 The transformation of Dell into Dell EMC and now Dell Technologies has been one of the most remarkable stories in the history of the enterprise technology industry. The company has gone from a Wall Street darling rocket ship PC company to a middling enterprise player forced to go private, to a debt laden powerhouse that controlled one of the most valuable assets in enterprise tech, i.e. VMware. And now is a hundred billion dollar giant with a low-margin business, a strong balance sheet in the broadest hardware portfolio in the industry. And financial magic that Dell went through would make anyone's head spin. The last lever of Dell EMC, of the Dell EMC deal was detailed in Michael Dell's book, Play Nice but Win. In a captivating chapter called Harry U and the Bolt from the Blue, Michael Dell described how he and his colleagues came up with the final straw of how to finance the deal. If you haven't read it, you should. And of course, after years of successfully integrating EMC and becoming VMware's number one distribution channel, all of this culminated in the spin out of VMware from Dell and a massive wealth creation milestone, pending, of course, the Broadcom acquisition of VMware. So where does that leave Dell and what does the future look like for this technology powerhouse? Hello and welcome to theCUBE's exclusive coverage of Dell Technology Summit 2022. My name is Dave Vellante and I'll be hosting the program. Now today in conjunction with the Dell Tech Summit, we're going to hear from four of Dell's senior executives, Tom Sweet, who's the CFO of Dell Technologies. He's going to share his views on the company's position and opportunities going forward. He's going to answer the question, why is Dell a good long-term investment? Then we'll hear from Jeff Boudreau, who's the president of Dell's ISG business. That unit is the largest profit driver of Dell. He's going to talk about the product angle and specifically how Dell is thinking about solving the multi-cloud challenge. And then Sam Grocott, who's the senior vice president of marketing, will come on the program and give us the update on Apex, which is Dell's as a service offering and then the new edge platform called Project Frontier. Now it's also cybersecurity awareness month that we're going to see if Sam has anything to say about that. Then finally for a company that's nearly 40 years old, Dell actually has some pretty forward-thinking philosophies when it comes to its culture and workforce. And we're going to speak with Jen Sevadra, who's Dell's chief human resource officer about hybrid work and how Dell is thinking about the future of work. However, before we get into all this, I want to share our independent perspectives on the company and some research that we'll introduce to frame the program. Now, as you know, we love data here at theCUBE and one of our partners, ETR, has what we believe is the best spending intentions data for enterprise tech. So here's a graphic that shows ETR's proprietary net score methodology in the vertical axis. That's a measure of spending velocity. And on the X axis, his overlap of pervasiveness in the data sample. This is a cut for just the server, the storage and the client sectors within the ETR taxonomy. So you can see Dell's CSG products, laptops in particular are dominant on both the X and the Y dimensions. CSG is the client solutions group and accounts for nearly 60% of Dell's revenue and about half of its operating income. And then the arrow signifies that dot that represents Dell's ISG business that we're going to talk to Jeff Boudreau about. That's the infrastructure solutions group. Now ISG accounts for the bulk of the remainder of Dell's business and it is, as I said, it's most profitable from a margin standpoint. It comprises the EMC storage business as well as the Dell server business and Dell's networking portfolio. And as a note, we didn't include networking in that cut. Had we done so, Cisco would have dominated the graphic and frankly Dell's networking business isn't industry leading in the same way that PCs servers and storage are. And as you can see the data confirms the leadership position Dell has in its client side, its server and its storage sectors. But the nuance is, look at that red dotted line at 40% on the vertical axis. That represents a highly elevated net score and every company in the sector is below that line. Now we should mention that we also filtered the data for those companies with more than 100 mentions in the survey, but the point remains the same. This is a mature business that generally is lower margin. Storage is the exception, but cloud has put pressure on margins even in that business in addition to the server space. The last point on this graphic is we put a box around VMware and it's prominently present on both the X and Y dimensions. VMware participates with purely software defined high margin offerings in these spaces and it gives you a sense of what might have been had Dell chosen to hold onto that asset or spin it into the company. But let's face it, the alternatives from Michael Dell were just too attractive and it's unlikely that a spin in would have unlocked the value in the way a spin out did at least not in the near future. So let's take a look at the snapshot of Dell's financials to give you a sense of where the company stands today. Dell is a company with over $100 billion in revenue. Last quarter it did more than 26 billion in revenue and grew at a quite amazing 9% rate for a company that size. But because it's a hardware company primarily, its margins are low with operating income 10% of revenue and at 21% gross margin. With VMware on Dell's income statement before the spin its gross margins were in the low 30s. Now Dell only spends about 2% of revenue on R&D because of it's so big it's still a lot of money and you can see it is cash flow positive. Dell's free cash flow over the trailing 12 month period is 3.7 billion but that's only 3.5% of trailing 12 month revenue. Dell's Apex and of course its hardware maintenance business is recurring revenue and that is only about 5 billion in revenue and it's growing at 8% annually. Now having said that it's the equivalent of ServiceNow's total revenue. Of course ServiceNow has 23% operating margin and 16% free cash flow margin and more than $5 billion in cash on the balance sheet and an $85 billion market cap. That's what software will do for you. Now Dell like most companies is staring at a challenging macro environment with FX headwinds, inflation, et cetera. You've heard the story and hence it's conservative and contracting revenue guidance. But the balance sheet transformation has been quite amazing thanks to VMware's cash flow. Michael Dell and his partners from Silver Lake at all they put up around $4 billion of their own cash to buy EMC for 67 billion and of course got VMware in the process. Most of that financing was debt that Dell put on its balance sheet to do the transaction to the tune of $46 billion it added to the balance sheet debt. Now Dell's debt, the core debt net of its financing operation is now down to 16 billion and it has $7 billion in cash in the balance sheet. So dramatic delta from just a few years ago. So pretty good picture but Dell, $100 billion company is still only valued at 28 billion or around 26 cents on the revenue dollar. HPE's revenue multiple is around 60 cents on the revenue dollar. HP Inc, Dell's laptop and PC competitor is around 45 cents. IBM's revenue multiple is almost two times. By the way, IBM has more than $50 billion in debt thanks to the Red Hat acquisition and Cisco has a revenue multiple that's over 3x, about 3.3x currently. So is Dell undervalued? Well based on these comparisons with its peers, I'd say yes and no. Dell's performance relative to its peers in the market is very strong. It's winning and has an extremely adept go-to-market machine but its lack of software content and its margin profile leads one to believe if it can continue to pull some valuation levers while entering new markets, it can get its valuation well above where it is today. So what are some of those levers and what might that look like going forward? Despite the fact that Dell doesn't have a huge software revenue component since spinning out VMware and it doesn't own a cloud, it plays in virtually every part of the hardware market and it can provide infrastructure pretty much any application and any use case and pretty much any industry and pretty much any geography in the world and it can serve those customers. So its size is an advantage. However, the history for hardware heavy companies that try to get bigger has some notable failures namely HP which had to split into two businesses, HP Inc and HPE and IBM which has had an abysmal decade from a performance standpoint and has had to shrink to grow again and obviously do a massive $34 billion acquisition of Red Hat. So why will Dell do any better than these two? Well, it has a fantastic supply chain. It's a founder led company which makes a cultural difference in our view and it's actually comfortable with a low margin software like business model. Most certainly IBM wasn't comfortable with that and didn't have these characteristics and HP was kind of just incomprehensible at the end. So Dell in my opinion is a much better chance of doing well at a hundred billion or over but we'll see how it navigates through the current headwinds as it's guiding down. Apex is essentially Dell's version of the cloud. Now remember, Dell got started late. HPE is further along from the model standpoint with GreenLake but Dell has a larger portfolio so they're going to try to play on that advantage. But at the end of the day, these as a service offerings are simply ways to bring a utility model to existing customers and generate recurring revenue. And that's a good thing because customers will be loyal to an incumbent if it can deliver as a service and reduce risk for customers. But the real opportunity lies ahead. Specifically, Dell is embracing the cloud model. It took a while but they're on board. As Matt Baker, Dell's Senior Vice President of Corporate Strategy likes to say, it's not a zero sum game. What it means by that is just because Dell doesn't own its own cloud, it doesn't mean Dell can't build value on top of hyperscale clouds. What we call super cloud. And that's Dell's strategy to take advantage of public cloud capex and connect on-prem to the cloud, create a unified experience across clouds and out to the edge. That's ambitious and technically it's non-trivial. But listen to Dell's Vice Chairman and Co-COO Jeff Clark explain this vision. Please play the clip. You said also technology and business models are tied together and enable her. If you believe that, then you have to believe that it's a business operating system that they want. They want to leverage whatever they can. And at the end of the day, they have to differentiate what they do. That's exactly right. If I take that and what Dave was saying and I summarize it the following way, if we can take these cloud assets and capabilities, combine them in an orchestrated way to deliver a distributed platform, game over. Pretty interesting, right? John Furrier called it a business operating system. Essentially I think of it sometimes as a cloud operating system or cloud operating environment to drive new business value on top of the hyperscale capex. Now, is it really game over as Jeff Clark said if Dell can do that? I'd say if it had that today it might be game over for the competition but this vision will take years to play out. And of course, it's got to be funded. And that's going to take time and in this industry, the companies tend to move in lockstep. So as often as the case, it's going to come down to execution and Dell's ability to enter new markets that are ideally, at least from my perspective, higher margin. Data management, extending data protection into cybersecurity as an adjacency and of course, edge and telco slash 5G opportunities. All there for the taking. I mean, look, even if Dell doesn't go after more higher margin software content it can thrive with a lower margin model just by penetrating new markets and throwing off cash from those markets. But by keeping close to customers and then maybe through tuck in acquisitions it might be able to find the next nugget beyond today's cloud and on-prem models. And the last thing I'll call out is ecosystem. I say here ecosystem, ecosystem, ecosystem because a defining characteristic of a cloud player is ecosystem. And if Apex is Dell's cloud it has the opportunity to expand that ecosystem dramatically. This is one of the company's biggest opportunities and challenges at the same time in my view. It's just scratching the surface on its partner ecosystem. And its ecosystem today is both reseller heavy and tech partner heavy. And that's not a bad thing but it's starting to evolve more rapidly. The snowflake deal is an example of up the stack evolution. But I'd like to see much more out of that snowflake relationship and more relationships like that. Specifically, I'd like to see more momentum with data and database. And if we live in a data heavy world which we do where the data and the database and data management offerings coexist and are super important to customers like to see that inside of Apex. Like to see that data play beyond storage which is really where it is today in its early days. The point is with Dell's go-to-market advantage which company wouldn't treat Dell like the on-prem hybrid edge super cloud player that I want to partner with to drive more business. You'd be crazy not to. But Dell has a lot on its plate. And we'd like to see some serious acceleration on the ecosystem front. In other words, Dell as both a selling partner and a business enabler with its platform, its programmable infrastructure as a service. And that is a moving target that will rapidly evolve. And of course, we'll be here watching and reporting. So thanks for watching this preview of Dell Technology Summit 2022. I'm Dave Vellante. We hope you enjoy the rest of the program.