DELL INC. Darren Thomas, VP & GM of Enterprise Storage Business Raymond James IT Supply Chain Conference December 14, 2010 at 7:15 a.m. CT Brian Alexander, Raymond James: Good morning, everybody. Welcome to the Raymond James IT Supply Chain Conference. If I haven't met you, I'm Brian Alexander, and I'm one of the analysts at Raymond James. I cover the supply chain, which includes hardware distribution and EMS. Thanks, everybody, for coming. I think this is our 11th annual event here at Raymond James. The Conference has a long tradition prior to Raymond James. I think we've been doing this for about 20 plus years. Hopefully, you'll find the mix of companies will give you unique insights into demand trends and inventory trends and come away with a lot of good investment ideas. Many of you have come a long way and braved the weather, so we really appreciate all of you being here today. Just a little bit about the lay of the land, we have a very full day. We have 18 company presentations, most of which are followed by breakout sessions. If you could refer to the pocket guides for details on times and presenters and whether there is a breakout. There are also signs outside the breakout rooms that'll let you know. We're running two tracks. Track One is this room, this is Aster Two, and breakouts for this room are right next door in Aster One. Track Two is the Whitney Room, which is just across the hall, and the breakouts for the Whitney Room are in the Manhattan Room. That's not in this area; it's actually near the entrance to the hotel. If you walk to the entrance of the hotel and you fact the street, it'll be on your right-hand side. We'll have lunch at 12:30 in the Park Avenue Room - that's on the lobby level right next to the Manhattan Room behind the lobby bar — and we're pleased to have Stephen Minton from IBC to discuss IBC's outlook for technology spending for 2011 as well as cloud computing's effect on the entire IT ecosystems, so it should be a pretty interesting discussion. If you have one-on-ones, you can pick up your schedule at the one-on- one desk, which you passed on the way in. Raymond James 12.14.10 Page 2 Our first two sessions are going to be 35 minutes, and these are single-track sessions with Dell, followed by Hewlett Packard. The rest of the day is going to be two tracks, as I mentioned before, and those sessions are going to be 30 minutes. The format for each section is going to a mix of presentation and fireside chat. It really just depends on that individual company and their preference. Let me bring up Dell. We've got Darren Thomas who runs the storage business for Dell. He's Vice President and General Manager of the Enterprise Storage Business, which is obviously very topical in light of yesterday's news where Dell announced its intent to buy Compellent. We also have Rob Williams, Vice President of Investor Relations. They're going to kick it off with some introductory comments, and then we'll move into a fireside chat. Rob Williams, Dell: First of all, thanks for having us; it's always nice to be back at the Conference. I'll just make a couple of introductory comments and then turn it over to Darren. You know, we are executing a growth strategy at the company. I think the transformation of the business is well underway. If you look at the third quarter, our commercial business was about $12.4 billion. It's up 33%, obviously helped by the acquisition and closing of Perot last year in Q4. But the commercial business is doing very, very well, generating 9 to 10% operating income. We have a differentiated view of how to win in the Enterprise, our Enterprise business is, on a run rate basis, about $17 billion. It generates roughly 30% of the revenue of the company and more than 50% of the gross margin dollars for the company. So, that business is doing very well. Darren will go into a bit more detail there. We're also transforming our supply chain and optimizing our supply chain, and I think you can see traction really taking place there if you look at the mix of our own manufacturing within Dell facilities and our use of contract manufacturing, our use of air freight, land freight and over water freight, the simplification of our product portfolio. There's definitely some work Raymond James 12.14.10 Page 3 there and there's some traction that's really taking place and we're clearly benefiting from a very favorable component cost environment. So, if you take those few parts of the growth strategy and roll them together, that gets us to our long-term value creation framework, which is 5 to 7% of new growth, operating income of 7% or better over time and continuing to generate very, very strong cash flow. That's growth in excess of IT spending and that's the strategy we're executing. I think we can safely say that at this point that strategy is well under way and we're pretty pleased with our progress. A lot more work to do, but that's kind of where we are. Darren? Darren Thomas, Dell: Well, thank you. I want to first apologize for my voice, I'm just getting over a cold. The storage industry is really kind of one of the highlights of the IT industry as a whole. A couple things have happened in the last 4 or 5 years that have really started to change the industry. It's in the middle of a lot of change right now and I think you're going to see that change continue going forward kind of at a complicated pace. The reason I said that is, there's a couple of things. First of all, storage is kind of the technology that our customers want to change the least, it's something that when they store data, they want to store it for a long time. They don't want to be moving it around, migrating it. That's very expensive to do. So they look for longer-term strategies. In the past, that strategy was they wanted lots of knobs to dial. They wanted to tune performance. They wanted to make the system just right for their environment, which meant they would do snapshots a certain way. They do replication a certain way. They would manage the performance of it either by using a lot of CPU horsepower, a lot of capacity. Every customer was a little bit different. What we see coming through right now is an enormous amount of software ingenuity that's been applied into this industry that has caused the customer to turn away from dialing the knobs themselves in favor of automation that really dials the knobs better than they could have. It does it real time. As a result of doing it real time, the customer can't possibly tune that many systems that quickly and when I say tune, it's not always tuning for performance, sometimes it's optimizing for cost, sometimes it's optimizing for distance, sometimes it's Raymond James 12.14.10 Page 4 optimizing for more than one job stream they're trying to run. They're doing a backup at the same time. They're doing their normal business. Almost all companies are 24 by 7. So, a lot of this opportunity that we're seeing right now is because the automation opportunity showing up. The way that really appears is not just in the storage device. You have the servers going through virtualization, allows them to be configured on the fly, literally in milliseconds. Even networking is now able to be configured for quality service and security, and of course storage for performance, for capacity, for the amount of bandwidth that goes to it. Then you see a lot of technology that's revolutionary. You actually have to go buy some new technology for this. Some of this is the desire to go to less expensive pipes. The network that we used before, Fibre Channel, has been the Enterprise class network, still dominates that space but iSCSI has come on really strong in the mid-range. A lot of companies are at least looking at iSCSI post-2009 when the economy got a little tight. They really were forced to look at better costed opportunities and so iSCSI took a big shot in the arm, got a lot of followers at that time. I think what you're going to see is FCoE, which is the Fibre Channel version of that protocol running on those same pipes, that same ten gigabit Ethernet pipe, is going to start gaining popularity. It's the technology that's holding it back right now. You're seeing people can't do FCoE across the continent like they can do Fibre Channel across the continent. FCoE has limitations just because all the switching capabilities not there yet. You can really only stay within an IT center today. So that's kind of a brief overview of Dell’s strategy. We're moving towards an intelligent infrastructure, intelligent in the networking, intelligent in the servers, and obviously intelligent in the part that I play.