Rob Williams - SVP of IR Tom Sweet - CFO Jeff Clarke - Vice Chairman, Products and Operations Tyler Johnson - SVP and Treasurer.

Jeff Harlib - Barclays David Eller - Wells Fargo Frank Jarman - Goldman Sachs David Phipps - Citigroup Shannon Cross - Cross Research Thomas Eagan - JPMorgan.

Good morning and welcome to the Fiscal Year 2019 First Quarter Earnings Conference Call for Dell Technologies, Inc. I’d like to inform all participants this call is being recorded at the request of Dell Technologies. This broadcast is the copyrighted property of Dell Technologies, Inc.

Any rebroadcast of this information, in whole or part without the prior written permission of Dell Technologies is prohibited. As a reminder, the company is also simulcasting this call at investors.delltechnologies.com. A replay of this webcast will be available at the same location for one year.

Following prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] I’d like to turn the call over to Rob Williams, Senior Vice President of Investor Relations. Mr. Williams, you may begin..

Good morning and thanks for joining us. With me today is our CFO, Tom Sweet; our Vice Chairman Products and Operations, Jeff Clarke and our Treasurer, Tyler Johnson We've posted our first quarter press releases and web deck on our website. I encourage you to review these documents for additional perspective.

Our Q1 10-Q will be filed on Tuesday, June 12. Before I turn it over to Tom, I'd like to highlight a few items. During this call, we will reference non-GAAP financial measures, including non-GAAP revenue, gross margin, operating expenses, operating income, net income, EBITDA and adjusted EBITDA.

A reconciliation of these measures to its most directly comparable GAAP measure can be found in a supplemental material in our web deck and the tables accompanying our press release. Our Q1 non-GAAP operating income include $2.2 billion of adjustments.

The majority of these are non-cash and relate to purchase accounting and amortization of intangible assets. Please refer to the supplemental slides beginning on Slide 21, for details on the non-GAAP adjustments. Please also note that all gross percentages refer to year-over-year change unless otherwise specified.

And that all financial results today are based on the new revenue accounting standard ASC-606. For historical recast financial information including the full P&L, please see the slides in our web deck beginning on slide 28, and for more detail on ASC-606, please refer to our April 26th Investor Call.

The replay and slides are available on our Investor Relations website. I'd like to remind you that all statements made during this call that relate to future results and events are forward-looking statements based on current expectations.

Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our Cautionary Statement section in our web deck. We assume no obligation to update our forward-looking statements.

Finally, I want to mention that we will not address nor we take questions related to the amended 13-D we filed on February 2, or the 8-K filed on May 17. Now I'll turn it over to Tom. .

Thanks, Rob. We had a strong first quarter with balanced growth across all business units, regions, and customer segments. Our broad set of capabilities and better together philosophy drove top-line momentum and improved profitability.

We generated seasonally strong operating cash flow and continued to pay down debt even as we drove improved profitability. The velocity in server, client, and VMware that we saw building last year has continued into FY'19 and we are making progress in storage.

In addition to the broad strength across the business during Q1, we hosted 14,000 customers, partners, and industry analysts at Dell Technologies World and introduced a new slate of solutions which Jeff will touch on more in a moment.

We've rolled out the Dell Technologies Advantage framework that provides tools and incentives to help channel partners sell solutions and services across to our entire portfolio of brands.

We launched the initial public offering for pivotal software ranging approximately $540 million that will stay at the pivotal level for their general corporate needs and to fund future growth initiatives. And the cross-selling between our families of companies continues to be strong.

These points are all positive indications that we are better together as we continue to drive market-leading integration of our software, software defined data center, and hardware capabilities to drive innovative solutions for our customers in this digital era. Now let me provide more details on the results for the first quarter.

GAAP revenue for the quarter was 21.4 billion up 19% with a GAAP operating loss of approximately 153 million. Non-GAAP revenue was 21.5 billion, up 17% driven primarily by double-digit growth in commercial client, servers, storage and VMware.

We are seeing better market conditions driven by improved global macroeconomic sentiment and improving IT demand driven by digital transformation. We are also benefitting from the investments we have made in our go-to-market and solutions capabilities.

Gross margin was up 19% to 6.9 billion and was 32.1% of revenue which was up 50 basis points driven by improved gross margin in client solutions and a higher mix of ISG revenue. While component costs were slightly deflationary in aggregate for the quarter, they remained a headwind for servers due to DRAM cost increases.

Along with the rest of the industry, we continued to face a cost environment where DRAM costs continued to rise, albeit at a slower rate than in the prior year.

We expect DRAM costs, particularly server DRAM to remain a headwind through much of the year but we are expecting some offsets in other commodities to mitigate the overall inflationary impact. OpEx was 4.9 billion, up 12% and was 22.7% of revenue which was down 110 basis points as OpEx scaled at a slower rate than revenue growth.

Operating income was up 42% to $2 billion or 9.4% of revenue up a 160 basis points. Cash flow from operations was 1.2 billion and adjusted EBITDA for the quarter was up 33% to 2.4 billion or 11.1% of revenue. Please see slide 22 in the web deck for more details on our EBITDA adjustments.

Turning to the business segments, revenue for the infrastructure solutions group was 8.7 billion, up 25%. The increase was driven by a 41% growth in servers and networking to 4.6 billion and 10% growth in storage to 4.1 billion.

We continue to see extraordinary demand for PowerEdge servers coupled with ongoing expansion of our average selling prices, both of which drove our sixth consecutive quarter of server revenue growth with double digit growth from both PowerEdge and cloud servers.

Customers continue to look for more memory and storage content in servers, given the shifting workloads focused on running big data analytics and software defined solutions. We exited last year with better storage velocity on a demand basis leading to double digit revenue growth in Q1.

We were encouraged by the improved demand in the commercial mid-range portion of the storage market where we’ve been making go to market investments and enhancements to our solutions offerings.

Operating income for ISG was 939 million or 10.8% of revenue which is 350 basis point increase over the prior year primarily due to improved storage performance and operating expense leverage. Revenue for our clients solutions group was up 14% to 10.3 billion with broad strength across the portfolio.

Commercial revenue grew 16% to 7.4 billion with double-digit unit growth and higher average selling prices for notebooks, workstations, and thin client. Consumer revenue was 2.9 billion, up 7% primarily driven by mix shifts to XPS products and personal notebooks. CSG operating income was 533 million, up 64% and was 5.2% of revenue.

We benefited from a higher mix of commercial and the team continues to execute our attach motion with higher margin services in S&P. The VMware segment had another strong quarter delivering $2 billion of revenue which was up 12%. Operating income was 613 million or 30.2% of revenue.

Based on VMware’s standalone results reported last Thursday, the company saw double-digit license bookings growth in compute management, end-user computing, NSX and VSAN/VxRail. Revenue from our other businesses, which includes RSA, Pivotal, SecureWorks, Virtustream, and Boomi, was 579 million, which was up 9%.

Now turning to the balance sheet and capital allocation. Deferred revenue was $21 billion, up approximately 140 million from the fourth quarter and up 3.3 billion year-over-year driven by an increase in software and hardware maintenance given the growth we’re seeing across the business, as well as growth in our flexible consumption models.

We believe this growth is a positive indication that our business model is evolving as we offer more software and services solutions across the family of businesses. Our cash and investments balance was approximately 21.7 billion, growing sequentially by 1.4 billion. In Q1, we generated positive cash flow from operations of 1.2 billion.

Our first quarter tends to be our weakest in regards to cash generation, but this quarter’s cash flow benefited from better profitability and strong working capital management. Our customers continue to benefit from Dell Financial Services and the flexibility it provides through a variety of financing solutions including flexible consumption models.

We fund this business predominantly through a combination of securitization, syndication, and loans all collateralized by high quality financing receivables. Since closing the EMC transaction, originations are up 50%, financing receivables are up 2.6 billion or 51% and related DFS debt has increased 2.3 billion including allocated debt.

During Q1, we paid down approximately 600 million of core debt, bringing our core debt balance to 39.8 billion. Total debt was 52.7 billion, which did not materially change compared to the prior quarter, due to an increase of approximately 600 million in DFS debt.

For additional detail on what is included or excluded in our debt balances please see slide 20 of the web deck. Net core debt, which is core debt less cash and investments excluding VMware and Pivotal ended the quarter at 31.7 billion.

As you know, we grew our cash balances ahead of 3.1 billion of schedule debt maturities during the first half of this year. Last week, we repaid 2.5 billion of legacy EMC investment grade note. Including this maturity, we have now paid down approximately 13 billion of gross debt excluding DFS and subsidiary debt since the closing of the transaction.

I am pleased with the progress we’ve made on debt repayment, while continuing to invest in the business. We’re financially strong and comfortable with our ability to pay down $5 billion in total debt this year. This is as planned, we are on track and we are using our existing cash generation vehicles.

Now let me turn it over to Jeff to walk you through the operational highlights for ISG and CSG. .

Thanks, Tom and good morning everyone. As Tom said, we had a strong first quarter. We successfully balanced growth and profitability, delivering double digit revenue growth and share gain across ISG and CSG while growing operating income faster than revenue. ISG had a good quarter.

The momentum we saw for server revenue and units in the second half of FY'18 continued into the first quarter, where we saw double digit growth for both.

Server ASP has continued to expand due to compute requirements and more richly configured servers associated with, software-defined datacenter solutions and mission critical activities and workloads such as data analytics, artificial intelligence and machine learning.

Over the last 5 quarters, memory content and servers increased nearly 30% and storage capacity has increased 11%. Our strong server performance has helped us become the worldwide leader for x86 servers based on units and revenue. Storage had a solid quarter as a portion of the Q4 demand we told you about on the March call shift in Q1.

Following positive demand growth in our fiscal fourth quarter, we expect to gain share year-over-year in the storage when the first quarter industry share numbers are final. This will be our first quarter storage share gains since we closed the EMC transaction.

For Q1, overall storage demand was lower, but Q1 is our seasonally lowest quarter as we build through the rest of the year.

We did see strong demand for our market leading hyper-converged portfolio and other software-defined offers, as customers are looking to modernize through datacenter, including triple digit growth in both our VxRail and VxRack offerings. We also saw positive demand in our commercial customer segment with positive growth in mid-range storage.

Hyper-converged, software-defined and mid-range are areas where we have made significant investments over the past year, including several $100 million on sales capacity and R&D around hyper-converged infrastructure and software defined datacenter.

As most of you know, we have taken several steps over the past few months to improve storage, which include launching our new PowerMax storage solution, aligning our software-defined storage strategy to VSAN and releasing product updates for Unity, SC and XtremIO X2.

We also launched our future-proof storage loyalty program covering our storage portfolio. This quarter's results are an indicator that our actions are having a positive impact. We continue to be focused on improving storage velocity and acknowledge that results maybe lumpy quarter-to-quarter.

That said, our FY'19 storage plan is built on revenue growth and deliver share gain over the full year. Turning to CSG. Growth was driven by double-digit growth in commercial notebooks and workstations, high-single digit growth in commercial desktops and continued strength in software and peripherals.

This is on the back of better than expected industry commercial growth worldwide for IDC. In total, we gained a 100 basis points of worldwide PC unit share, marking our 21st straight quarter of share gains. Our year-over-year unit growth was above the industry and was the best of the top five vendors.

The total workstation units for the industry grew nearly 10% worldwide and calendar Q1 with growth in all regions. Dell grew above the industry with 11% growth and is the industry leading provider of workstations worldwide with 41% share.

Client, software and peripherals continues to be strong and we saw another quarter of double digit growth in displays and client peripherals. Based on Q4 data from display search, Dell gained 110 basis points of unit share marking the 19th consecutive quarter of being number one worldwide.

At Dell Technologies World, we emphasize the five biggest technology trends driving IT transformation needs for our customers globally and our products and solution strategies.

These include immersive and collaborative computing such as edge computing, augmented reality and virtual reality, Internet of Things or IoT, hybrid or multi-cloud, software defined data center and artificial intelligence or AI and machine learning.

We are focusing on our immense IT portfolio and significant engineering capability to deliver innovative products and services that are cloud first enabled and maximize the opportunity our customers have in AI and machine learning as part of driving better business outcomes through data intelligence.

Also, at Dell Technologies World, we launched several new solutions including, the PowerMax, the future of enterprise class storage and renew high-end storage line featuring end-to-end NVMe in the next generation use cases like real-time analytics, genomics, AI and machine learning and IoT.

The PowerEdge R940xa, built for high performance AI and machine learning workloads supported up to eight pre-programmable gate arrays; the PowerEdge R840 build for real time data analytics that can support up to 24 direct-attached NVMe drives; and the PowerEdge MX available later this year modular nature and built for the emerging data workloads, it's worth nothing that all of these PowerEdge innovations are NVMe and NVMe over Fabrics ready as part of a holistic data center solution.

In addition, we launched enhancements to our XtremIO X2 including native replications and our VxRail and VxRack which are now on our 14th generation servers and offer a clear path to adopt VMware based multi-clouds. Next, I wanted to provide an update on the ISG organization and storage roadmap.

I shared with you on the last call, we’ve simplified the ISG organization, aligning leaders in product categories more effectively for improved speed and accountability. Since then we have started simplifying the portfolio into a road map squarely directed at meeting customer needs and winning in the market.

We will offer a single industry leading solution for every segment in which we compete including entry level, mid-range, high-end and unstructured. Those solutions will put forward the best features and innovation from our current portfolio plus new innovation to ensure we are offering the industry’s best solutions.

PowerMax is a perfect example of the product’s simplification we want to achieve.

Those efforts are all designed to drive more efficient R&D and accelerate innovation to better capture the power of our intellectual property, marketing engine and sales force and let me be clear, we are not exiting any market and all of the products on our current roadmap will continue to be supported over their lifecycle.

Customers can rely on our future-proof loyalty program to ensure anything they buy will be supported and that we will provide a seamless transition to our next generation products. In closing, we are the market leader in all IT infrastructure categories in which we compete in.

We are better together and we are the trusted partner in the data center with our world class sales force and focus on innovation. For Dell Technologies, we spend more than $4 billion on R&D each year and more than 80% of our engineers are focused on software.

Going forward, we are focused on driving a roadmap that showcases our differentiated portfolio with the integration of our solutions and value of our industry leading software, services and multi-cloud capabilities. With that, let me turn it back over to Tom. .

Thanks, Jeff. Roughly 20 months since the EMC transaction, we have many things going well including client and server velocity, VMware’s growth and our strong cash flow performance. We saw broad based revenue growth market share gains and improved profitability across the business.

And while we’re pleased with Q1 storage revenue results, we still have work to do to expand the storage customer base and ensure the market understands our solutions, architectures and roadmap. We are taking the right long-term steps, but we expect progress to be a multi-year journey.

We’re simplifying the roadmap over time and backing all of our products by the best in class, future proof customer loyalty program that ensures investment protection and a seamless non-disruptive path to the simplified portfolio of the future.

We’ve also made significant investments in expanding our go-to-market coverage as we have hired several hundred new store sales specialists. Across the Dell Technologies family, we have approximately 40,000 sellers plus in industry-leading channel program design to drive coverage across 180 countries.

As we head into the remainder of the year, the set up continues to look favorable as the macroeconomic and IT spending environment seem promising and overall commodity costs increases are starting to abate. Based on our latest analysis, tax reform does not appear to have a material impact on our cash tax rates.

Our balance sheet is strong and we are confident in our plans to continue driving cash flow and debt reduction. We believe, we are well positioned heading into the rest of FY'19. We’ll look to keep up the momentum we’ve seen and continue to execute our strategic areas of focus for the remainder of the year.

As a reminder, these areas include growing above the market and driving share gains, which you saw in Q1 with share gains with PCs and servers and expected share gains in stores when the data is release.

Generating strong cash flow and delevering the balance sheet where you saw us delever above seasonal cash flow this quarter to make progress on debt pay down with 3.1 billion of gross debt payments made this year.

Executing in ISG and driving profitability by balancing growth and margins where we made some positive strides in Q1 and last but certainly our most important area of focus, we will delight customers by listening to and addressing their needs for their digital transformation journey through our full range of capabilities.

With that, I’ll turn it back to Rob to begin Q&A. .

Thanks, Tom. Let’s get to Q&A. We ask that each participant ask one question with one follow-up if you have one. Regina, can you please introduce the first question. .

We’ll take our first question from the line of Jeff Harlib with Barclays. Please go ahead..

Hi. Good morning. So exceptional performance in ISG.

Can you talk first with servers just the acceleration of revenue growth there? How much of that is market-driven, how much of that is execution and share gains? And then in storage, with revenues up 10% a big turnaround there, how much of that was the flexible consumption model benefit you received? You mentioned orders were down a little bit, maybe go through where you are on all these initiatives to achieve your goal of revenue growth in storage this year?.

Hey, Jeff, it's Tom. Let me start and maybe Jeff Clarke can jump in here in a few minutes. But look on servers, I think we're clearly pleased with the velocity we're seeing in that piece of the business. It's obviously the macro is strong.

And we've talked about this before Jeff that as you think about what's happening in the datacenter and some of the trends that we're seeing, there is clearly a trend towards a compute-centric platform whether that's software defined or hyper-converged.

We're also seeing the benefit of some of the workload migration with Big Data Analytics and those types of capabilities that customers are clearly valuing. So, we have the strongest compute platform in the industry. So, we continue to turbocharge that business. We've invested in it. The 14G capabilities that we've rolled out are quite strong.

And so, look, we're pleased with where we are. We're going to continue to focus on the velocity of that business even as we balance margin. So, I tend to think that we're benefitting from both the market, but I also think that we're executing reasonably well in that space.

And there's always things we can do better but feeling pretty good about the trends in the business that we're seeing. As it relates to storage, we did have a good, strong storage revenue quarter. So, it was up 10% on a shipped basis.

As a reminder, if you just think about historical patterns in the business, the legacy EMC tended to ramp velocity and revenue as it went through the year. So Q4 seasonally was always their strongest quarter and that's clearly what we saw last year with the storage demand.

And then it steps down in Q1 and so that's why you heard us talk about within our conversation, the fact that seasonally Q1 is the lightest quarter and then it continues to build from there. So, we're optimistic about storage for the year. We expect to -- we have a take share plan, a grow revenue plan for the year.

It will be, I think a bit variable as we go through the quarters. And as it relates to flexible consumption model, it was a pretty light quarter for flexible consumption models, down significantly from Q4 which isn't unexpected given that these have a long cycle, their long sales cycle activity.

And again, what I think we'll see is we'll except those to build as we go through the year.

I don't know Jeff if you would add anything there?.

I think the highlights.

When I look at servers we talked about content being up, the mix is up, our 14G mix is up, the resulting ASP is up, software-defined, different mission critical workloads that we're taking on as we're selling deeper into the datacenter, data analytics and machine learning, and artificial intelligence workloads being driven into the business.

And I think the one that maybe Tom that you didn't mention which I'm excited about is the synergies of the combination continue to work for us. The doors being open in the largest accounts for our server business continues to be an accelerant for the business.

And then on the other side, you talked about storage, you hit the enterprise phasing, we mentioned in the remarks, our commercial orders growth for the quarter was up which to us is beginning to show signs of the investment that we made in selling capacity in the second half of last year is beginning to show positive signs and we’re encouraged by that as well.

Does that help Jeff?.

Yeah, very much thanks.

And just on margins, you said overall commodity costs were deflationary in the quarter, maybe just talk generally about obviously you have seen significant revenue growth but when we look at EBITDA margins and some of the puts and takes, it looks like -- I mean, you should be about completed with the cost reduction program you talked about.

You’ve been reinvesting in the business in various areas and then you talked about commodities, so how do we look at that?.

Look I think overall, I think we expect you know commodity costs for the remainder of the year to be pretty sort of neutral to down. We’re going to see some pressure in server DRAM.

As we go through the year, just given the demand that’s out there for that commodity, but the other basket of commodities I think we’re expecting that to be slightly deflationary. So overall, I don’t think we see significant headwinds in the commodity cost area.

We’ll have to see how this evolves as we go through the year, but I think it's clearly a better environment than what we were in, in the previous year in terms of trying to manage our way through the commodity cost upticks that we saw a year ago.

Let me also hit on the EBITDA margins, right, because if you think about our historical pattern, Q1 should be our seasonally low EBITDA margin and then it should build from there and so I’m actually pretty pleased with what I saw from an EBITDA perspective, and with the 11.1% margin versus a 9.8 a year ago, so a 130 basis point expansion.

And I would expect as the business continues to perform that we’ll see expansion in that.

The other interesting stat that I’ve been looking at is if you look at our trailing 12-month EBITDA and we’re now sitting at 9.7 billion, which I’m pleased with the progress that we’ve made there, so look there is always work to do Jeff and we’re going to continue to try and optimize the business as we talked about in terms of making sure that even as we drive server velocity, we’re balancing margin growth, margin dollar growth, we’re very focused on storage and data protection velocity and we’ll continue to work on growing at a premium in the market.

So, we are trying to balance a number of levers here as we work our way through the remainder of the year. .

Great. Thanks very much..

We’ll take our next question from the line of David Eller with Wells Fargo. Please go ahead. .

Good morning and thanks for taking the call. Tom you talked about commodities being neutral to down for the remainder of the year.

Did I say that right, were you saying that you expect that to be overall net to down and then back to your comment on the EBITDA seasonality and EBITDA margin, were you specifically saying you do expect EBITDA to continue to build throughout the year or was that EBITDA margin that we expected to improve?.

Well look on the commodity side we are -- best look at it right now says it should be neutral to slightly deflationary in aggregate for the year. .

The entire commodity cost pool, we think is slightly down. We’re going to offset the increase in de-risk. .

Yes, there is puts and takes, DRAM is going to be a pressure up, that is going to be inflationary although we think that rate of increases that is slow lower rates than a year ago.

So, its slowing but there is pressure on that commodity and then the other basket of commodities should be you know deflationary enough to sort of offset most if not all of that DRAM pressure. So that’s how we see it right now. Now, we’ll see how it evolves as we go through the year. But that's based upon our latest view.

On the EBITDA, my point was as follows, right. If you look at our pattern on EBITDA over the last year, Q1 was seasonally our weakest quarter and they build. So, my point was on a percentage basis, I expect to see EBITDA percentages margins to continue to build from Q1.

Tyler, would you say that differently or do you have a different perspective on that?.

No, no. I think that’s exactly right..

And then on the prior call, you talked about kind of the demand growth that you were seeing in the storage business and how that turned positive.

How should we think about those trends that you saw in Q1 and maybe in the early Q2 have those accelerated even further?.

Well, we always, our expectation with Q1 was going to be seasonally weaker than Q4, just given the historical seasonal patterns and we did see that. So, although, we had a strong shift quarter, storage demand was down from where it was in Q4.

Now we do expect that it will continue to build from here as the investments that we’ve been talking about with the go-to-market and what we’ve been doing with the portfolio we’ll continue to begin to realize benefit from that as we go through the year.

So that’s why you heard us talk and frame the year like this, which is we expect to grow and take share for storage, for the entire year. But, I do think it’s not going to be linear into the right, it’s going to be a little lumpy.

And so, our expectation is that, we are very focused on driving velocity of that business and ensuring that we get that business back to a share gain position.

Jeff, would you add anything to that?.

What I would add is for one quarter into new compensation system. We’re encouraged that its put the right focus on storage. We know the lumpiness of our demand that you mentioned Tom. So, I think we have compensation heading the right way in how we incent our sales force.

And then we have -- we’re building out capacity and coverage and we’ll build productivity over the year. And again, we mentioned, what we saw on the commercial business is encouraging.

I would also say we have one data point on a curve, if you will as the beginning of a line, we need a second data point and a third data point to draw a trend and that's certainly what we intend to do in Q2 to get the second data point. .

Our next question will come from the line of Frank Jarman with Goldman Sachs. Please go ahead..

Just to focus on the CSG segment for a minute. So, revenue growth was obviously up nicely 14% year-over-year. And you guys gave a couple of data points around gaining 100 basis points of worldwide unit share.

But when I think about just the broad math around getting to the 14% growth, can you help us think about volume versus growth and especially in the context of how to think about the broader sort of global PC market, I think Gartner reported it was down around 1.4% in 1Q? So how do we just make the math work in terms of looking at your growth and thinking about ASPs versus volumes and share growth? Thank you..

Let me start and then maybe Jeff can jump in as well. So, look, I mean from our perspective and we tend to look at IDC. The IDC market came in at minus 0.2% versus the forecast of minus 1.5%.

So, look, the market was a bit better than how we had, was originally planned, but if you think about the drivers of our growth I would tell you that our commercial units were up 12% year-over-year. Our ASPs were relatively flat in the PC space from Q4 to Q1 which actually I think is a win given some of the mixed dynamics.

And so, look at for unit velocity, we're very focused as we've talked to you in the past on commercial client, that is where we want to make sure that we're continuing to drive and take share and which we did in Q1. Don't forget also that we have a very strong S&P Software and Peripheral business.

And so, one of the things we've talked about over the years is the fact that with our direct selling model, our ability to attach is a differentiated selling model from some of our competitors. And again, you saw things like I think we're now number one in display I think for the 19th consecutive quarter.

And so, again we're focused on unit growth, expanding the customer base, ensuring that we're attaching where we can attach and improving overall profitability of that business even as we continue to drive velocity. And so, I'm pretty happy with the unit velocity and commercial. I think it shows the right focus and the right balance.

And we're going to continue to drive the business.

And Jeff?.

I think it's a high point. Our commercial unit growth was strong. And then it was strong in areas that carry higher ASPs. So, latitude notebooks, precision workstations both grew double digits. Those carry higher revenue per unit, higher margin per units. And that's certainly what we're seeing in the business.

You hit together high points, Tom and our attach motion of selling services, financing and peripherals to get double digit growth in both display or in our S&P business. In our accessories particularly, we attach motion. That's the recipe of our CSG business is to take each and every opportunity and attach something to it.

And we're doing that quite nicely. .

And then I think it is fair to say that seasonally from Q4 to Q1 and we're still trying to think our way through the new seasonal patterns of these combined businesses now. We saw less sequential decline quarter-on-quarter than what we had originally anticipated.

And so, I think that speaks to the overall strength in one of the market to some of the execution focus that we've been working on. So, the quarter was clearly stronger than what we had originally thought it was going to be as we stepped into Q1 and pleasantly surprised obviously at that.

And we're going to just continue to execute and focus on taking share in the appropriate space. .

No, I think that's right. When you look at CSG in particular, the market was better, the commercial market was particularly better. The market continues to consolidate or consolidate or, and we're winning in that consolidation. That's our focus. .

Great. Thanks for the color there. And then just one sort of other question.

So, since you broke them out and given the recent pivotal deal, can you talk at all about your strategy with the other businesses that you identify on slide 16?.

Well, look I mean I think what you would see with those businesses is that we tend to call those our growth businesses. And I'm going to be careful here, because both Pivotal and SecureWorks have not released yet.

But I think all of those businesses give us access in our interesting areas of what we see with the technology market in terms of whether it's security, with RSA and SecureWorks, Pivotal with the cloud-native application development platform, Boomi with the ability to the IaaS sort of platform.

So, then Virtustream which is for this mission critical workloads that want to be in the cloud, so they are all interesting areas of what certain aspects of some of the technology market and so we’re focused generally on nurturing those businesses, growing those businesses, we are investing in those businesses and so our strategy is going to continue to put capital towards them where appropriate to help drive velocity.

So, and what's interesting is that, they benefit from the overall reach of Dell Technologies, right, to think about our 40,000 sellers, our ability to cross sell across the platform, our ability to introduce some of these interesting technologies and capabilities to our broader set of customers.

It’s a huge advantage for us from a leverage perspective and we’re going to continue to focus on that. .

Hey great. Thanks very much guys. .

Our next question comes from the line of David Phipps with Citigroup. Please go ahead. .

Thank you for taking my question. And congratulations on just having a bang-up quarter and what is seasonally the weakest quarter.

Can you talk about some of the things that positioned you in the storage market for this quarter and kind of how everything came together? That’s certainly been an area of focus and it seems like it's come through pretty nicely this quarter for you..

Well look I think we did have a strong shift to revenue quarter and so we’re -- but again that was off the back of the strong Q4, a better Q4 demand number I should say.

I think Jeff deserves a fair amount of credit here, as he’s been focused on how do we drive the operator per operational execution, coupled with the coverage model expansion that we've been focused on and so Jeff maybe you could judge something here..

I appreciate the comments. I would basically start with we’re still in the early innings. We are I think encouraged by the results, clearly, we talked about our Q4 exit velocity. We’ve talked about you sell the performance of our 10% revenue growth in our shipments in the fiscal quarter so we’re pleased with that.

We’re pleased with the commercial growth and demand, we talked about the lumpiness of the big buildup of our enterprise business and its seasonal or seasonality going into Q1, we’re working through that. And then it's about focus, we’re focusing the organization.

Tom and I have spent a lot of time with the team and driving capacity and coverage, we're continuing to invest in capacity and coverage. We fully intend to grow the storage business and have a lot of focus on that. We’ve aligned a sales compensation system beginning February 1st, the beginning of the fiscal year that emphasizes selling storage.

One quarter end, I think Tom and I would reflect and go good progress, clearly enterprise business builds over the entire fiscal year. So, we have work to do in the next three quarters but we’re encouraged.

We’ve put a lot of focus in the marketing side, if you’ve watched some of the, I think tight being of our marketing program and our marketing message leading to Dell Technology World and then we‘ve talked about the Dell Tech World and what we’re doing in storage in the broader enterprise and infrastructure I think you’re seeing a concise message there.

We’re clearly front and center with the cloud and how infrastructure is going to be used in the cloud and what we’re doing in regards to our infrastructure to be more cloud friendly. I’ve spent a lot of time on the product side, focusing the product organization. I’m very pleased with the progress that we’ve made in the first 8.5 months.

We have the organization very focused. I’m sure you’re read a lot about simplifying the roadmap. It's been a focus of the organization, we are at a point now, where we've defined our [.nxt] products. And the reception from our partners and our customers has been overwhelmingly positive.

Again, when I talked to customers and I said, would you rather by four mid-range products or one, in the right one with all of our best IP, the answer is overwhelmingly positive to the degree of 100%, we’ve prefer to buy one product, that’s the right product with all of the Dell EMC technology and IP in it, that’s exactly what we’re going to go build in our building.

While providing our customers a transition from our current products, the new products. So, we said in this, despite what maybe being said by others, our products on the roadmap today are supported throughout their lifetime period and we will provide a non-disruptive migration from the old product to the new product.

We’re encourage by that, every time we trial that by our partners and customers, basically Jeff, we can buy what we’re bonding today and when you have the new thing right and we seamlessly migrate to the new thing. Yes sir. That’s correct. It’s received very, very positively.

And then although I struggled with it earlier on our call, our loyalty program is winning the hearts of minds of our customers. We are protecting our customers going into the future with a series of programs that help our customers again choose Dell EMC and feel confident with that decision.

So that combination of things, again early innings, encourage, a tremendous amount of focus on the storage portfolio, the storage business. Tom and I talked about this at least a couple of times today and that’s where our focus is.

Does that help?.

That’s very helpful. And then my follow-up question is on the Dell Financial Services. So, when you looked at the Dell Financial Services, we would expect that to continue to grow with sales.

Is there anything that we might think that it could grow differently given an improving storage for server business?.

Look, DFS exists primarily to enhance and provide our customers with financing options and capabilities to facilitate the sale of Dell Technologies solutions and products. And so, I think overtime, you’ll see the origination grow sort of begin to mirror more, the overall growth of the core business and the various businesses.

We’re clearly benefiting from putting the Dell EMC together, in fact that EMC did not have a captive finance subsidiary.

And so, tapping into that sales motion at VMware and the legacy EMC customers and optimizing and [nxt] optimizing the opportunity to provide financing services to them is what we’ve been doing over the last year and you can see some of the statistics, right.

So, originations up 52% year-over-year in the first quarter and financing receivables up almost 30% since year-over-year, our managed asset base almost a little over 8 billion now. So, it’s clearly grown pretty rapidly.

But I do think overtime, what it begins to settle back in a more sort of growth that is a bit more mirroring of what the core business growth looks like. I’m pleased with the performance there, it’s a good profit contribution for us.

It’s a good enabler for our business, provides our ability to have flexible consumption models and do some of the flex on demand and some of those types of cloud like economic financing models that we’ve been talking about and are driving.

And the other dynamic you've got to think about is that as that business comes back into more sort of normal growth profile, I think the growth in the related DFS debt will settle down and to be more in that range as well. So, Tyler, I don't know if you would add anything from a DFS perspective that I may have missed. .

I think you answered that, it’s a good detailed answer. So, I don't think there is anything more that I can add. .

Okay. Thank you. Those are all my questions. .

Our next question will come from the line of Shannon Cross with Cross Research. Please go ahead. .

Thank you very much for taking my question. I'm curious when Jeff and Tom, when you look at what's going on in terms of your share gains.

And obviously the significant growth you’ve had in server and then the improvement storage, what kind of competitive responses are you seeing out there? Because clearly some of your competitors haven't quite reached the levels those you have. So, I'm curious as what's you're hearing from your competitors. And then I have a follow up, thanks. .

Well, I'm not sure I'm hearing from my competitors. I am focused on our customers and our opportunities and certainly the agenda that we put in front of you. If I look at the server business and what we're doing there and the customers and partners I talked to, they are very encouraged in what we're doing.

We seem to be differentiating ourselves in the marketplace.

Our execution, our performance the portfolio of our products, the ability to do sell an end-to-end story from the edge to the core to the cloud, the leadership technology that we have in our 14G products and we'll do in the next generation, the products that we just announced, the Dell Technology World have been received very, very well, our leadership position in artificial intelligence and machine learning I feel pretty encouraged about that.

On the storage side, again I thought a lot of customers, I spent a lot of time with customers at Dell Technology World and partners and talked about our roadmap. And certainly, what's resonating very well within is the roadmap decisions that we have made are all customer driven.

The intersection of where our customers need, so what we see is the upcoming technology roadmap and opportunities. They respond well for taking the complexity out of our roadmap that we're listening to how they deploy infrastructure. The fact that we're standing behind those products and nothing is going away.

And probably the more overwhelming reaction I get -- I get a warm reaction to this comment is we're bringing the entire DNA of our products and people in a more focused way to drive innovation and put new technology in our hands, we are excited about that. To be honest I don't spend time thinking about how my competitors are responding to that.

We know what we need to do. We're very, very focused. We have a wealth of riches in this organization, a tremendous amount of IP, a large number of engineers that have been doing a very long time, they are more focused than they've been, I like our hands. .

And hey Shannon it's Tom. From just and I think Jeff said it well in terms of what he's focused on. I would tell you from a pricing and overall sort of competitive market perspective. Look I mean as you know the markets and the businesses that we compete in are clearly all are competitive.

But I would say that the pricing environment is generally unchanged from Q4 relatively benign meaning it's always competitive.

But I don't see anything abnormal out there, I don't see any abnormal responses, rather the ordinary responses at least what we can see in the marketplace now, there is always pockets around the globe where you see some form of aggressiveness but overall, look I mean I think the industries had to digest a pretty tough commodity cost environment, particularly in client and in servers over the last year.

I think we’re coming through that. And then it gets down to feature set capabilities and competitive positioning and what customers need in terms of the storage solution portfolio that we’re driving. So overall, we’ll focus on what we do and we will leave our competitors to focus on what they’re trying to get done. .

Yeah, I would add Tom and there is always aggressive deal out there but we’ve made no structural change in pricing around margin structure to compete in marketplace today. .

Great, thank you and then I guess one of the questions that we get from a lot of the investors out there is basically sustainability of some of these growth rates not just for Dell but probably for the industry as well in terms of client improvement and then also on the server side.

I understand you know some of the pricing is obviously which is good and probably sustainable you know more richer configs and then you had some pricing up for DRAM and obviously unit growth.

So, I guess as you look over your portfolio, it’s a good problem to have but how do you feel about the ability to sustain at least you know reasonable growth for the next several quarters?.

Well look Shannon, I mean we’re obviously benefitting as the industry is around, there are some broader favorable macroeconomic teams and trends out there, right, GDP expansion across the major economies, an inflation environment that is relatively contained and control, an interest rate environment that is although slightly rising is still on a historical basis extraordinarily favorable.

So, we are benefitting from the macro. I think in terms of broad themes and we talk about a lot in terms of what’s fueling for some of the growth rates we’re seeing. I'd offer a couple of data points for you, first I think that you know you think about the client space and we’re in the midst of a Win 7 to Win 10 transition.

There are still several quarters of opportunity there at least as we see it as we move forward and so we’re optimistic about that although we’ll have to keep our eye on it clearly and you know from a server perspective as we talked about workloads and customers are migrating towards at many times, solutions and capabilities that are compute centric and we’re the revenue leader and unit leader in x86 mainstream and so that plays to our strength.

Jeff mentioned some the new 14G capabilities that are rolling and some of the feature sets that we’re driving. So again, how we manage the business so let me be clear about this right, so we manage for a growth premium to market. So, wherever market moves to we’re trying to grow at a premium to the market.

So, I’m not smart enough to predict where the market is going to be six quarters from now, all I will tell you is that our philosophy about managing the business won’t change. We want to grow at a premium in market, we want to continue to take share and whatever that market is, is we will set our growth expectations appropriately.

And then we’ll modify and adjust the business model unless we need to in reaction to some of those market trends that we’ll see. So, I do think that absent some macropolitical shockers or something to that effect, we’re optimistic about the year but you know there is work to do.

So, I don’t want to get ahead of ourselves and we talked about the storage business, we had a good quarter. But it’s one data point, we need to put a number of points on the board and we’ll see, if we can build a trend. But that’s clearly what we’re focused on and we’ll continue to execute in the commercial client and in the server space.

So, we’re going to stay focused on what we do and try and drive the business appropriately in balanced growth and margin dollar generation..

Our final question will come from the line of Brian Turner with JPMorgan. Please go ahead. .

Hi. Thanks. It’s Tom Eagan. Just one to follow-up on Jeff’s question and Shannon’s question on service and networking. I hear all of the stuff that you guys said about AI big compute mix focus on the customer differentiation.

But the numbers this quarter were exceptionally good and I want to make sure that there wasn’t anything that was exceptional about the quarter that may have been in the form of sales incentives or seasonal buying pattern changes or any big sales..

No. There is nothing out of the ordinary..

So then as a follow-up to Shannon’s question to what you just answered Tom, I just wonder, if we’ve sort of reached a new level and I know you guys don’t give guidance, but if we reached the new levels, there is nothing exceptional going on and you keep doing what, you did this quarter, next quarter and the quarter after that, if we don’t sort of see a sustainability in the revenues that you guys produce this quarter?.

Well, look. Again, I don’t give guidance and I’m not in the business of predicting revenue sustainability. I would just tell you that we are focused on executing and putting solutions in the market that our customers want to buy. So again, I think we’re benefiting from a broader positive macro and some of the compute trends and technology trends.

But I’m hesitant to say that we reached a new level or a new norm, I don’t know enough yet to call that. We're just going to continue to execute Tom. So, Jeff, I don’t know if there is anything from your perspective….

I would add too, I know it's a point of discontinuity, but we've become the unquestioned server leader for the first time in 22.5 years. We plan on continuing to perform at a premium to the marketplace and to continue to grow our share position in the server business and doing it in a reasonable and responsible way.

I mentioned synergies, the number of doors that have been opened and our revenue synergies is part of the acquisition, we’re going to continue to win business there. We are the technology leader in this category. We’re going to continue to be the technology leader in x86 servers. And things are going the x86 server way.

Tom talked about probably three or four times, the software defined as the new type of technology modernization of infrastructure. So, between hyper converged we are where the market leader, x86 we are the market leader, the leader in software defined.

I think it bodes pretty well for the types of trends that we will see at over x86 server business and then the additional workloads that are coming to x86 server, plus IoT in the number, the amount of data that’s coming and the compute that has to be done on that data particularly around machine learning and artificial intelligence.

I think the server business is a good business and very, very good to us, we are absolutely committed to it. .

Certainly, was good this quarter. Great. Thanks..

Thank you..

Thanks Tom. Thanks everyone. We're going to be down in New Orleans for the Morgan Stanley Leveraged Finance Conference today and tomorrow. Have a great week. We'll talk to you soon. .

This concludes today's conference call. We appreciate your participation. You may disconnect. At this time..