First is that, we are focused on expense management and regaining our cost leadership.  Clearly there was progress in the quarter on GNA and COGS consistent with the plan we outlined, and we are on a path that will yield significantly increased cost savings.  An advantage cost structure in our direct business, which is roughly 75 percent of revenues, and a competitive cost structure in our channel business.  This will give us the ability to deliver, not only a more value for our customers, but increased profitability.

Second, our focus is on expanding our presence in the enterprise.  Customers are looking for great technology to drive IT productivity and simplication, and they want it to be cost effective.  This absolutely plays to Dells strengths and we can help them here.  Virtualization, particularly in servers and storage, are key technologies that we are embracing to drive this.  So we are taking a number of actions to address these needs. 

First, we are expanding our sever coverage up to 95 percent of the market opportunities next year.  We have also introduced the fourth generation of our Dell EMC storage systems.  We have expanded our ecologic solutions, introduced a new pot of gold product lines.  All placing us in the leaders’ quadrant for enterprise storage rays.  We are significantly growing our virtualization solutions to help customers improve the ability to employ and manage these solutions.  We have been a leader empowering cooling solutions with very efficient blades and two or four socket blade products that are 25 percent better in performance per watt than the competitors.  We have expanded our data center custom solutions business, with customers like Facebook, Microsoft, and Amazon.

Finally, we have been growing our services activity with remote infrastructure management; we have an opportunity to go after the $2 that is tacked onto every $1 that is spent in hardware.  This is really a major customer pain point in the roughly $1.2 trillion dollar IT industry.

So in the consumer business, clearly we are making some progress.  New products, better costs.  As we continue to make progress here, those cost improvements will begin to show up in our emerging countries business and our small/medium business.

The consumer business had operating income of 1.7 percent so far this year, while units grew twice the industry and share was up 140 basis points.

In BRIC countries, we grew 20 percent versus last year and BRIC is now 9.4 percent of revenues.

 

Q&A Segment

Q.  The presumption in the market is that Dow is largely a fixed-cost business, which isn’t the picture you painted this quarter.  Can you just walk through some of the specific steps you have taken to become more flexible and, is there a metric that you can provide on the percentage of costs that are now variable?

A.  I think there are a couple of things.  One is, we are working to variablize costs as much as we can.  When you think about contract manufacturing, and the ODM strategy, that is one big element and I think that is something that you will continue to see us do.  I think the other thing that we have done is just stay very aggressive with fixed costs in the GMA structure in the business.  So, no metric around that, but that has been our approach and I think we have been pretty aggressive.

Q.  Most of your peers tax out restructuring charges every quarter.  It looks like you continue to digest those.  What should we expect in the next couple of quarters, in terms of, will there be more charges and how might the size compare to what you found in the October quarter?

A.  I think you have seen that we do report tax, and as you see, it has declined quite a bit over the course of the year, in terms of what we have incurred in each of the quarters.  We will continue to look at productivity opportunities, the way the economy works there as we identify those and put plans in place so you will incur those charges.  There is no real prediction on what that is.

Q.  I heard your explanation on the payables, but could you help us with what that tells us about the linearity of the quarter in terms of demand and/or component procurement, or perhaps even credit issues with some of your suppliers?

A.  There are really no credit issues with our suppliers in the quarter.  We continue to watch that but right now, no significant concerns.  It does tell you that there was some deterioration in demand over the course of the quarter and I think you have seen that we had a stronger August than we did a September and October.  I would also say that it does show you that there was a decline in terms of our spending in the last month of the quarter.  That gives you a sense for the trend that we saw.

Q.  Would you mind providing a little more color, perhaps on which segments experienced the deterioration in demand throughout the quarter?  I guess that is a good segway into plans for future cost reductions as well.  I know Katy asked a question about charges, but I thought I would ask more directly about the cost side.

A.  I think that in this environment, we are going to continue to be very aggressive with costs.  It is the one level that we can control.

Q.  Just a little more color around which segments experienced the deterioration toward the end of the quarter.

A.  I would say that the external demand environment is pretty consistent with what we talked about at the beginning of the quarter.  It was been slow in the US, it swept in Europe, Asia still obviously positive in growth.  We have found some nice growth in our emerging countries, and the BRIC countries as well as other emerging countries in the quarter.  We are pretty consistent with the messages that we shared the last time we were talking about it.

Q.  Can you give us an update on what percentage of global units shift our cost optimized at this point and how does that vary by geography.  It sounds like, through your comments, that the consumer is basically half way there and APJ is completely optimized.  So, where are we in the Americas and EMEA?

A.  It is not a regional dynamic.  We have global products developments, and we go platform by platform.  We talked about cost optimization for the consumer business where we are at about 50 percent for the consumer business.  We continue to work through those portfolios one at a time.  We have launched in commercial of 25 launches year-to-date, and 17 launches year-to-date for consumer.  That is pretty aggressive and we will continue to knock that off over the next few quarters.

Q.  Can you say what percentage of the savings that you intend to realize as it relates to product optimization, and how much of that have you realized to date with the crutch of what I was asking?

A.