WEBVTT 00:00:00.000 --> 00:00:02.540 Welcome to the Deep Dive, the show where we take 00:00:02.540 --> 00:00:04.360 the sources you share with us and provide the 00:00:04.360 --> 00:00:06.940 intellectual shortcut, extracting the key insights 00:00:06.940 --> 00:00:09.500 and strategic nuggets you need to be truly well 00:00:09.500 --> 00:00:12.240 -informed. Today, we're opening up the playbook 00:00:12.240 --> 00:00:16.280 of a corporate giant, a company whose products 00:00:16.280 --> 00:00:19.600 are really in every facet of our digital lives. 00:00:19.820 --> 00:00:22.579 That's right. For so many of us, the name Dell 00:00:22.579 --> 00:00:25.370 is just synonymous with personal computing. You 00:00:25.370 --> 00:00:28.109 know, that reliable desktop or laptop that got 00:00:28.109 --> 00:00:29.949 you through college or maybe the one that runs 00:00:29.949 --> 00:00:32.130 your accounting software right now. But the story 00:00:32.130 --> 00:00:34.509 of Dell Technologies today, the modern company, 00:00:34.649 --> 00:00:37.490 it isn't really about simple hardware. It's a 00:00:37.490 --> 00:00:40.229 story about a dramatic corporate resurrection. 00:00:40.570 --> 00:00:43.149 It's about a jaw dropping financial gamble. And 00:00:43.149 --> 00:00:45.149 the largest technology acquisition in history. 00:00:45.289 --> 00:00:48.530 We're talking about the 67 billion dollar bet 00:00:48.530 --> 00:00:51.820 Michael Dell made. A bet that came with a mountain 00:00:51.820 --> 00:00:56.219 of debt and the incredibly complex financial 00:00:56.219 --> 00:00:59.320 engineering it took to bring this new behemoth 00:00:59.320 --> 00:01:01.859 of a company back to the public market. So our 00:01:01.859 --> 00:01:04.920 mission for this deep dive is pretty clear. First, 00:01:05.040 --> 00:01:07.040 we're going to map out that convoluted road to 00:01:07.040 --> 00:01:09.400 the merger. We need to analyze the pressures 00:01:09.400 --> 00:01:12.359 that drove both Dell Inc. and EMC Corporation 00:01:12.359 --> 00:01:14.879 into this massive union. Right. And then we have 00:01:14.879 --> 00:01:17.500 to spend some real time dissecting the mechanics 00:01:17.500 --> 00:01:22.540 of the deal itself. That $67 billion deal. Specifically, 00:01:22.620 --> 00:01:25.140 how on earth did they manage the colossal debt 00:01:25.140 --> 00:01:27.260 burden that came with it? And finally, we'll 00:01:27.260 --> 00:01:32.319 define the two core business divisions. Their 00:01:32.319 --> 00:01:36.260 strategic pivot toward things like AI and edge 00:01:36.260 --> 00:01:38.260 computing. And we really have to start by just 00:01:38.260 --> 00:01:41.290 acknowledging the staggering scale here. To understand 00:01:41.290 --> 00:01:43.709 why this transformation matters, you just have 00:01:43.709 --> 00:01:45.769 to look at the vitals. Let's do it. The records 00:01:45.769 --> 00:01:49.329 we have indicate that for fiscal year 2025, Dell 00:01:49.329 --> 00:01:53.109 Technologies reported revenue of, what, $95 .6 00:01:53.109 --> 00:01:56.390 billion? An incredible number. And that places 00:01:56.390 --> 00:01:59.370 them at 44th on the most recent Fortune 500 list, 00:01:59.510 --> 00:02:02.209 which is based on those 2024 revenue numbers. 00:02:02.769 --> 00:02:05.090 So you see, this isn't just a successful company. 00:02:05.209 --> 00:02:07.969 This is a foundational pillar of the global IT 00:02:07.969 --> 00:02:10.539 infrastructure. But the path they took to get 00:02:10.539 --> 00:02:14.080 here was anything but conventional. It required 00:02:14.080 --> 00:02:16.620 this period of radical isolation, which I think 00:02:16.620 --> 00:02:18.599 brings us perfectly to our first section. The 00:02:18.599 --> 00:02:21.379 road to the merger and the unique pressures that 00:02:21.379 --> 00:02:23.879 really defined the destinies of both Dell and 00:02:23.879 --> 00:02:26.620 EMC. So when most of us think of Michael Dell 00:02:26.620 --> 00:02:28.740 and his company, we probably picture the IPO 00:02:28.740 --> 00:02:32.259 back in the 90s, the explosive growth, the total 00:02:32.259 --> 00:02:36.090 domination of the PC market. Right. But the story 00:02:36.090 --> 00:02:39.889 that led to this massive EMC merger actually 00:02:39.889 --> 00:02:43.090 begins with Dell kind of retreating from the 00:02:43.090 --> 00:02:45.169 spotlight. It's the ultimate corporate plot twist, 00:02:45.289 --> 00:02:49.189 isn't it? In 2013, Dell Inc. a massive, globally 00:02:49.189 --> 00:02:52.009 recognized brand, executes a leveraged buyout 00:02:52.009 --> 00:02:54.330 and takes itself entirely private. Which is almost 00:02:54.330 --> 00:02:56.610 unheard of for a company of that size. Absolutely. 00:02:56.810 --> 00:02:58.770 It was a direct reaction to what they called, 00:02:58.889 --> 00:03:01.650 and this is their term, bleak prospects. Bleak 00:03:01.650 --> 00:03:04.449 prospects in 2013. I mean, what was the existential 00:03:04.449 --> 00:03:07.330 threat here? What was so severe that it required 00:03:07.330 --> 00:03:09.909 them to literally hit the mute button on Wall 00:03:09.909 --> 00:03:12.710 Street? Well, the primary threat was the accelerating 00:03:12.710 --> 00:03:16.060 decline of the PC market. That, combined with 00:03:16.060 --> 00:03:18.560 the rise of mobility and, of course, cloud computing, 00:03:18.919 --> 00:03:22.580 Dell was still just so heavily reliant on selling 00:03:22.580 --> 00:03:24.860 PCs. And their other offerings weren't quite 00:03:24.860 --> 00:03:27.180 there yet. Their enterprise offerings weren't 00:03:27.180 --> 00:03:29.280 competitive enough, so they claimed they needed 00:03:29.280 --> 00:03:32.120 several years to completely overhaul their supply 00:03:32.120 --> 00:03:34.919 chains, to rationalize their product portfolio, 00:03:35.180 --> 00:03:38.539 and... critically, to shift their focus from 00:03:38.539 --> 00:03:41.360 consumer hardware to high -margin enterprise 00:03:41.360 --> 00:03:43.659 solutions. And that's exactly where the public 00:03:43.659 --> 00:03:45.780 eye becomes an obstacle. I mean, if you need 00:03:45.780 --> 00:03:48.599 to spend three years making painful cuts in these 00:03:48.599 --> 00:03:51.479 massive, expensive internal investments that 00:03:51.479 --> 00:03:54.099 won't show a profit for maybe five years. The 00:03:54.099 --> 00:03:56.360 public market will absolutely crush your stock 00:03:56.360 --> 00:03:59.659 price. Of course. Precisely. Quarterly reporting 00:03:59.659 --> 00:04:02.919 is a relentless master. When a company is public, 00:04:03.259 --> 00:04:05.340 any short -term volatility, even if it's for 00:04:05.340 --> 00:04:08.080 good strategic reason. It's just viewed as weakness 00:04:08.080 --> 00:04:10.840 by shareholders. So by going private, Dell essentially 00:04:10.840 --> 00:04:13.300 created a bunker for three years. That's a great 00:04:13.300 --> 00:04:16.680 way to put it. From 2013 to 2016, they were free. 00:04:16.860 --> 00:04:19.019 They could restructure, they could make these 00:04:19.019 --> 00:04:21.600 long -term bets, divest unprofitable segments, 00:04:21.740 --> 00:04:24.480 and crucially, strategize their next massive 00:04:24.480 --> 00:04:26.939 move, the acquisition all, without releasing 00:04:26.939 --> 00:04:29.740 a single quarterly financial result to public 00:04:29.740 --> 00:04:32.540 scrutiny. It was strategic silence. They used 00:04:32.540 --> 00:04:35.120 it as a competitive advantage. It's really a 00:04:35.120 --> 00:04:37.939 textbook example of using financial structure 00:04:37.939 --> 00:04:40.740 to enable a massive operational change. And while 00:04:40.740 --> 00:04:43.600 Dell was executing this, this corporate deep 00:04:43.600 --> 00:04:45.600 clean in the shadows, their eventual target, 00:04:45.759 --> 00:04:48.600 EMC Corporation, was dealing with a completely 00:04:48.600 --> 00:04:51.040 different kind of corporate chaos. Public pressure. 00:04:51.220 --> 00:04:53.180 Immense public pressure from activist investors 00:04:53.180 --> 00:04:56.120 who are demanding change. Now, EMC was an enterprise 00:04:56.120 --> 00:04:58.120 giant, right? They were particularly dominant 00:04:58.120 --> 00:05:00.290 in the data storage market, but their... Internal 00:05:00.290 --> 00:05:02.529 structure, from what I've read, sounds incredibly 00:05:02.529 --> 00:05:04.550 complicated. Oh, it was. It was known as the 00:05:04.550 --> 00:05:06.290 federation structure. I mean, just imagine a 00:05:06.290 --> 00:05:07.829 corporate holding company where the divisions 00:05:07.829 --> 00:05:11.589 like AMC2 for storage, RSA for security, VMware 00:05:11.589 --> 00:05:14.230 for virtualization, and Pivotal for software 00:05:14.230 --> 00:05:16.810 were allowed to operate almost as independent 00:05:16.810 --> 00:05:19.649 fiefdoms. So they had separate sales teams, separate 00:05:19.649 --> 00:05:22.930 R &D. Often, yes. And they would even compete 00:05:22.930 --> 00:05:25.410 for the same customer wallets. That sounds, well, 00:05:25.490 --> 00:05:28.540 wildly inefficient. And just ripe for cannibalization. 00:05:28.699 --> 00:05:31.259 Why would a company intentionally create that 00:05:31.259 --> 00:05:33.620 structure? The original intent, you know, was 00:05:33.620 --> 00:05:36.060 to foster innovation and agility. The idea was 00:05:36.060 --> 00:05:38.920 to keep the subsidiaries entrepreneurial. But 00:05:38.920 --> 00:05:41.620 by the early 2010s, it had really become a liability. 00:05:42.160 --> 00:05:45.560 The market struggled to value EMC. Because the 00:05:45.560 --> 00:05:48.240 whole was less than the sum of its parts. Arguably, 00:05:48.240 --> 00:05:50.259 yes. And that's where the activist heat came 00:05:50.259 --> 00:05:52.500 in. Okay, so who was applying that heat and what 00:05:52.500 --> 00:05:55.040 was their main argument? The primary antagonist 00:05:55.040 --> 00:05:57.660 was the powerful hedge fund, Elliott Management 00:05:57.660 --> 00:06:00.899 Corporation. Now, they only held a relatively 00:06:00.899 --> 00:06:05.300 small stake, about 2 .2 % of EMC stock, but they 00:06:05.300 --> 00:06:07.360 were extremely vocal. And what were they saying? 00:06:07.540 --> 00:06:10.459 Elliott argued vehemently that the federation 00:06:10.459 --> 00:06:12.839 structure was a mess. They said it was causing 00:06:12.839 --> 00:06:16.040 deep confusion. and specifically that it deeply 00:06:16.040 --> 00:06:19.019 undervalued EMC's crown jewels. Which were? Its 00:06:19.019 --> 00:06:21.740 core EMC2 data storage business and, of course, 00:06:21.819 --> 00:06:25.279 its majority stake in VMware. So Elliot was basically 00:06:25.279 --> 00:06:28.300 saying, break up the family and release the value 00:06:28.300 --> 00:06:31.500 of the individual children? Exactly that. They 00:06:31.500 --> 00:06:34.920 were demanding that EMC either reorganize, spin 00:06:34.920 --> 00:06:37.639 out major assets, or seek a full acquisition 00:06:37.639 --> 00:06:40.720 to unlock shareholder value. And the argument 00:06:40.720 --> 00:06:43.750 really gained traction. Analysts could clearly 00:06:43.750 --> 00:06:45.889 see that the internal competition, especially 00:06:45.889 --> 00:06:49.189 between EMC2's products and some of VMware's 00:06:49.189 --> 00:06:51.550 emerging offerings, was just muddling the message 00:06:51.550 --> 00:06:54.629 to the market. So this combination of internal 00:06:54.629 --> 00:06:57.089 organizational weakness and external activist 00:06:57.089 --> 00:07:00.009 pressure, it created the exact vulnerability 00:07:00.009 --> 00:07:02.529 Michael Dell needed. It's fascinating, isn't 00:07:02.529 --> 00:07:05.069 it? Both of these major players were simultaneously 00:07:05.069 --> 00:07:08.170 under immense pressure just from completely opposite 00:07:08.170 --> 00:07:11.189 directions. Dell was retreating from public chaos 00:07:11.189 --> 00:07:14.009 and EMC was collapsing under internal chaos. 00:07:14.269 --> 00:07:16.350 And that convergence is why the deal made so 00:07:16.350 --> 00:07:18.670 much strategic sense. And to really grasp the 00:07:18.670 --> 00:07:20.870 financial landscape that made that $67 billion 00:07:20.870 --> 00:07:23.439 price tag even. possible, we need to compare 00:07:23.439 --> 00:07:25.300 their revenue strengths right before the acquisition 00:07:25.300 --> 00:07:28.139 was finalized. Let's look at 2014 estimates. 00:07:28.459 --> 00:07:30.100 Okay, let's start with Dell. They were the volume 00:07:30.100 --> 00:07:32.899 player, right? Right. Dell's estimated revenue 00:07:32.899 --> 00:07:35.399 was heavily weighted toward the front end. We're 00:07:35.399 --> 00:07:39.519 talking $27 .3 billion from personal computers. 00:07:39.899 --> 00:07:43.040 That's huge volume, but often lower margin. And 00:07:43.040 --> 00:07:46.240 servers? About $8 .9 billion from their foundational 00:07:46.240 --> 00:07:49.480 server products. They were... through and through 00:07:49.480 --> 00:07:52.800 a hardware volume house. Okay, so then EMC was 00:07:52.800 --> 00:07:56.199 the enterprise depth provider. Yes, exactly. 00:07:56.839 --> 00:07:58.860 EMC's strength was in high -margin enterprise 00:07:58.860 --> 00:08:02.439 solutions and services. They reported $16 .5 00:08:02.439 --> 00:08:04.459 billion from their core data storage business, 00:08:04.759 --> 00:08:08.279 EMC2. They had another $6 billion from VMware, 00:08:08.560 --> 00:08:10.579 which was highly sought after. And a couple of 00:08:10.579 --> 00:08:13.220 other pieces. A billion from RSA Security, the 00:08:13.220 --> 00:08:16.199 crucial security division, and about $230 million 00:08:16.199 --> 00:08:18.519 from Pivotal Software. So if you put them together, 00:08:18.660 --> 00:08:20.819 Dell brings the desktop to server connection 00:08:20.819 --> 00:08:24.019 and the huge global sales force that comes with 00:08:24.019 --> 00:08:26.420 that kind of volume. Right. And EMC brings the 00:08:26.420 --> 00:08:28.899 complex, high margin enterprise software and 00:08:28.899 --> 00:08:32.379 storage needed to run massive corporations. The 00:08:32.379 --> 00:08:35.759 strategy was crystal clear. Create a single vendor 00:08:35.759 --> 00:08:38.740 that could sell the entire IT stack from the 00:08:38.740 --> 00:08:41.159 keyboard all the way to the core data storage 00:08:41.159 --> 00:08:45.009 array. all to one enterprise customer. Instead 00:08:45.009 --> 00:08:47.629 of selling servers and then having the customer 00:08:47.629 --> 00:08:49.809 go buy storage from a competitor. They could 00:08:49.809 --> 00:08:53.009 sell the entire integrated solution. That complementary 00:08:53.009 --> 00:08:55.669 fit was the fundamental justification for the 00:08:55.669 --> 00:08:57.830 immense debt they were about to take on. Which 00:08:57.830 --> 00:09:00.389 sets the stage perfectly. They knew why they 00:09:00.389 --> 00:09:02.769 had to merge. Now we have to explore how they 00:09:02.769 --> 00:09:05.090 did it, which meant navigating, well, the largest 00:09:05.090 --> 00:09:07.720 debt load in tech history. The announcement of 00:09:07.720 --> 00:09:11.340 intent came in October 2015. Dell was prepared 00:09:11.340 --> 00:09:13.919 to acquire EMC Corporation for an astonishing 00:09:13.919 --> 00:09:17.840 $67 billion. And this figure wasn't just big. 00:09:17.980 --> 00:09:20.700 It completely reset the bar for the entire technology 00:09:20.700 --> 00:09:22.720 sector. Let's just pause on that figure for a 00:09:22.720 --> 00:09:25.620 moment. $67 billion. At the time of the announcement, 00:09:25.759 --> 00:09:28.139 this made it the largest acquisition in the history 00:09:28.139 --> 00:09:30.600 of the technology sector. It just eclipsed everything 00:09:30.600 --> 00:09:32.919 that came before it in tech. It was a massive 00:09:32.919 --> 00:09:35.049 statement of intent. especially from a company 00:09:35.049 --> 00:09:37.049 that had only just emerged from its private life. 00:09:37.230 --> 00:09:39.830 The sheer audacity of the move, you just can't 00:09:39.830 --> 00:09:42.070 overstate it. You can't. And a move like this 00:09:42.070 --> 00:09:44.269 requires complete commitment from the major players. 00:09:44.590 --> 00:09:46.909 The source material confirms that Michael Dell, 00:09:47.090 --> 00:09:50.309 along with his key shareholders, Singapore's 00:09:50.309 --> 00:09:52.629 Temasek Holdings, and the private equity firm 00:09:52.629 --> 00:09:54.970 Silver Lake Partners, were the major financial 00:09:54.970 --> 00:09:57.529 backers. They were the ones staunchly supporting 00:09:57.529 --> 00:09:59.590 the deal. They were. They were the ones signing 00:09:59.590 --> 00:10:02.360 off on that immediate colossal debt. And the 00:10:02.360 --> 00:10:05.179 deal closed relatively quickly, at least by M 00:10:05.179 --> 00:10:09.120 &A standards. September 7th, 2016, Dell Technologies 00:10:09.120 --> 00:10:12.480 Inc. is officially formed. But its formation 00:10:12.480 --> 00:10:15.220 immediately came with a ticking clock. Servicing 00:10:15.220 --> 00:10:17.919 the transaction costs. Exactly. How much of that 00:10:17.919 --> 00:10:21.399 $67 billion price tag was actually financed through 00:10:21.399 --> 00:10:23.919 debt? The transaction reportedly generated approximately 00:10:23.919 --> 00:10:27.500 $40 billion in debt. for the new Dell technologies. 00:10:27.679 --> 00:10:30.600 $40 billion. It's a liability that fundamentally 00:10:30.600 --> 00:10:32.980 dictates every single corporate decision you 00:10:32.980 --> 00:10:36.100 make going forward. It means the primary focus 00:10:36.100 --> 00:10:38.559 of the leadership, even ahead of innovation or 00:10:38.559 --> 00:10:41.360 market capture, had to be debt reduction. And 00:10:41.360 --> 00:10:43.940 carrying $40 billion in debt isn't just about 00:10:43.940 --> 00:10:46.340 making interest payments. I mean, it restricts 00:10:46.340 --> 00:10:48.500 your ability to borrow more. It depresses analysts' 00:10:48.659 --> 00:10:51.269 confidence. And it just generally suffocates 00:10:51.269 --> 00:10:53.490 your growth potential. So managing that debt 00:10:53.490 --> 00:10:55.730 wasn't a long term goal. It was an immediate 00:10:55.730 --> 00:10:58.490 emergency. Absolutely. The post -merger leadership 00:10:58.490 --> 00:11:02.029 had a crystal clear strategy and it was rooted 00:11:02.029 --> 00:11:05.250 in the classic leveraged buyout playbook. You 00:11:05.250 --> 00:11:07.909 acquire the target. You separate the core assets 00:11:07.909 --> 00:11:11.570 from the non -core assets. And you liquidate 00:11:11.570 --> 00:11:13.850 the non -core assets immediately to raise cash 00:11:13.850 --> 00:11:16.679 for the debt pay down. Precisely. OK, let's detail 00:11:16.679 --> 00:11:20.019 those immediate financial maneuvers. Which divisions 00:11:20.019 --> 00:11:22.759 were deemed expendable in that initial fire sale? 00:11:22.919 --> 00:11:27.200 We see three key. yet sort of tangential divisions 00:11:27.200 --> 00:11:29.740 being sold off very shortly after the merger 00:11:29.740 --> 00:11:32.679 closed. They shed Dell Services, the Dell Software 00:11:32.679 --> 00:11:36.000 Group, and the Dell EMC Enterprise Content Divisions. 00:11:36.159 --> 00:11:38.700 Now, these were high value assets, but I guess 00:11:38.700 --> 00:11:41.220 they were peripheral to the core strategy of 00:11:41.220 --> 00:11:43.240 selling integrated infrastructure and hardware. 00:11:43.500 --> 00:11:45.480 That's it, exactly. But selling the services 00:11:45.480 --> 00:11:47.700 and software divisions seems like a high risk 00:11:47.700 --> 00:11:50.679 move. I mean, aren't services and software often 00:11:50.679 --> 00:11:52.600 the highest margin businesses in technology? 00:11:53.500 --> 00:11:55.860 That's a really perceptive question, and the 00:11:55.860 --> 00:11:58.320 answer is yes, they usually are high margin. 00:11:58.740 --> 00:12:02.139 However, the sheer pressure of that $40 billion 00:12:02.139 --> 00:12:06.200 in debt required them to prioritize speed. They 00:12:06.200 --> 00:12:08.940 needed immediate liquidity over long -term strategic 00:12:08.940 --> 00:12:12.220 depth in those specific areas. So Michael Dell 00:12:12.220 --> 00:12:14.700 was making a very difficult tradeoff. A very 00:12:14.700 --> 00:12:17.399 difficult one. He was sacrificing non -core, 00:12:17.559 --> 00:12:20.559 high -margin future revenue streams to secure 00:12:20.559 --> 00:12:22.500 the financial stability of the core integrated 00:12:22.500 --> 00:12:25.539 hardware business today. They needed clean cash, 00:12:25.720 --> 00:12:28.100 and they needed it fast. And what kind of cash 00:12:28.100 --> 00:12:30.620 did these strategic divestitures generate for 00:12:30.620 --> 00:12:32.539 the debt paydown? Was it enough? The sources 00:12:32.539 --> 00:12:34.320 confirmed these sales were highly effective. 00:12:34.600 --> 00:12:37.419 They generated a total of $7 billion in proceeds. 00:12:37.840 --> 00:12:40.679 $7 billion? And critically, that $7 billion was 00:12:40.679 --> 00:12:43.419 used explicitly and directly to repay the principal 00:12:43.419 --> 00:12:46.289 debt. This maneuver signaled to the markets and 00:12:46.289 --> 00:12:48.769 to the remaining creditors that Dell was absolutely 00:12:48.769 --> 00:12:51.509 serious about reducing its leverage. It was a 00:12:51.509 --> 00:12:53.649 significant reduction right out of the gate. 00:12:54.000 --> 00:12:58.039 A 17 .5 % reduction in the total debt load. It 00:12:58.039 --> 00:13:00.600 was. That's fascinating because they're simultaneously 00:13:00.600 --> 00:13:03.679 shrinking the company to pay down debt, yet they 00:13:03.679 --> 00:13:06.220 have to project confidence about future growth 00:13:06.220 --> 00:13:08.779 to justify the initial acquisition in the first 00:13:08.779 --> 00:13:10.620 place. And that tension is where the strategic 00:13:10.620 --> 00:13:13.460 brilliance lies. They executed the necessary 00:13:13.460 --> 00:13:16.940 painful short -term debt management, but they 00:13:16.940 --> 00:13:19.059 quickly followed that up with a massive signal 00:13:19.059 --> 00:13:21.500 about their long -term vision. Right. The sources 00:13:21.500 --> 00:13:25.289 report that in October... Just over a year after 00:13:25.289 --> 00:13:28.769 the merger closed, Dell announced this big forward 00:13:28.769 --> 00:13:31.929 looking investment. One billion dollars over 00:13:31.929 --> 00:13:34.690 three years dedicated specifically to Internet 00:13:34.690 --> 00:13:37.350 of Things or IoT research and development. That 00:13:37.350 --> 00:13:39.190 simultaneous action is incredible. It's like 00:13:39.190 --> 00:13:41.370 selling seven billion dollars worth of furniture 00:13:41.370 --> 00:13:43.570 to pay the rent and then immediately signing 00:13:43.570 --> 00:13:45.889 a one billion dollar check for a major home renovation. 00:13:46.269 --> 00:13:49.830 It's extremely high confidence. It is. Why IoT 00:13:49.830 --> 00:13:54.259 specifically? Well, IoT was and still is a critical 00:13:54.259 --> 00:13:57.620 future growth vector. It requires massive back 00:13:57.620 --> 00:14:00.360 -end infrastructure servers, storage, networking, 00:14:00.639 --> 00:14:03.779 all of which Dell Technologies was now perfectly 00:14:03.779 --> 00:14:06.159 positioned to sell thanks to the EMC merger. 00:14:06.460 --> 00:14:09.620 So by earmarking a billion for IoT, they were 00:14:09.620 --> 00:14:11.879 telling the market something very specific. They 00:14:11.879 --> 00:14:14.440 were telling the market, we are not just a debt 00:14:14.440 --> 00:14:16.559 -saddled collection of old businesses. We are 00:14:16.559 --> 00:14:18.759 investing heavily in the future data -driven 00:14:18.759 --> 00:14:21.799 economy. And this aggressive investment helped 00:14:21.799 --> 00:14:24.259 reset the narrative away from pure debt management 00:14:24.259 --> 00:14:27.120 toward future opportunity. It effectively showed 00:14:27.120 --> 00:14:29.200 the market that the debt paydown wasn't an end 00:14:29.200 --> 00:14:31.980 in itself. It was a means to an end, a way to 00:14:31.980 --> 00:14:34.600 fund their strategic pivot. They achieved stability 00:14:34.600 --> 00:14:36.940 and then immediately committed capital to growth. 00:14:37.100 --> 00:14:39.779 Correct. But this entire financial ballet, particularly 00:14:39.779 --> 00:14:42.820 the way they incorporated the EMC assets, introduced 00:14:42.820 --> 00:14:45.480 a new level of complexity. And it was all centered 00:14:45.480 --> 00:14:47.279 around one of the most valuable parts of the 00:14:47.279 --> 00:14:51.440 acquisition. VMware. Ah, yes. This complex relationship 00:14:51.440 --> 00:14:53.799 with VMware is what ultimately paved the way 00:14:53.799 --> 00:14:55.639 for Dell's non -traditional return to public 00:14:55.639 --> 00:14:58.220 life. Which means we need to talk about tracking 00:14:58.220 --> 00:15:01.960 stocks. When Dell acquired EMC, they didn't just 00:15:01.960 --> 00:15:04.080 get hardware and enterprise software. They gained 00:15:04.080 --> 00:15:06.679 control of VMware, which was the leading company 00:15:06.679 --> 00:15:09.460 in server virtualization and, importantly, was 00:15:09.460 --> 00:15:11.940 already publicly traded. And what was the ownership 00:15:11.940 --> 00:15:15.139 structure before the deal? EMC owned approximately 00:15:15.139 --> 00:15:18.620 80 % of VMware stock before the acquisition. 00:15:19.139 --> 00:15:22.159 VMware was this independent, highly successful 00:15:22.159 --> 00:15:24.820 entity with its own public shareholders. So the 00:15:24.820 --> 00:15:27.620 challenge for Dell was how to integrate EMC without 00:15:27.620 --> 00:15:30.659 collapsing VMware's existing public structure 00:15:30.659 --> 00:15:33.799 and its enormous value. So they needed to merge 00:15:33.799 --> 00:15:36.279 the two parent companies without actually merging 00:15:36.279 --> 00:15:39.000 the subsidiaries entirely. How did they achieve 00:15:39.000 --> 00:15:41.279 that structural miracle? They turned to financial 00:15:41.279 --> 00:15:43.340 engineering. They employed what you just mentioned. 00:15:43.690 --> 00:15:46.230 a tracking stock. When Dell Technologies was 00:15:46.230 --> 00:15:49.590 formed, that 80 % stake in VMware that EMC held 00:15:49.590 --> 00:15:52.049 was packaged up and distributed to the former 00:15:52.049 --> 00:15:54.629 EMC shareholders. In the form of this new tracking 00:15:54.629 --> 00:15:56.710 stock. Yes, often referred to as Dell Technologies 00:15:56.710 --> 00:15:59.850 Class V shares. Okay, let's break down tracking 00:15:59.850 --> 00:16:02.830 stock with the clarity our listeners need. How 00:16:02.830 --> 00:16:05.250 does it function and why was it so essential 00:16:05.250 --> 00:16:08.210 here? Well, a tracking stock is a specialized 00:16:08.210 --> 00:16:11.049 class of common stock. It's issued by a parent 00:16:11.049 --> 00:16:13.970 company. in this case Dell Technologies, that 00:16:13.970 --> 00:16:17.009 is designed to track or reflect the financial 00:16:17.009 --> 00:16:20.549 performance of a specific subsidiary. Here, that 00:16:20.549 --> 00:16:22.850 was VMware. But it doesn't give you direct ownership 00:16:22.850 --> 00:16:25.210 in that subsidiary. Exactly. It doesn't confer 00:16:25.210 --> 00:16:28.990 direct legal equity ownership. Think of it this 00:16:28.990 --> 00:16:31.769 way. It's like a coupon or a certificate that 00:16:31.769 --> 00:16:33.990 promises to pay out based on the profits of a 00:16:33.990 --> 00:16:36.230 specific restaurant, but it doesn't actually 00:16:36.230 --> 00:16:38.090 give you ownership of the restaurant's kitchen 00:16:38.090 --> 00:16:41.399 or building. So if VMware's stock went up, the 00:16:41.399 --> 00:16:43.960 value of the Dell tracking stock also went up. 00:16:44.059 --> 00:16:46.860 This allowed former EMC shareholders to maintain 00:16:46.860 --> 00:16:49.600 their exposure to VMware's growth, but they were 00:16:49.600 --> 00:16:52.059 technically shareholders of the new parent company, 00:16:52.279 --> 00:16:54.919 Dell Technologies. Precisely. The maneuver was 00:16:54.919 --> 00:16:57.200 brilliant. It allowed Dell to claim ownership 00:16:57.200 --> 00:16:59.960 and strategic control of the 80 % stake in VMware, 00:17:00.200 --> 00:17:02.299 integrating it into the new Dell Technologies 00:17:02.299 --> 00:17:05.079 structure while keeping VMware's operational 00:17:05.079 --> 00:17:07.940 identity separate. And it appeased the former 00:17:07.940 --> 00:17:10.539 EMC shareholders who really valued their investment 00:17:10.539 --> 00:17:13.539 in the profitable virtualization firm. It did. 00:17:13.779 --> 00:17:16.819 But this complex financial structure had an unintended 00:17:16.819 --> 00:17:19.900 side effect, didn't it? It forced Dell to undo 00:17:19.900 --> 00:17:22.259 the very reason it went private back in 2013. 00:17:22.680 --> 00:17:25.440 How so? Well, the acquisition of EMC meant Dell 00:17:25.440 --> 00:17:28.259 now controlled a company, VMware, that issued 00:17:28.259 --> 00:17:31.279 a public tracking stock. Because Dell Technologies 00:17:31.279 --> 00:17:33.579 was issuing a security that tracked the performance 00:17:33.579 --> 00:17:36.339 of a public entity, they triggered regulatory 00:17:36.339 --> 00:17:39.359 requirements. They were once again required to 00:17:39.359 --> 00:17:41.500 file public financial statements and publish 00:17:41.500 --> 00:17:44.400 quarterly results. The strategic silence that 00:17:44.400 --> 00:17:47.079 they purchased in 2013 was over. So the tracking 00:17:47.079 --> 00:17:49.059 stock wasn't just a financial instrument. It 00:17:49.059 --> 00:17:51.559 was a bridge back to the public market. And that 00:17:51.559 --> 00:17:54.079 brings us to the formal second act, the decision 00:17:54.079 --> 00:17:57.240 to go fully public again. The initial whisper 00:17:57.240 --> 00:18:00.670 started in early 2018. Dell Technologies was 00:18:00.670 --> 00:18:02.589 reportedly considering a way to leverage its 00:18:02.589 --> 00:18:05.109 VMware stake to take the entire parent company 00:18:05.109 --> 00:18:08.309 public. One of the highly rumored paths was a 00:18:08.309 --> 00:18:10.890 reverse merger. A reverse merger. It sounds like 00:18:10.890 --> 00:18:12.910 a very corporate way of doing things backward. 00:18:13.109 --> 00:18:16.170 It is, really. A reverse merger is essentially 00:18:16.170 --> 00:18:18.710 when a private company merges into a much smaller, 00:18:18.890 --> 00:18:21.750 already public shell corporation to quickly gain 00:18:21.750 --> 00:18:24.960 public status. It lets you bypass the expensive 00:18:24.960 --> 00:18:27.180 and time -consuming scrutiny of a traditional 00:18:27.180 --> 00:18:30.380 IPO. And in Dell's case, the shell would have 00:18:30.380 --> 00:18:33.079 been their own public subsidiary, VMware? It 00:18:33.079 --> 00:18:35.000 would have been. But they ultimately chose a 00:18:35.000 --> 00:18:37.339 slightly different, equally unconventional path, 00:18:37.619 --> 00:18:39.740 one that still leveraged that tracking stock. 00:18:39.980 --> 00:18:43.200 Right. So in December 2018, Dell Technologies 00:18:43.200 --> 00:18:45.779 officially returned to the public markets. But 00:18:45.779 --> 00:18:48.160 they did so by bypassing the traditional IPO 00:18:48.160 --> 00:18:51.289 process entirely. Instead of issuing new shares 00:18:51.289 --> 00:18:53.809 to the public in a big roadshow, they executed 00:18:53.809 --> 00:18:56.529 a buyback of the very instrument we've been discussing. 00:18:56.690 --> 00:18:59.029 The tracking stock shares. They bought back their 00:18:59.029 --> 00:19:01.349 own coupons. How did that make the parent company 00:19:01.349 --> 00:19:03.690 public? They offered a mix of cash and stock 00:19:03.690 --> 00:19:06.289 in the parent company, Dell Technologies, to 00:19:06.289 --> 00:19:08.250 the tracking stockholders in exchange for their 00:19:08.250 --> 00:19:11.549 Class V shares. By retiring those tracking shares, 00:19:11.789 --> 00:19:14.410 the parent company, Dell Technologies Inc., effectively 00:19:14.410 --> 00:19:17.359 went public. And the existing Dell shareholders, 00:19:17.859 --> 00:19:20.339 Michael Dell and Silverlake, they just converted 00:19:20.339 --> 00:19:22.660 their shares into the new publicly traded parent 00:19:22.660 --> 00:19:26.579 stock. Exactly. It was a clean. rapid way to 00:19:26.579 --> 00:19:29.119 monetize the company and provide liquidity without 00:19:29.119 --> 00:19:31.799 the unpredictability of a full IPO. It's a remarkable 00:19:31.799 --> 00:19:34.740 piece of financial maneuvering, using the complexities 00:19:34.740 --> 00:19:37.359 of the acquisition structure itself to facilitate 00:19:37.359 --> 00:19:40.700 the eventual exit strategy. Six years after going 00:19:40.700 --> 00:19:43.099 private to hide from the public market, they 00:19:43.099 --> 00:19:45.279 use this reverse mechanism centered on their 00:19:45.279 --> 00:19:48.220 acquisition to reenter it now as a far larger 00:19:48.220 --> 00:19:50.700 and more diversified entity. But the journey 00:19:50.700 --> 00:19:53.410 wasn't quite complete. Even though Dell Technologies 00:19:53.410 --> 00:19:55.809 was now publicly traded, they still owned the 00:19:55.809 --> 00:19:58.849 vast majority of VMware. That relationship continued 00:19:58.849 --> 00:20:02.009 until the final definitive separation. When did 00:20:02.009 --> 00:20:04.849 that happen and why was it necessary? The final 00:20:04.849 --> 00:20:07.470 financial separation was reported in April 2021. 00:20:07.930 --> 00:20:11.049 Dell Technologies executed a spin out of the 00:20:11.049 --> 00:20:13.190 remainder of its VMware shares, distributing 00:20:13.190 --> 00:20:15.130 them directly to Dell Technologies shareholders. 00:20:15.470 --> 00:20:17.710 So that simplified Dell's structure. It did. 00:20:18.200 --> 00:20:21.019 And it unlocked billions of dollars in shareholder 00:20:21.019 --> 00:20:24.180 value. And it eliminated any remaining entanglement 00:20:24.180 --> 00:20:26.359 from the tracking stock era. But you mentioned 00:20:26.359 --> 00:20:28.599 it wasn't a hostile breakup. They spun out the 00:20:28.599 --> 00:20:31.539 shares, but the relationship continued. And that's 00:20:31.539 --> 00:20:34.920 the critical detail. While financially distinct, 00:20:35.359 --> 00:20:38.519 the two companies signed an agreement. It committed 00:20:38.519 --> 00:20:40.980 them to continue operating without major changes 00:20:40.980 --> 00:20:43.779 and maintaining a strategic partnership for at 00:20:43.779 --> 00:20:46.500 least five years. And that ensures Dell Technologies 00:20:46.500 --> 00:20:49.039 can continue to sell tightly integrated joint 00:20:49.039 --> 00:20:51.599 solutions like servers bundled with virtualization 00:20:51.599 --> 00:20:54.359 software to their enterprise customers. All without 00:20:54.359 --> 00:20:56.779 the market confusion of shared ownership. The 00:20:56.779 --> 00:20:59.400 narrative arc here is just stunning. You have 00:20:59.400 --> 00:21:01.740 strategic privacy, an elephant -sized acquisition, 00:21:02.160 --> 00:21:04.859 massive debt restructuring, this financial bridge 00:21:04.859 --> 00:21:07.240 via tracking stock, and then a clean spin -out. 00:21:07.299 --> 00:21:09.799 It's truly a master class in corporate restructuring. 00:21:09.900 --> 00:21:12.059 And it moved them from a PC vendor to what they 00:21:12.059 --> 00:21:15.539 are today. And that pivot, the definition of 00:21:15.539 --> 00:21:17.920 the modern Dell technologies, is exactly where 00:21:17.920 --> 00:21:20.799 we need to focus now. What did all this financial 00:21:20.799 --> 00:21:23.599 maneuvering actually build? Okay, let's look 00:21:23.599 --> 00:21:26.440 at the company that emerged from this, this chrysalis 00:21:26.440 --> 00:21:29.700 of debt and divestiture. Dell Technologies today 00:21:29.700 --> 00:21:32.920 is primarily organized into two enormous segments. 00:21:33.200 --> 00:21:35.559 Which one still brings in the majority of that 00:21:35.559 --> 00:21:39.259 $95 .6 billion in revenue? That would still be 00:21:39.259 --> 00:21:42.460 the Client Solutions Group, or CSG. It represents 00:21:42.460 --> 00:21:45.650 the legacy high -volume Dell business. focusing 00:21:45.650 --> 00:21:49.049 on the end user device. For fiscal year 2024, 00:21:49.569 --> 00:21:52.630 CSG accounted for the majority of revenues, 55 00:21:52.630 --> 00:21:55.789 .3 % of the total. So over half their revenue 00:21:55.789 --> 00:21:57.630 still comes from the business they tried to escape 00:21:57.630 --> 00:21:59.910 a decade ago. That just speaks volumes about 00:21:59.910 --> 00:22:02.670 the sheer scale and global necessity of personal 00:22:02.670 --> 00:22:05.589 computers and devices. Absolutely. CSG is the 00:22:05.589 --> 00:22:08.099 consistent cash engine. This group is responsible 00:22:08.099 --> 00:22:11.240 for producing desktop PCs, notebooks, tablets, 00:22:11.420 --> 00:22:13.539 and essential peripherals like monitors, printers, 00:22:13.759 --> 00:22:16.039 and projectors, all under the well -known Dell 00:22:16.039 --> 00:22:18.599 brand. Let's talk product lines. If someone is 00:22:18.599 --> 00:22:20.220 listening on a Dell machine right now, which 00:22:20.220 --> 00:22:22.619 product family are they most likely using? On 00:22:22.619 --> 00:22:24.559 the consumer and gaming side, you've got the 00:22:24.559 --> 00:22:26.900 high -performance lines. There's Alienware, which 00:22:26.900 --> 00:22:29.279 Dell maintains as a subsidiary focused purely 00:22:29.279 --> 00:22:31.900 on gaming. Right. Then there's a general consumer 00:22:31.900 --> 00:22:34.980 line, Inspiron, and the premium thin and light 00:22:34.980 --> 00:22:37.859 laptop line, XPS, which competes directly with 00:22:37.859 --> 00:22:39.740 Apple and other high -end Windows manufacturers. 00:22:40.119 --> 00:22:41.640 And what about the enormous business market? 00:22:41.680 --> 00:22:43.579 That's where the high volume of corporate purchases 00:22:43.579 --> 00:22:46.160 comes in. The business side is the core bread 00:22:46.160 --> 00:22:49.099 and butter for CSG volume. They sell the Vostro 00:22:49.099 --> 00:22:51.859 and Optiplex lines for business desktops, the 00:22:51.859 --> 00:22:53.900 Workhorse Latitude line for corporate notebooks, 00:22:54.200 --> 00:22:57.279 and the powerful Precision Workstations for engineers 00:22:57.279 --> 00:23:00.680 and designers. And the key for CSG today isn't 00:23:00.680 --> 00:23:03.359 just volume, right? No, it's embedding features. 00:23:03.660 --> 00:23:06.359 Things like advanced security and increasingly 00:23:06.359 --> 00:23:09.319 AI processing capabilities into these devices 00:23:09.319 --> 00:23:10.940 to keep them relevant in the modern workplace. 00:23:11.279 --> 00:23:14.200 So CSG is the stable foundation. Now let's turn 00:23:14.200 --> 00:23:17.240 to the reason for the $67 billion merger, the 00:23:17.240 --> 00:23:20.119 enterprise future, embodied by the Infrastructure 00:23:20.119 --> 00:23:22.420 Solutions Group. That would be the Infrastructure 00:23:22.420 --> 00:23:25.460 Solutions Group, or ISG. This is the company 00:23:25.460 --> 00:23:28.269 Dell wanted to become. ISG is entirely focused 00:23:28.269 --> 00:23:30.289 on the enterprise data center and IT infrastructure. 00:23:30.670 --> 00:23:33.829 It covers servers, storage, and networking. And 00:23:33.829 --> 00:23:39.009 in FY 2024, ISG contributed, what, 38 .3 % of 00:23:39.009 --> 00:23:41.410 total revenues? That's right. And even at 38 00:23:41.410 --> 00:23:44.789 .3%, that is still tens of billions of dollars 00:23:44.789 --> 00:23:47.609 in revenue generated by high -end enterprise 00:23:47.609 --> 00:23:50.930 solutions. What are the flagship products driving 00:23:50.930 --> 00:23:54.069 ISG sales? This is where you really see the fruits 00:23:54.069 --> 00:23:57.500 of the EMC acquisition. The primary driver is 00:23:57.500 --> 00:23:59.819 their server line, PowerEdge, which is one of 00:23:59.819 --> 00:24:02.000 the most deployed server architectures globally. 00:24:02.339 --> 00:24:04.740 And for storage? For data management, they offer 00:24:04.740 --> 00:24:07.660 the mid -range storage line, PowerVault, alongside 00:24:07.660 --> 00:24:10.599 high -end systems that inherited that EMC legacy. 00:24:10.960 --> 00:24:13.299 And of course, there's a comprehensive suite 00:24:13.299 --> 00:24:15.779 of networking solutions under Dell Networking. 00:24:16.000 --> 00:24:18.440 You mentioned scale out architecture and converged 00:24:18.440 --> 00:24:20.559 infrastructure in the outline. We should probably 00:24:20.559 --> 00:24:22.440 be specific about what those terms mean for a 00:24:22.440 --> 00:24:24.819 listener who isn't, you know, living in a data 00:24:24.819 --> 00:24:27.099 center. That's a crucial distinction. Converged 00:24:27.099 --> 00:24:29.059 infrastructure means selling pre -integrated 00:24:29.059 --> 00:24:31.559 bundles. So instead of a client buying servers 00:24:31.559 --> 00:24:34.619 from Dell, storage from NetApp, and networking 00:24:34.619 --> 00:24:38.019 from Cisco. Dell sells them a single factory 00:24:38.019 --> 00:24:40.720 -tested rack that contains all of it, managed 00:24:40.720 --> 00:24:44.200 by a unified software layer. Exactly. It simplifies 00:24:44.200 --> 00:24:47.200 IT purchasing and deployment immensely. It's 00:24:47.200 --> 00:24:49.059 a one -stop shop for building a private cloud. 00:24:49.319 --> 00:24:51.200 Okay, that makes sense. And what about scale 00:24:51.200 --> 00:24:53.680 -out architecture? That addresses how they design 00:24:53.680 --> 00:24:56.420 those systems. So traditional architecture might 00:24:56.420 --> 00:24:59.000 rely on one massive, expensive server that's 00:24:59.000 --> 00:25:01.240 difficult to upgrade. That's called scaling up. 00:25:01.519 --> 00:25:04.480 Scale -out means using many smaller, standardized, 00:25:04.700 --> 00:25:07.680 cheaper servers that you can easily add or scale 00:25:07.680 --> 00:25:10.440 -out as your capacity demands grow. So clients 00:25:10.440 --> 00:25:13.900 can build large, flexible, private cloud environments 00:25:13.900 --> 00:25:16.859 that mimic the economics of public cloud providers, 00:25:17.039 --> 00:25:19.819 but on -premise. Precisely. They leverage the 00:25:19.819 --> 00:25:22.700 EMC merger to move from selling boxes to selling 00:25:22.700 --> 00:25:25.400 entire pre -integrated data center solutions. 00:25:25.819 --> 00:25:27.859 And interestingly, nearly half of this massive 00:25:27.859 --> 00:25:31.420 operation is focused domestically. Yes. The financial 00:25:31.420 --> 00:25:34.460 reports confirm that. Approximately 50 % of the 00:25:34.460 --> 00:25:36.819 company's total revenue is derived right here 00:25:36.819 --> 00:25:39.579 in the United States. While they are a global 00:25:39.579 --> 00:25:42.220 multinational, their foundational customer base 00:25:42.220 --> 00:25:44.759 and revenue stability are heavily weighted toward 00:25:44.759 --> 00:25:47.259 the domestic North American market. Now let's 00:25:47.259 --> 00:25:49.920 pivot entirely to the future. If Dell successfully 00:25:49.920 --> 00:25:53.279 transformed from a struggling PC maker to an 00:25:53.279 --> 00:25:56.460 enterprise infrastructure powerhouse, Where are 00:25:56.460 --> 00:25:59.059 they betting their R &D dollars right now? What's 00:25:59.059 --> 00:26:02.200 the current strategic focus? The focus is overwhelmingly 00:26:02.200 --> 00:26:05.759 on future data processing paradigms. We're talking 00:26:05.759 --> 00:26:09.319 cloud, edge, and artificial intelligence. Dell 00:26:09.319 --> 00:26:12.140 Technologies knows that the $67 billion investment 00:26:12.140 --> 00:26:14.759 only bought them a seat at the table. Staying 00:26:14.759 --> 00:26:16.799 relevant requires them to lead in these three 00:26:16.799 --> 00:26:18.799 integrated areas. Right. Let's start with edge 00:26:18.799 --> 00:26:21.000 computing, a term that gets thrown around a lot. 00:26:21.160 --> 00:26:24.119 How is Dell defining its role at the edge? Dell 00:26:24.119 --> 00:26:26.599 views the edge as where data is generated and 00:26:26.599 --> 00:26:29.240 acted upon. So outside the traditional centralized 00:26:29.240 --> 00:26:31.519 data center or public cloud, this could be a 00:26:31.519 --> 00:26:34.220 factory floor, a retail store, a remote hospital. 00:26:34.400 --> 00:26:36.640 Or a self -driving vehicle. Or a self -driving 00:26:36.640 --> 00:26:39.660 vehicle. Their strategy is to offer integrated 00:26:39.660 --> 00:26:42.890 compute. storage, and networking that is specifically 00:26:42.890 --> 00:26:45.269 ruggedized and streamlined for those environments. 00:26:45.589 --> 00:26:47.809 Why is that necessary? Why can't a factory just 00:26:47.809 --> 00:26:50.269 send all its data to the cloud? Because of latency 00:26:50.269 --> 00:26:53.890 and volume. In a manufacturing plant, if a machine 00:26:53.890 --> 00:26:56.309 needs to stop instantly because a sensor detected 00:26:56.309 --> 00:26:59.069 a fault, you can't wait the milliseconds it takes 00:26:59.069 --> 00:27:01.690 to send the data to a cloud server miles away 00:27:01.690 --> 00:27:04.230 and get the command back. Edge computing allows 00:27:04.230 --> 00:27:07.210 for low latency, real time decision making locally. 00:27:07.470 --> 00:27:10.509 Exactly. And Dell is targeting this massive growth 00:27:10.509 --> 00:27:13.839 area by offering specialized. compact, often 00:27:13.839 --> 00:27:16.339 industrial grade solutions optimized for this 00:27:16.339 --> 00:27:18.839 decentralized processing. That's a highly specialized 00:27:18.839 --> 00:27:21.700 market. And how does AI factor into both their 00:27:21.700 --> 00:27:23.900 edge and their core infrastructure solutions 00:27:23.900 --> 00:27:27.200 group business? AI is now integrated across their 00:27:27.200 --> 00:27:29.779 entire product stack from client devices all 00:27:29.779 --> 00:27:32.079 the way up to high end servers. At the ISG level, 00:27:32.339 --> 00:27:35.019 Dell is focusing on building and selling AI server 00:27:35.019 --> 00:27:37.859 clusters. So highly optimized racks of servers. 00:27:38.119 --> 00:27:40.519 Right. Often using specialized hardware like 00:27:40.519 --> 00:27:44.220 NVIDIA GPUs or custom AI accelerators. They're 00:27:44.220 --> 00:27:46.140 designed specifically for training and running 00:27:46.140 --> 00:27:49.059 large language models and other complex AI workloads. 00:27:49.319 --> 00:27:51.359 They are providing the physical backbone for 00:27:51.359 --> 00:27:53.779 the AI revolution. So if a company is building 00:27:53.779 --> 00:27:56.400 its own internal GPT model, they're probably 00:27:56.400 --> 00:27:58.779 buying Dell PowerEdge servers configured precisely 00:27:58.779 --> 00:28:01.339 for that purpose. Exactly. They aren't just selling 00:28:01.339 --> 00:28:03.660 servers. They're selling AI -ready infrastructure 00:28:03.660 --> 00:28:06.799 solutions. Then if you look at the CSG level, 00:28:06.980 --> 00:28:09.930 they're embedding AI there too. New laptops and 00:28:09.930 --> 00:28:12.029 desktops are coming with neural processing units 00:28:12.029 --> 00:28:16.049 or NPUs. Dedicated chips for AI tasks. Yes, dedicated 00:28:16.049 --> 00:28:18.430 chips designed to handle low -level AI tasks 00:28:18.430 --> 00:28:21.069 like optimizing video conferencing, background 00:28:21.069 --> 00:28:24.190 blurring, or running basic local generative AI 00:28:24.190 --> 00:28:26.849 features, all without relying on the cloud or 00:28:26.849 --> 00:28:29.309 consuming excessive battery life. That is the 00:28:29.309 --> 00:28:31.970 ultimate strategic alignment, selling the AI 00:28:31.970 --> 00:28:34.529 infrastructure, the ISG, that powers the models 00:28:34.529 --> 00:28:37.430 and then selling the AI endpoints, the CSG, that 00:28:37.430 --> 00:28:40.059 use the models. And this strategic vision is 00:28:40.059 --> 00:28:43.819 backed by stable, long -term leadership. I mean, 00:28:43.839 --> 00:28:45.539 despite all the complexity of the public return, 00:28:46.119 --> 00:28:49.200 Michael Dell remains firmly in charge. He retained 00:28:49.200 --> 00:28:53.240 significant ownership, 58 .9 % as of February 00:28:53.240 --> 00:28:56.779 2024. He's still the controlling voice, ensuring 00:28:56.779 --> 00:28:59.559 the long -term vision stays intact. We also see 00:28:59.559 --> 00:29:01.980 them continuing to refine the business, even 00:29:01.980 --> 00:29:04.599 after the massive merger and spin -out. It suggests 00:29:04.599 --> 00:29:07.539 the streamlining process. never really ends. 00:29:07.759 --> 00:29:09.839 That's a key point. Just recently, in February 00:29:09.839 --> 00:29:13.119 2025, they continued their strategy of focusing 00:29:13.119 --> 00:29:16.220 on the absolute core by selling SecureWorks, 00:29:16.220 --> 00:29:18.640 a cybersecurity subsidiary, to the British vendor 00:29:18.640 --> 00:29:21.359 Sophos. So it shows that even services, if they 00:29:21.359 --> 00:29:23.380 aren't tightly integrated into the core infrastructure 00:29:23.380 --> 00:29:26.119 offerings, are still potentially expendable for 00:29:26.119 --> 00:29:28.579 capital management and focus. I think so. Before 00:29:28.579 --> 00:29:30.799 we wrap this section, let's return to that real 00:29:30.799 --> 00:29:33.319 -world application, that fantastic detail about 00:29:33.319 --> 00:29:36.059 the 2018 racing partnership with McLaren. That 00:29:36.059 --> 00:29:39.200 is such a strong visual of their ISG capability. 00:29:39.900 --> 00:29:42.819 Formula One racing is a real -time data nightmare. 00:29:43.160 --> 00:29:45.819 You have massive amounts of sensor data just 00:29:45.819 --> 00:29:49.119 pouring in constantly. Tire wear, engine temperature, 00:29:49.400 --> 00:29:51.779 aerodynamic forces. And decisions have to be 00:29:51.779 --> 00:29:54.660 made with near zero latency. So Dell provided 00:29:54.660 --> 00:29:56.960 the processing power and infrastructure to support 00:29:56.960 --> 00:29:59.819 McLaren's Formula One program. They were essentially 00:29:59.819 --> 00:30:02.240 using the race team as an incredibly intense 00:30:02.240 --> 00:30:05.140 stress test for their PowerEdge servers and data 00:30:05.140 --> 00:30:07.579 storage solutions. The lesson there is pretty 00:30:07.579 --> 00:30:10.420 clear. If their tech can handle the data requirements 00:30:10.420 --> 00:30:12.779 for a Formula One team making critical decisions 00:30:12.779 --> 00:30:15.720 at 200 miles an hour, it can probably handle 00:30:15.720 --> 00:30:18.140 your enterprise database. It demonstrates the 00:30:18.140 --> 00:30:20.960 performance, the reliability, and the scale of 00:30:20.960 --> 00:30:22.799 the infrastructure solutions group in the most 00:30:22.799 --> 00:30:25.220 high -stakes demanding environment imaginable. 00:30:25.420 --> 00:30:28.579 It solidifies their image as a serious modern 00:30:28.579 --> 00:30:31.019 enterprise player. Far removed from the struggling 00:30:31.019 --> 00:30:34.220 PC company of the early 2010s, we have certainly 00:30:34.220 --> 00:30:36.809 covered the transformation, the financial maneuvers, 00:30:36.809 --> 00:30:39.309 and the current product structure, all pointing 00:30:39.309 --> 00:30:42.730 toward a highly successful corporate pivot. So 00:30:42.730 --> 00:30:45.789 what does this entire complex journey of Dell 00:30:45.789 --> 00:30:49.490 Technologies mean for you, the learner? The story 00:30:49.490 --> 00:30:52.859 is really a textbook. case study, a masterclass, 00:30:53.000 --> 00:30:55.619 if you will, in how a massive corporation can 00:30:55.619 --> 00:30:58.039 use financial engineering to execute a complete 00:30:58.039 --> 00:31:01.019 identity change. We saw Dell go private to escape 00:31:01.019 --> 00:31:02.819 the market pressures that were stifling their 00:31:02.819 --> 00:31:04.880 restructuring efforts. They used that strategic 00:31:04.880 --> 00:31:08.400 isolation to plan and then execute the $67 billion 00:31:08.400 --> 00:31:11.660 acquisition of EMC, the largest in tech history 00:31:11.660 --> 00:31:13.859 at the time. And that fundamentally shifted their 00:31:13.859 --> 00:31:16.299 focus from client devices to enterprise infrastructure. 00:31:16.539 --> 00:31:19.099 It did. And crucially, they managed that massive 00:31:19.099 --> 00:31:22.339 $40 billion debt burden by immediately shedding 00:31:22.339 --> 00:31:25.579 $7 billion worth of non -core assets, proving 00:31:25.579 --> 00:31:28.180 they were willing to make painful strategic sacrifices 00:31:28.180 --> 00:31:30.819 for long -term stability. They leveraged complex 00:31:30.819 --> 00:31:32.960 instruments, particularly that tracking stock, 00:31:33.160 --> 00:31:35.539 to facilitate the acquisition. And then they 00:31:35.539 --> 00:31:37.880 engineered an unconventional rapid return to 00:31:37.880 --> 00:31:40.980 the public market by buying back that same tracking 00:31:40.980 --> 00:31:43.240 stock, bypassing the burdens of a traditional 00:31:43.240 --> 00:31:46.180 IPO. And the ultimate result is a company that 00:31:46.180 --> 00:31:49.410 has successfully modernized its identity. While 00:31:49.410 --> 00:31:51.410 the client solutions group still provides the 00:31:51.410 --> 00:31:54.009 stable volume, the future is clearly defined 00:31:54.009 --> 00:31:56.650 by the infrastructure solutions group and its 00:31:56.650 --> 00:31:58.990 aggressive focus on integrated solutions for 00:31:58.990 --> 00:32:03.410 the new data economy. AI, edge, and cloud computing. 00:32:03.630 --> 00:32:06.289 All of it. I think the key takeaway here is the 00:32:06.289 --> 00:32:08.950 demonstration of strategic agility married to 00:32:08.950 --> 00:32:12.180 financial resourcefulness. This scale of transformation 00:32:12.180 --> 00:32:15.160 requires not just technological foresight, but 00:32:15.160 --> 00:32:17.420 the ability to use complex financial structures 00:32:17.420 --> 00:32:19.920 that high wire act with the tracking stocks and 00:32:19.920 --> 00:32:22.579 the decisive debt management to pivot the company 00:32:22.579 --> 00:32:25.599 from a manufacturer of PCs to a comprehensive 00:32:25.599 --> 00:32:28.059 enterprise infrastructure leader. It was a strategy 00:32:28.059 --> 00:32:30.440 executed with precision. And based on their near 00:32:30.440 --> 00:32:33.720 $100 billion revenue, it paid off spectacularly. 00:32:33.759 --> 00:32:36.910 It did. But we can't end this deep dive without 00:32:36.910 --> 00:32:39.069 returning to the most provocative detail hiding 00:32:39.069 --> 00:32:41.569 in the financial statements, a detail that really 00:32:41.569 --> 00:32:43.970 challenges our standard understanding of corporate 00:32:43.970 --> 00:32:47.970 health. Yes. Despite its immense size, its $95 00:32:47.970 --> 00:32:51.750 .6 billion in revenue, and its significant market 00:32:51.750 --> 00:32:55.029 value, the Dell Technologies balance sheet reports 00:32:55.029 --> 00:32:58.500 a negative total equity of U .S. Negative. $1 00:32:58.500 --> 00:33:03.500 .5 billion as of fiscal year 2025. Negative equity. 00:33:03.839 --> 00:33:05.960 For a listener who typically sees equity as a 00:33:05.960 --> 00:33:08.299 sign of health and ownership, how can a Fortune 00:33:08.299 --> 00:33:11.440 500 company, an industry leader, maintain immense 00:33:11.440 --> 00:33:14.160 scale and stability while carrying negative equity? 00:33:14.440 --> 00:33:16.359 It raises a profound question about the nature 00:33:16.359 --> 00:33:18.940 of modern leveraged finance. Negative equity 00:33:18.940 --> 00:33:21.420 essentially means the company's total liabilities 00:33:21.420 --> 00:33:24.019 outweigh its total assets based on accounting 00:33:24.019 --> 00:33:26.529 value. or book value. Which is a common outcome 00:33:26.529 --> 00:33:29.190 of these large, highly leveraged buyouts. Exactly. 00:33:29.470 --> 00:33:31.509 Like the one that took Dell private and then 00:33:31.509 --> 00:33:34.410 fueled the EMC merger. The debt taken on to execute 00:33:34.410 --> 00:33:37.150 the deal is so massive that it permanently depresses 00:33:37.150 --> 00:33:39.410 the book value of the company's equity. So it's 00:33:39.410 --> 00:33:41.769 not necessarily a sign that the company is failing, 00:33:41.910 --> 00:33:44.470 but rather a permanent accounting scar from the 00:33:44.470 --> 00:33:46.630 historical financial engineering. Precisely. 00:33:46.630 --> 00:33:49.890 It tells us that Dell's market value, the price 00:33:49.890 --> 00:33:53.109 its stock trades at, is based entirely on investor 00:33:53.109 --> 00:33:56.150 confidence in its future earnings potential in 00:33:56.150 --> 00:34:00.210 AI, edge and infrastructure, rather than the 00:34:00.210 --> 00:34:02.710 historical accounting value of its physical assets 00:34:02.710 --> 00:34:06.000 minus its staggering debt load. So it encourages 00:34:06.000 --> 00:34:09.039 you, the learner, to deeply analyze the specifics 00:34:09.039 --> 00:34:11.639 of large -scale corporate balance sheets and 00:34:11.639 --> 00:34:13.559 to understand the distinction between accounting 00:34:13.559 --> 00:34:16.260 principles like negative book equity and real 00:34:16.260 --> 00:34:18.820 -world market valuation for highly leveraged 00:34:18.820 --> 00:34:21.260 tech firms. A company that defied expectations 00:34:21.260 --> 00:34:24.039 by going private, executed a record -breaking 00:34:24.039 --> 00:34:26.719 acquisition, and now operates with negative equity 00:34:26.719 --> 00:34:29.559 while leading the AI infrastructure race. That 00:34:29.559 --> 00:34:32.019 is the Dell Technologies story. Thank you for 00:34:32.019 --> 00:34:34.400 diving into this dense and fascinating history 00:34:34.400 --> 00:34:34.900 with us.