 Live from Las Vegas, it's theCUBE. Covering Dell Technologies World 2019. Brought to you by Dell Technologies and its ecosystem partners. Hey, welcome back everyone. CUBE's live coverage day three of three days of wall-to-wall coverage. We've got two sets, exploding the content out there. The CUBE Canon, we've been calling it. So much content coming in. I'm John Furrier, your host with my co is Dave Vellante. We're here with Tom Sweet, who's the CFO of Dell Technologies. He's the man who's making it all happen. All the numbers are starting to come in. We're starting to see some real big numbers and more. Welcome to theCUBE, thanks for spending the time. Hey, I'm happy to be here. It's great to see you guys again. And it's been a great three days here at Dell Tech World. So I'm very excited about what we're seeing. All of the enthusiasm with our customers and partners and the receptivity to what we're doing as a company and the capabilities we're driving. It's pretty exciting. It's kind of like the post-game show, I guess the show's going to end today, but I've been watching you and the analysts giving all the presentations. You're what we call a tech athlete. You got to hold the ship down, make the numbers work. You got a lot of great puzzle pieces that you guys have laid out here at the show across the portfolio. Aggressive new architecture around end to end operations. A lot of moving parts being integrated in and the numbers are looking really good. The scoreboard looks good. Give us, take us through the highlights inside the numbers up until the right. Give us the highlights. Well, thank you for that. But it's been, we had a great fiscal 19, as you guys know by now, right? So over $91 billion of non-gap revenue. We added $11 billion of revenue in the year. So if you think about that, that's the equivalent of a couple of Fortune 500 companies coming into the company. Took share in all the categories that we're focused on. We took over 320 basis points of share and storage. Over 200 basis points of share and mainstream server revenue. Our PC, commercial client PC revenue, we took over, I think a couple hundred basis points of share. So we're very pleased with the progress. But I think what's most exciting as we think about value creation and where we're headed as a company is some of the things that we announced this week around the cloud platform. And what you're beginning to see is the fill in of the capabilities and the time together of the companies that are coming together with integrated solutions and capabilities. And so, I've been with the analyst and as you referenced, and they had lots of good questions on how does this all fit together? How does it then, what's the acceleration point, if you will, or how does this take off from here? And so we went through that in terms of, let's put the platform out there, let's begin to build on it. Customers are asking for that multi-cloud capability. This is what this does for them. It ties this together in one single pane of glass from an orchestration and management perspective. So we're really excited. And then you saw Jeff introduce a bunch of new products, the new latitude line, some of the new server capabilities, new storage arrays that are coming. And so customer, the buzz here is pretty strong. So it's been pretty exciting this week. Congratulations on just a shareholder value. I know from a number standpoint, it's really been successful. Congratulations. The question I want to ask you going back, I remember the conversation, HPE got smaller, HPE Enterprise got smaller, Dell was getting bigger. And the conversation at that time was scale as a competitive advantage. And we were talking about how Cloud was showing the way that scale actually has these synergies. As you look back now, and as the evolution started, you guys started executing, where was the first sign of, wow, this is going to be awesome? Well, probably Michael was more optimistic about it than I was, to be honest. You had to figure out how to pay for it. Come on. I was like, yeah, I think we got to do this. I'm like, that's a lot of money, you know? So, but look, I mean, I think what we saw when we came together with Dell and EMC was, the fact that we needed each other, right? We had capabilities that didn't overlap. They gave us great presence in technology and the data center and clearly they brought VMware and Pivotal with them. We brought scale. We brought maybe an execution framework and a focus and the combination of that has been pretty powerful. And look, I mean, it's taken a couple of years of heavy lifting, right? But, and we're not done and there's lots to go do. But I think we're pretty excited about how this started to accelerate on us, you know, or pick up momentum, I should say, you know, middle of last year. So is it margin expansion or is it the go to market efficiency or supply chain all three? I think it's all three, right? If you listen to us over the last couple of years, we talked about, hey, we needed to invest. We had to invest in new capabilities from a solution perspective. We had to invest in go to market coverage. You know, so we've spent a fair amount of investment dollars putting, you know, putting the pieces in place. And so then it takes time for that to come together and coalesce and I think we're early innings on that. You know, you know, lots of competition out there, but we're excited about the positioning right now. So the numbers are pretty remarkable. I mean, to be a $90 billion company growing at, you know, 14% is pretty amazing. However, you know this, if you take VMware's market cap to multiply it by 0.8, which is your share, subtract out your core debt, you know, subtract out your market cap, you're left with like a billion dollars. Is that really how we should think about the core Dell? Is it worth about a billion dollars? Well, you know, it's, you're now getting to where I spent all of my last year talking about valuation, right? But look, we obviously think differently about the value of the core company. You just think about free cash flow coming out of the core, which is over, you know, two and a half to three and a half billion dollars or three and a half billion dollar range. I mean, the valuation framework in some instances doesn't make a lot of sense. We understand that, you know, we're a large-scale tech company and tech investors in general haven't been, you know, exposed to companies with, tech companies with a lot of debt, right? And we have more debt than the average. I think it's very manageable because what's the opposite side of, of, you know, the other side of the conversation on debt is what's your EBITDA, right? So you think about multiple and, and so look, we think, look, I can't, I can't win those arguments, as you know, right around, I think what we have to do is continue to go execute the business. And over time, and I think you've, you know, we'll demonstrate the value creation opportunity that exists here. You know, and people will decide whether they want to invest in us and come along with it or not. Well, I've said it's a really cheap way to own VMware. I mean, if you're really looking for a way to own VMware, so there is that play. One of the things that I've been really impressed with this week is your emphasis on growth, but profitable growth. You're not just going for market share for market share's sake, but you are going hard for market shares. It's an interesting balance. How do you balance those two? Well, it's sort of this constant juggle, right? Because look, I mean, you think about where we compete. PC, server, external storage. We can talk software defined and some of the other dynamics that are going on, but those areas are generally not double-digit growth areas, right? And so if you're going to grow, you're generally taking share from somebody, right? And so we have this philosophy in these types of areas we got to grow, and it's got to be profitable to your point. And in these spaces, you can go out and get a lot of market share. That's doable, but you can also spend a lot of money doing that, right? You can rent share, so to speak, if you want it. And so there's this balance of pushing the teams on go grow. I want it to be the right kind of growth, which means, what does that mean? It means you go acquire customers that have a value stream associated with them. And yes, you may be aggressive to go get them, but over time you build the ecosystem around them in terms of the other solutions and capabilities they're buying. And so it's this constant balance, you know? And so that's what we're trying to make sure we get right, if you will. One more CFO question, if I may. I know we can talk about more fun stuff. So it may talk about the debt. I think you got that covered. You're managing that very well. You know, we talk about the valuation, fine. One of the areas that I have some concerns about, and I'd like your response, is just the PC business itself. It's a very important business for you guys. Yeah, it's about half the revenue. Maybe it's not as profitable, we know that. But it also absorbs a lot of overhead of the company. So big shifts in that business would have tectonic effects, I would think, on your business. How do you think about that? How do you manage that? I wonder if, I haven't heard much talk about that, and I just wonder if you could, you know. Yeah, look, educate us on that. The CSG business, which is our PC business, was a $43 billion business last year, so you're right. It provides us great scale, by the way, and great supply chain scale. But if you think about what's driving the PC renaissance right now, there's a Windows 10 refresh going on, as you both know. And, you know, Microsoft's estimate would be, hey, you got probably another year or so of that left, and then you got through most of that refresh cycle. And then the question I always get to your point is, what's next? Yeah. So let me pivot the conversation, which is, if you think about what's next is, the feedback we're now getting, when you think about the workforce and the generation that's in the workforce now wants good technology. And so the days of, let me give all of my employees and team members these $400, $500 thick PCs that weigh eight, nine, 10 pounds are gone. Companies want, employees want technology that they can carry, that they like, that's usable, you know, the whole flexible workforce dynamic. And so there's a whole conversation around workforce transformation that's happening. The other thing is you hear us talk about edge to core to cloud, that edge computing dynamic, which is, will include both data, you know, infrastructure and hard PC hardware at the edge is an interesting dynamic. So we think the evolution continues to evolve and the PC business stays healthy for us. But yes, you're right, it's a big business, but it's a great cash flow business for us. And at the same time, if John, if that edge becomes a tailwind for you guys, I mean, it's essentially, there's an oligopoly. Also Michael, Michael was saying the edge is where the game's going to be in 10 years. I would just iterate, add one thing to your comment about the client businesses. I think one, I 100% agree. I think the Alienware booth here is a canary in the coal mine. If you talk to any of the younger generation gamers, they have this phrase called PCMR, which stands for PC master race. There's a shift back to the PC because of gaming and they all want their rigs and they want horsepower. They're into the tech. So the ease of use and simplifying the tech, they want the best graph, they want ray tracing, they want, I mean, they want all these new things. So I think there's a whole nother generation to your point. Anyway, back to my question on this business model issue is that Michael was on yesterday, he said, we're not on the headline on SiliconANGLE right now, he says, we're not a conglomerate. Michael Dell savers the integrated pieces of his growing company. So I got to ask you, you know, in the intersection of innovation strategy, business model, innovation, and financial strategy, you got to have a financial strategy that overlays the innovation strategy as well as the business model. How would you describe the financial strategy of Dell technologies? And how does that overlay directly on top of the innovation strategy and the business model? Look, my ultimate job is to help Michael build his vision and fulfill his vision. The subset of that is what's the job of a, what does a company do? It's all about creating value and shareholder value. So the overlay financial strategy and framework is shareholder value creation, right? And you step down from that and you say, how do you create value? You create value vis-a-vis better capabilities, better products and solutions. How do you do that? Then you get into a capital allocation conversation on how much am I going to allocate of my capital to innovation, to R&D? How much of value creation is going to come through debt paydown to your point? You know, if you look at the levers we're pulling right now and simplified capital structures, I should also say. And so the levers we're pulling right now are all those levers, right? We're pulling a, let me build the innovation, the integrated capabilities, this concept of we've got great capabilities across the family of Dell technologies. How do we integrate them? How do I create solutions that you customers want? At the same point in time, I'm pricing those effectively, I'm creating cash generation that allows me to reinvest in the business and also pay down debt. That ultimately drives shareholder value, right? And the conglomerate comment that was relevant because I don't see you as a conglomerate. If you look at the success of, say, Amazon Web Services as part of Amazon, almost half their revenues now. That's one large distributed computer, basically. I mean, it's integrated parts of a lot of things as an operating environment, operating system, so we've said on theCUBE, that is a model. You guys have a similar approach. You're looking at the holistic picture of Dell technologies as an operating model with synergies and systems not, this division's pumping out all this cash, they're siloed, the integration's a key part. Comment on that piece. Yeah, look, I mean, we've been having this, pushing on this conglomerate thing now for a while, right? And since up, we've got certain investors and certain analysts that think about, well, you've got all these piece parts, but these piece parts don't run independently. They're integrated, we're using joint selling activity, joint solution capability and development to sell to, we sell technology, right? I'm not selling engines and light bulbs and appliances, right? I'm selling technology to a set of buyers that are consuming that technology in an integrated fashion. And that's how we're going to market and that's how we're building solutions to them. And so look, you're going to continue to hear us push on that theme, because I think it's an important theme that people need to understand about what we're trying to do, but, you know, and so we're, And that tries evaluation conversation, which has been, you know, Andy Jassy, CEO of Amazon told me once on the queue, you got to be able to be misunderstood for a while before people figure it out. What's your free cash flow now? Two, three billion you're throwing off. What's the number there? Well, you know, it's a lot of cash. Yeah, I mean, you're, it's higher than that, but, well, when you throw in VMware, you're cash flow from ops is roughly right around $7 billion, right? You can't go out of business if you don't run out of cash. That's why we talk about cash a lot, right? We're good, but we're also thinking about cash, right? So, look, I mean, I think we're just going to continue to run the business, right? We got to go execute the business. It's a challenging, you know, it's always a competitive environment out there, but you know, our job is to go execute the business. Macro question. So I think I heard from you, Tom, this week that IDC has the IT market growing at 2x GDP. And I'm thinking about it and saying, how is that, you know, are people going to start spending more on technology as a percentage of revenue? Maybe, but then I'm thinking what they're spending a lot today on labor. And I think what's happening is they're shifting a lot of those labor costs into technology and they're eliminating some of those labor costs with that shift. Is that a plausible premise? Yeah, I think it is, but I also think that companies are thinking about their business model now and you've seen, and you guys know this, you're in the middle of all of this, you've seen a generational shift on IT, used to be in the background that said, hey, go roll up the numbers and pay the people and pay the bills and don't think about the business. You know, that's a simplification, but now it's about how is technology used to differentiate my business model, to capture new customers, to give you a new experience, to give you a competitive advantage. And what's interesting for us is that these conversations are not just with CIOs, they were CEOs, CEOs, CEOs, CFOs. And so this investment cycle that's here is pretty interesting for us, right? And so, look, you asked me about the macro. It's not, a year ago, what were we all talking about? Global synchronous growth, right? Remember that? Yeah, of course. We're not really talking about that right now. There's pressure points around the globe depending upon where you are and it's just a different environment. So it is a bit choppier out there. I mean, I think the macro thing is to me, I mean, I'm not in the weeds as much as you guys are, but you got consolidation value creation that you guys saw with the big plan. And then you got an exploding data AI business happening in the marketplace that's showing customers that they can actually reinvest and do new things, drive new revenues. So I think the business model expanses on the customer side as well as a massive tailwind. Of course, cloud computing, you can do it faster. So between all these things, that's a nice pop for you guys. The technology trends are clearly headed our way, right? There's data being created everywhere. You got to do something with that data. You got to store it. You got to compute it if you want to get analytics and insight. And so all of these things are sort of lining up. Now look, I don't want to oversell that because we all know this business is, you got to go out and compete every day and to win, but it's an interesting time. Are you increasing your spend on technology as a percentage of revenue? You know, if you're talking about the R&D spend, it's roughly about four and a half percent of my revenue right now. So as revenue's going up, we're spending more money in that area. And I'll talk about IT, tech. Okay, in my own tech, we're up. We're up, right? As a percentage? Yes. Okay, digital transformation. So you're early in your premises. People are going to spend more as a percentage on tech because the return is higher. But being a good CFO, I'm also squeezing my guys in other areas. Yeah, that's what I'm asking. I'm asking the CIO out here. You got to make sure you keep them in line, right? Congratulations again on you, your team, Michael, creating great shareholder value. Dave still thinks it's undervalued. He'll continue, and I think he's right on that. Thanks for coming on and spending your very valuable time sharing this summary of what's going on here at the Dell Technologies World. Thanks for being here, guys, and it's always fun to talk to you. Next time. Great, great, great. It's CFO, Chief Financial Officer of Dell Technologies, getting inside the numbers, talking about the strategy, how it all relates to customer impacts, the queue. Bringing you all the action, day three of coverage. We'll be right back after this short break. I'm John Furrier, with Dave Vellante.