than us in regards to the whole data prep phase. So that's a whole another wave of services and offers that we could bring that will drive, more value, more margin.

Well, again, I think since I can't help myself, you can't go buy that. You can't go over to wherever you want to buy a motherboard and go, "Hey, I got one of these AI things." You have to build a system, you have to build an architecture. That architecture, we have to start contemplating memory bandwidth and memory capacity unlike we've seen used before. We have to think of interconnect and multiple interconnects how we're going to build clusters of these servers in computational or accelerated computing assets tied to storage, the power and cooling around this, the system-level design to build, whether that's out on the edge in an oil derrick or a deep mine or in a company's data center or whatever it might be deployed is real systems engineering and architecture. And that just can't be bought. That's why we think we are in a very unique position that we can take advantage of the opportunities, particularly as this is rolled out in enterprises and everyday business.

Yes, I can't help myself either. So it's a complex and hence, more valuable challenge for these enterprise customers to deploy this new system architecture that needs to be built. And as the leading and most trusted provider of those systems today to those enterprises, we think we're incredibly well positioned to lead that roll out of systems.