HBS Professor, Nitin Nohria once said "communication is the real work of leadership."  This has never been more true at Dell than right now.  We launched DellShares with a commitment to reach out to our institutional and retail investors to discuss items relevant to our strategy, our financial results, and progress on our initiatives.  An important part of this progress is communicating Dell's commitment to sustainability. 

As we write our 2008 annual sustainability report and reflect on our progress, we want to reach out to all stakeholders, and in particular socially responsible investors.  SRI funds now represent over 10% of the $25 trillion U.S. equity market, and this trend is only growing.  Through DellShares, we hope you will join us for a quarterly dialogue on Dell's progress on corporate governance, environment responsibility or community engagement - these are topics of interest to all of us.

Sustainability is a multi-year journey for us so it is difficult to capture everything we do in one report.  Many of our programs go back five years or more and are only now coming to fruition.  However, we believe communication is the key - through DellShares we'll address a different topic every quarter.  This quarter we'll focus on Dell's environmental responsibility efforts.

Dell started with a focus on the Environment.  In fact, our first "Sustainability Report" in 1998 was really an "Environment Report."  Because the environment is most closely tied to our core business, it is where we have made the most public commitments.  Michael pledged last year that we would be carbon neutral by the end of 2008 and that Dell would be the "Greenest Technology Company on the Planet." 

Those are big commitments, but they were not new.  We had been working towards those for years.  Our products met lead-free requirements ahead of legislation and we are currently working on removing remaining traces of non-regulated BFRs and PVCs.  We are a leader in global product recovery and recycling.  Our products deliver maximum performance per watt.  Our catalogs had over 50% post consumer recycled content and we reduced customer waste by redesigning our product packaging. 

We also publically report our Greenhouse Gas emissions, lead our industry in operational efficiency, are committed to carbon neutrality and have recently announced that our corporate offices in Round Rock, Texas will be supported by 100% renewable energy.  Dell also reports on our waste that is being recycled, reused and landfilled.  In fact, we currently recycle over 94% of our own waste from manufacturing with public a goal to avoid 99% by 2012. 

In fiscal 2008, we launched ReGeneration.org, a global community of people who are concerned about the environment.  This site provides a place to network and learn about ways to reduce your impact on the environment.  We invite you to join the ReGeneration!

The leadership for initiatives like these start from the top at Dell.  We have a Sustainability Council that includes Michael as well as representation from Finance, Legal, Procurement, Marketing, Sales, Investor Relations, HR, Engineering and other groups.  The Sustainability Councils reports progress and results to the Governance and Nominating Committee of the Board of Directors, who in turn, share their council.  This direct engagement enables progress across all areas of sustainable business practices. 

These are a small portion of achievements we have covered in our Sustainability report.  I encourage you to read our 2007 Sustainability report for more details and look for our 2008 Sustainability report coming in Q2.  We look forward to your comments, and we hope this becomes fruitful dialogue.

Dell today announced the completion of its $155 million acquisition of MessageOne.  Steve Schuckenbrock, SVP and President, Global Services and CIO, wrote a blog covering today's close of MessageOne and its context within a broader services strategy.  In the post, Steve discusses our move towards a SaaS-enable services delivery platform, how Dell is simplifying IT infrastructure, and how customers may configure support levels to what they need through ProSupport.  Steve's post can be found on Inside IT, and our original post on MessageOne can be found Dell Shares.

Today we settled three tranches of debt (see 8k filing) that we issued earlier this week in private placement transactions: $600 million at 4.7% yield due April 15, 2013; $500 million at 5.65% yield due April 15, 2018; and $400 million at 6.5% yield due April 15, 2038. This debt is considered "investment grade" by various rating agencies - for example it is rated A2 - Stable by Moody's.

As we discussed in our FY 2008 10K, filed on March 31, 2008, we use cash generated by operations as our primary source of liquidity and believe this cash is enough to support our business operations.  In FY 2008 we generated $3.9 billion in cash flow from operations, accessed $5.3bn in cash form a subsidiary outside of the United States, spent $4 billion on share repurchase, $2.2 billion on acquisitions and $831million on capital expenditures.  We ended the year with $9.5 billion in cash and investments.

Like many multi-national companies, a substantial amount of our cash balances are held outside of the U.S. and so like other companies we have chosen to access the capital markets to supplement our liquidity in the United States - which means raise debt.   The last time Dell raised long term debt was in 1998. 

We plan to use the funds we raised this week for general corporate purposes - which includes discretionary spending like share repurchase and acquisitions.  Share repurchase remains our primary use of cash.  Dell believes this is good for Dell and for our shareholders because it lowers our weighted average cost of capital enhancing our current capital structure.  

We do plan on exchanging the debt we raised this week for public debt later this year.

The second and final day of our equity analyst meeting featured presentations by Michael Dell, Chairman of the Board and CEO, and Don Carty, Vice Chairman and CFO. 

Right up front, Michael addressed Dell's ability to execute.  He made it clear that Dell is making progress on transforming the company and we are seeing evidence in our recent growth, yet we still have to move faster on costs.  There are no longer any fixed costs within Dell - essentially everything is variable right now.  We have a $3 billion cost opportunity and we're taking aggressive actions to restore our competitive advantage.  We believe operating expense will be down as a percentage of revenue this year.  We also want to deliver a unit growth premium to the industry - this was the case in Q4, and it looks like it is continuing in Q1.  

Don Carty spoke about Dell's financial heritage - one built on striking the optimal balance between liquidity, profitability and growth.  He said that Dell's execution against these priorities hasn't been up to our standards or your expectations.  Dell is strengthening its competitive position and improving profitability by reducing total costs in three ways.  First, we will reduce operating expense, including headcount and compensation.  Second, we will reduce product and procurement costs by designing for price segments and removing features that are not valued by our customers.  Finally, we will reduce manufacturing and logistics costs by optimizing our global manufacturing network.

Later in the morning, other senior executives hosted panel discussions on our five key growth initiatives. 

Steve Felice, SVP and President of Dell Asia/PAC, reviewed our strategy in emerging countries.  Emerging countries represent 85% of the world's population, 30% of worldwide GDP, more than 50% of the worldwide GDP growth... and are a significant opportunity for Dell.  In the IT hardware space, the next billion customers will come from emerging countries.  By 2012, these countries will make up 38% of the world's PC shipments, up from 11% in 1996 (per IDC and Dell estimates).  

Dell is tailoring its products, services and engagement models in these countries to help ensure our place in this tremendous growth opportunity.  In India and Brazil, for example, we largely work directly with customers.  China is closer to a 50/50 split between direct and the channel, while Russia is predominantly channel focused.  We complement these approaches with specific products and services tailored to the needs of customers in those countries.

Dave Marmonti, SVP and President of Dell EMEA, then discussed what we're doing in small and medium enterprises (SME).  Within our SME initiative, we have four global sub-initiatives that will drive our growth: sub-segmentation, customer relationship management, IT-as-a-service and a flexible global channel strategy.  Ultimately, we'll bring differentiated products and capabilities to SMEs who just want to focus on their business, not their IT.

Ron Garriques, President of Dell's Global Consumer Group, said that his goal is simple and straightforward - grow faster than the industry and do so profitably with a great cash conversion cycle.   We get there by getting to the point where COGS and operating expense is competitive and best in class; and by innovating our products and services in order to delight customers independent of the channel they buy through. Growing the profitability of this business is the number one priority.

Jeff Clarke, SVP of Dell's Business Client Product Group, covered our growth strategy in notebooks.  In a nutshell, Dell will deliver more segment-specific products for consumers, SMEs and customers in emerging countries, while being cost competitive across all price bands and channels.

Finally, Brad Anderson, SVP of Dell‘s Business Enterprise Product Group, talked about what we're doing in enterprise.  Last year, $289 billion was spent on enterprise-related IT. Dell's share was a mere 4.4 percent of that.  We get a significant share of total server revenue, but we're under-represented in the other categories of spend - storage, systems management, professional services and support services, etc. So we're creating solutions for customers' greatest challenges.  We'll simplify IT with differentiated, industry-leading solutions, including blades, power & cooling, virtualization, iSCSI storage and cloud computing.

Each of these growth priorities implies there are significant opportunities ahead for Dell.  Our growth in every instance won't be linear, but taken together they represent a thoughtful vision of our industry, the problems and solutions we're tackling, and the white space we're addressing.  It's clearly up to us to drive the right cost model to enhance our competitive position.

Again, if you haven't already seen the webcast or presentation, I encourage you to watch a replay of them here. 

Today, 250 equity analysts and institutional investors joined us in Round Rock for Dell's equity analyst meeting. These meetings, which are available via live webcast, serve two important purposes.  First, they give this audience and all of you an opportunity to hear directly from Dell's senior leadership, and second, it's our chance to help you understand where we're going financially, share our key initiatives and address questions and concerns.

The meetings and briefings are spread over two days, with the first day being a prerequisite to discussing our growth priorities on day two.  We spent the first day providing a framework by which investors could understand the fundamental changes we're making to Dell's business model - from manufacturing to channels to services.  

Dell has always been known for its direct model.  With it, we created a direct customer relationship model and build-to-order manufacturing capability like the world had never seen.  Our assets were global and our cycle times were some of the shortest in the industry. 

But today's PC economics are much different.  Moore's law led to better performance, rapid growth and lower selling prices, ultimately leading to smaller absolute cost advantages.  And growth shifted from desktops to notebooks and from large enterprise customers to consumers and small enterprises.  Our customers are more diverse than ever before.  We now need to serve them in very different ways. 

Mike Cannon, President of Dell Global Operations, talked about how Dell is optimizing its global manufacturing network to better meet customer needs.  By matching product design to customer segments, we're able to eliminate embedded product costs.  Getting this part right actually enables us to think more broadly about our manufacturing model and enhance the value we provide our customers.

Many have also questioned how being direct works with channel. The reality is that we have a $10 billion global partner business that we've steadily built for 23 years.  Paul Bell, SVP & President of Dell Americas, spoke to our channel strategy and the investments we're making to better work with VARs and systems integrators. The flexible engagement model we've developed is backed by a compelling value proposition for our partners: our strong brand; a broad portfolio of industry-leading products; and simple, beneficial terms.  It's designed to minimize conflict while building trust and mutually beneficial relationships.  Since we announced this new initiative in Q3, we've worked hard to bring our regional partners onboard to make our solutions available in the geographies that need them most.  

Steve Schuckenbrock, SVP Global Services & CIO, spoke about how customers spend a massive share of their IT budgets on services and how they face a burning need to shift this spend from maintenance to innovation.  We approach services very differently from our competitors.  We believe services should be customizable, a la carte, and available remotely.  So Dell's new services model combines disruptive technologies with our core strengths to provide customers convenient and affordable enterprise-class support and monitoring services.  Through ProSupport and the assets we acquired through several acquisitions we are building a platform that allows us to remotely manage the client lifecycle.  We let customers choose which services they want and when they want them.  And we provide solutions where consultants are available - but not required.  We have a $6.2 billion global services business today, and there is no reason it can't double over the next 3-4 years.

These are changes in the way Dell interacts with customer. They set a foundation upon which we'll build our future success.

If you haven't already seen the webcasts or presentations, I encourage you to watch a replay of them here. 

I know that sounds like a mouthful, so let me take a few minutes to discuss what we announced today.  In May of last year, we announced we were taking steps to improve the competiveness of our operating model, profitability and cash flow.  Restoring competitive advantage means fixing things in our business that will allow us to provide even more value to our customers - and investing in things that will allow us to deliver better and more products and services to our customers around the world.  

Improving profitability means just that and this can be achieved by improving our cost position which is embedded in cost of goods sold (COGS) - like designing products that have the right features for our customers - things they want and value.  Operating expenses (Opex) is also a part of profitability and we believe we can do a better job of managing these expenses - things like reducing headcount (net of acquisitions) and moving more of our people to front line positions - positions that actually touch the customer.  And when you generate profits - cash flow follows.  At least this is the case for Dell.  On an annualized basis we typically generate operating free cash flow in excess of net income - so the more net income we generate - the more cash we generate.  And at the end of the day it's cash that fuels shareholder value.

So in our press release we said we believe we have a $3 billion opportunity to reduce total costs - this includes both COGS and Opex.  Now this does not happen over night.  In fact we said we believe it will take three years to achieve an annualized savings of $3 billion.  This means that before you adjust for growth, we believe our costs at the end of our fiscal 2011 will be $3 billion lower than at the end of fiscal 2008.   A company can do several things with this benefit.  They can use it to strengthen their competitive position and invest back into their business which helps drive growth, they can use it to improve profitability, or they can do both.  We will use it for both - and the split will depend on a variety of things including marketplace dynamics and our growth initiatives.

In our release we also announced that we will be closing our desktop manufacturing in Austin, Texas.   Over the last three years, driven by the massive shift in customer preference for notebooks - especially among consumers, industry forecasts for the rate of growth of desktops have declined from 10.8 percent to 3.6 percent.  And the desktop to notebook mix in the U.S. has declined from a 70/30 split in 2005 in favor of desktops to a 50/50 split today.  Our fiscal fourth quarter of last year reflects this change as we grew notebook units year over year by 37 percent and desktops by 10 percent.

Lastly - in our release we announced we would undertake a strategic assessment of ownership and operating structure alternatives for our Dell Financial Services financing activities.  And that this assessment will primarily focus on the consumer and small/medium business aspect of this business.  We acquired the remaining 30 percent of DFS from our partner, CIT, in December of last year. 

There is a lot of concern out there right now about the credit markets and we've been getting a lot of questions so let me clarify two things relative to Dell. 

First, our assessment of our DFS business is unrelated to what is going on right now in the credit markets - we completed the acquisition and so the natural next step is to pursue our strategy, simple as that.  Many companies - GE and Target - to cite recent examples - often assess the ownership structure of their financing companies.  In our case we are primarily evaluating three key things:  (1) can DFS provide even better and most robust product offerings to our customers, (2) can we accelerate the investments we are making in DFS and, (3) are there more efficient ways to fund DFS.   Our assessment may result in no change, or a sale to or partnership with a fully dedicated financing company.

Second, relative to our consumer financing receivables - less than 20 percent of our net customer receivables - or $1.6 billion - were to subprime customers.   This percentage is similar to what it was in our fiscal third quarter.  Based on our assessment of these customers financing receivables and the associated risks, we believe we are adequately reserved.  If you are interested in this topic I encourage you to read Note 2 Financial Instruments, and Note 6 Financial Services of our Fiscal 2008 10K that we filed today.

To get an update on all of the initiatives we have underway at Dell - I encourage you to listen to our equity analyst meeting which will be held in Round Rock, Texas on Wednesday April 2^nd and Thursday April 3^rd.   You can reach the web cast and accompanying slides via this link: Dell Analyst Meeting.  If you can't listen right away - it will be up on our web site for a while.

All comparisons are year-over-year unless otherwise noted.

Last Thursday, we announced our fiscal fourth quarter 2008 results; the replay of our conference call and a copy of our transcript can be found on the investor relations web site.  For the quarter we posted revenue growth of 10% on $16 billion in sales and 19% unit growth.  Operating income was $776M, or 4.9%.  EPS was $0.31 per share and cash flow from operations was $1.2 billion.

For the full year, we grew revenue 6% to $61.1 billion, generated $3.4 billion of operating income, increased EPS 15% to $1.31 per share, and generated $3.9 billion in cash flow from operations.  Cash flow from operations grew faster than both net and operating income. 

During the call we discussed our results, citing both regional and product highlights.  Then we placed particular emphasis on two areas - cost and growth initiatives.  Let me cover a few of the questions we are getting from investors.  Two key themes emerged.  They were costs and the pace of our progress against our key growth initiatives. 

Our expenses have grown faster than revenue and we are out of cost position relative to peers in some product areas, price points and regions.  This was the result of our products and supply chain not being optimized to most efficiently provide customers what they value.  As stated, we have a multi-billion dollar opportunity to reduce costs over the next several years.   As described during our earnings call, we're working on multiple fronts to become more competitive.  We are recommitted to reducing our headcount, but headcount in and of itself is not the answer either.  Everything we do is being scrutinized.  This includes our supply chain, and at a deeper level it includes how we design our products.  You will see more activity towards improving our competitiveness in Q1, and this process will continue throughout the rest of the year.

Second, Dell is taking action against several different priorities in parallel.  They are not meant to be sequential steps, but are step function changes to reignite our growth.  I hope you realize that we're building for the long-term.  Sometimes you need to make decisions for the short term that can adversely impact performance, but are absolutely the right for the long-term - as a result some of our actions won't be linear.  There have been a lot of moving parts as we integrate several acquisitions, work towards improving our sales force effectiveness and realign the rest of our organization against our key priorities.   Some of these changes take time, but the foundation is there and the changes are showing improvement.

Examine the BRIC countries where our revenue grew faster than the industry up 36%, and units were up 50%.  And look at retail where we had no presence a year ago; we have already sold one million units worldwide and are at a one billion dollar revenue run rate.  And in notebooks we won 72% of the product awards applied for in this category.  We have an amazing brand that we are just now beginning to leverage in retail, globally or through the channel. 

Michael said, "The acceleration in our growth is just a first step as we execute against the five priorities. We have a lot more to do to restore our competitiveness so that we can deliver long-term profitable growth."  There's more to come, and we look forward to updating you on all our priorities at our upcoming analyst meeting and hope to see you then. 

When you look at the world and see that the number of people online will double from 1 to 2 billion in a few years, it makes a compelling case for understanding where this growth is coming from and how well your company is positioned to take advantage of it.  According to data from the International Monetary Fund, in 2007, emerging economies like China, India, Brazil, Mexico, Russia, South Africa, and others accounted for nearly 30% of global GDP and almost 50% of global GDP growth.  Today this trend is only accelerating.  At Dell, Emerging Countries is one of our Big 5 strategic priorities and we are reexamining everything we do there.  One thing is becoming clear, to be successful in this space you must enable the success of your channel partners, who in most cases have the established infrastructure and brand to reach these customers.    

This week, we announced that our PartnerDirect program, which we launched in the U.S. in December, is now available in Europe, the Middle East, and Africa.  Despite our roots as a "Direct" company, Dell has more than 30,000 global partners around the world who generated approximately $9 billion in Dell run-rate revenue in the past year alone.  With the expansion of PartnerDirect in EMEA, we thought it would it would be a good opportunity to further discuss Dell's global commercial channel strategy, how it supports several of Dell's business priorities, and the impact the channel will have on Dell's growth strategy-including emerging countries.

As a quick recap, PartnerDirect was launched in the U.S. in December.  It comes as the result of feedback from thousands of solution providers and VARs who told us how exactly they wanted Dell to help them.  Dell listened and developed a new set of tools and services exclusively designed to make it easier for our channel partners to work with Dell and be more successful.  For starters, the program creates a new web portal dedicated to our partners--www.dell.com/partner.  And for the first time, Dell is providing a partner logo for certain types of joint marketing activities.  PartnerDirect also provides 100-percent dedicated sales and customer care and opens new vehicles for credit financing.

Also PartnerDirect provides a clear mechanism for Deal registration.  Dell is committed to minimizing channel conflict.  Speaking to CRN last week, Michael put it best when he said, "Let's say you're a Dell/EqualLogic partner, and you recognize an opportunity inside your customer, and you register that opportunity-so far, roughly 90 percent of the opportunities that have been requested to be registered have been accepted-so you register this opportunity.  Our sales reps are compensated the same whether it's sold through a channel partner or it's sold direct. So they have no incentive not to work with the channel, and in fact every incentive to work with the channel."

To get some more insight into how PartnerDirect is being implemented, I recently sat down with Greg Davis, Dell's Vice President & General Manager of the Americas Channel Group; Josh Claman, Vice President & General Manager of Dell Channels in EMEA; and Pim Dale, Vice President & General Manager of Emerging Markets in EMEA.  In the vlog, this team describes Dell's existing partnerships in emerging countries, the size and scoping of channel activities in EMEA, and Dell's current penetration rate through the channel and what it hopes to achieve over the next few years.  

E-mail has become one of the most ubiquitous and critical applications in business today; it can impact revenue, productivity, and a company's reputation.  Due to increased regulatory and business requirements, e-mail management--including measures for compliance and disaster recovery--is now more complex than ever.  Our announcement today to acquire MessageOne, an industry leader in Software-as-a-Service (SaaS) enabled e-mail continuity, compliance, archiving, and disaster recovery services is an important step towards simplifying IT and restoring integrity around a vital piece of our customer's IT infrastructure. 

Dell's customers have been looking for solutions to help them simplify their IT infrastructure.  Legacy services masks IT complexity.  Estimates show that for every 1 dollar spent on hardware and software another 3 dollars gets spent on consultants and integrators.  This is where we believe there is room to fundamentally change the industry's infrastructure services model.  Through the use of technology, Dell's supply chain advantages, remote infrastructure management and SaaS, Dell is pursuing a strategy in the services space that is analogous to the approach taken to simplify the hardware business 23 short years ago.  We have a legacy of driving down the cost of hardware for our customers and they believe we can do this in services as well.

MessageOne is another key piece in expanding Dell's services, especially in the rapidly growing SaaS enabled managed services market and complements our recent SaaS acquisitions of Silverback Technologies and Everdream we completed late last year.  Silverback provides leadership in event-based monitoring and remote management of different Enterprise assets (servers, storage, printers, routers, etc).  Everdream extends this capability to include lifecycle management of client assets (notebooks and desktops).  These moves also signal Dell's efforts to address the needs of the small and medium business (SMB) market, similar to our purchase of EqualLogic late last year.  EqualLogic is aimed at Dell's drive to Simplify IT and virtualization for mid-sized enterprise customers through Dell's channel partners and direct channel.  EqualLogic has the third largest sales of iSCSI SANs and has patented storage virtualization technology that will give customers the power to cost-effectively install, expand and modify their data storage resources.  We will build upon the portfolio of existing customers and channel partners for all of these offerings and will incorporate the respective technologies into future Dell services, including Dell's new ProSupport offering announced earlier this month.

We think ProSupport is especially exciting because it is more than another service offering, it is a choice of comprehensive support solutions that offer customers a choice based on who they are, how they use technology and where they want to allocate scarce IT resources.  Dell ProSupport is breaking the "one size fits all, fragmented" support model that is industry standard, by putting choice in the hands of customers.  This global offering spans all areas of hardware and will enable commercial customers, including small and medium business, to obtain world-class service from Dell or our registered solution providers without paying for more or less than they need. 

Acquisitions for Dell are not a strategy unto themselves - they are a part of an overall strategy to fuel growth in five key areas: Consumer, Emerging Markets, Notebooks, Enterprise and Small Medium Business.  When assessing possible acquisitions we look at several things including strategic fit - or how does it drive growth by scaling through our customer base, give us access to channels or provide new tools.  We also look at how it can fit into our business model, how easily we can integrate the business, and also the track record of the management team.  Via organic growth and acquisitions we will fill key capability gaps, gain access to new channels and leverage key technologies across our broad global customer base.  You will continue to see Dell pursuing opportunities that strengthen our ability to meet the increasingly changing needs and challenges faced by many of our customers and simplify their IT environments.

Dell was at CES this week, showcasing a number of products that reflect our effort to reinvigorate our global consumer business through improved design and functionality; highlighted by our new Crystal LCD monitor, the all-in-one XPS One desktop, and redesigned Inspiron 1525 notebooks. Dell's IR team was at CES as well, meeting with investors and analysts, and answering questions on a broad range of subjects. The most common questions we received revolved around providing an update to our retail initiative, what impact retail would have on our cash conversion cycle (CCC), and what our thoughts were on the macro-economic environment? So, we thought this would be a good opportunity to address those topics in a blog post.

Since our last post on retail, Dell has forged partnerships with DSG International and Tesco to sell desktops and notebooks throughout Europe. When combined with some of the partnerships we've established in the U.S. (Best Buy, Staples, Wal-Mart), Europe (Carphone Warehouse), Asia Pacific (Gome and Bic Camera), and Latin America (Ponto Frio), we've clearly made good progress in penetrating a number of retail markets, but we still have a lot of work to do this year.

As Michael described during our November strategy call, our goal is to secure 1-2 retail partnerships in the top 20 markets by the end of the year. With each market, we will evaluate what products are appropriate and play best to our partner's audience.  What you can expect is that within each region, we will partner with industry leaders that play to one of three categories: mass merchandising, consumer electronics, and home office. For example, in the U.S., we've partnered with Wal-Mart, Best Buy, and Staples respectively.

On the topics of CCC, we previously blogged that we don't expect our sales through the retail channel will have a significant impact on our negative cash conversion cycle (which remained strong in Q3 at -35 days). There is likely to be some relative impact, but CCC should remain significantly negative and advantageous for Dell. Dell's world-class manufacturing and supply chain capabilities, coupled with high-velocity partners, will help minimize the impact on DSI while the impact to DSO should be minimal as retailers' accounts receivables will be similar to our existing commercial customers.

Finally, regarding a potential macro-economic slowdown and its impact on Dell's business; as a rule, we don't comment on our performance on an intra-quarter basis.  Dell remains focused on long-term growth in its key initiatives (consumer, emerging markets, mobility, SMB, and enterprise), strong cash flow generation, and sustainable value creation for our shareholders over the next 3-5 years. 

Last Thursday, we announced that in the next several weeks, Dell XPS and Inspiron PCs would be carried in over 900 U.S. Best Buy locations and at bestbuy.com. With this agreement, Dell PCs will be available in over 10,000 locations worldwide, which in turn helps us drive towards one of our key strategic priorities: focusing on consumer. We've received several questions from the press and investors seeking additional insights into retail initiative and its impact on our business model. Since we've announced partnerships with Staples, Wal-Mart, Sam's Club, Gome, Carrefour, Bic Camera, Carphone Warehouse, and others over the past several months (with the intention of forging 1 to 2 partnerships in the top 20 countries over time), we thought this would be a good opportunity to discuss what the impact retail partnerships will have on our P&L and cash conversion cycle (CCC).

Let's tackle the impact of retail on our CCC first. To review, CCC is a metric used by investors to understand how long it takes a company to create cash flows. This metric takes into account the number of days a company keeps inventories (DSI), the amount of time it takes a company to collect money from customers (DSO), and the amount of time a company waits to pay its suppliers (DPO). In short, CCC = DSI + DSO - DPO. The shorter a company's CCC, the less time capital is tied up in the business, and hence, creates better cash flows. The beauty of the Dell model is that we typically don't take possession of parts inventory until a customer has ordered and paid for a system. Meanwhile, customers typically pay for systems immediately (with a credit card in the case of consumers), and we we'll usually ship a PC to a customer within a matter of days. Meanwhile, our suppliers don't receive payment for roughly 2 months after we take possession of parts (last quarter it was 81 days), so Dell's CCC was -35 days in Q3'08. Dell's strong cash position is then reinvested back into the business in the form of capital expenditures or acquisitions, as well as returned to shareholders in the form share repurchases.

So back to the impact of retail partnerships on our CCC. The most consistent question we've received is whether we'll see our days DSI and DSO go up when dealing with a large retailer. The best way to answer this question is to think of a retail partner similar to a commercial customer. Retail, like commercial customers, will order 100s, if not 1000s of PCs at once. And these PCs will likely consist of just several specific configurations. We'll build these PCs to the customer's specification from one of our 11 global manufacturing facilities, leverage our world-class supply chain, and ship directly to the customer much as we would a commercial customer -- so there's little impact on DSI. As for the impact on DSO, we expect retail's accounts receivables will look much the same as our commercial customers. And remember; roughly 85% of Dell's business today is driven by commercial customers, so the impact on overall DSO should be minimal.

From a P&L perspective, the retail model impacts our business differently than our direct-to-consumer model does. Though it's early in the initiative, we expect retail-driven gross margins will be lower than direct since we'll have to share part of the margin with our partners. On the other hand, the sales and marketing costs associated with the retail model should be lower since our retail partners will shoulder much of these costs. Further, another benefit of our retail model could be that these additional revenues will help offset some of the fixed costs associated with our direct business.

But it's important to remember that our US consumer business posted -1.4% operating profit in Q3'08. While the retail partnerships are a step in the right direction, there's still a lot to do to return this business to profitability. It could take time to ramp and fine tune the initiative, but eventually, we expect retail will be accretive to our bottom line.

Yesterday, Dell held its annual shareholder meeting for fiscal-year 2007.  It was postponed from July of this year due to the delay in the filing of our Fiscal 2007 10K and Proxy.  It's been a busy few days for our IR team - our first earnings conference call in over a year - which was also a strategy call - quickly followed by the shareholder meeting.  So I am a bit later with this post than I'd like - and I apologize for that - I'm still learning about how to communicate in a blog environment! 

I thought this would be a good time to talk about the mechanics of a shareholder meeting and its role in the corporate governance process.  I will also discuss speculation surrounding our share repurchase program.  I hope this will help to answer some of the questions people have asked us recently via calls, emails and this blog.

So let's start with the shareholder meeting.  The requirement to have an annual shareholder meeting is usually set forth in a company's By-Laws.  Many companies also have a meeting of their Board within a day or so of the shareholder meeting, and then have the Board members stay on for the shareholder meeting.  Shareholders of "record" - meaning they have to have owned shares on a certain date - can submit proposals to the company for inclusion in the proxy so long as the proposal meets certain requirements.   For a shareholder to be able to submit a proposal, they must either own 2,000 shares of the company or hold shares equivalent to 1% of the company's stock.  Also, the company can submit its proposals; such as nominations to the board of directors, compensation plans, and ratification of auditors. 

This year we had five proxy proposals and the results from the proxy vote can be found here.   For shareholder proposals that were not passed, shareholders can resubmit the proposals the following year if specific support thresholds were achieved.

At the shareholder meeting Don Carty talked about the financial health of the company and our commitment to growing the company in a responsible and profitable way - a way that can generate sustainable cash returns, which ultimately drives shareholder value.  Michael Dell talked about our five key priorities.  Following which, they both answered questions from the audience and the web.  Investors were interested, among other things, in expressing their interest in Dell paying a dividend, as well as commenting on our compensation practices.  Shareholders also asked for management's take on why the company's stock declined last week despite announcing a 9% Y/Y increase in revenue and a 26% increase in EPS.

So now let's turn to share repurchase.  We voluntarily suspended our share repurchase program in September of 2006, choosing instead to wait until after our Audit Committee completed its independent investigation and we filed our past due SEC filings.  All of this was completed by October of 2007.  We did not resume our buyback then because we were in "blackout" from earnings last week.  "Blackout" is the period before and after a company's earnings when it cannot buy back its stock.   

Dell's Board met on Monday, Dec. 3^rd where they voted to authorize a $10 billion share repurchase program.  There has been a lot of speculation about this program - unfortunately we could not talk about it until the Board actually made a decision on what we were going to do.  A company can invest its capital in several things.  And it can get its capital from several places.  At the end of the day a company wants to generate a return on its capital that's in excess of what it costs the company to obtain that capital - that's how it creates value for its shareholders. 

Let's start with how companies obtain capital.  First, a company can generate cash from their business: over the last four quarters Dell generated about $4 billion in cash flow from operations.  Second, a company can have money already "saved" in the form of cash and cash equivalents -- or investments.  Third, a company can borrow money - or debt.  Fourth, a company can sell more stock in the company - or issue equity.  And fifth, a company can sell some of its assets.  Since Dell has historically generated cash in excess of the cash required to run the business, we've saved a lot of cash and then used this cash from operations to buy back our stock. 

As far as how a company can invest its capital - it can do a few things.  First, it can invest in its own business by building manufacturing facilities or other buildings- these are called capital investments.  Second, it can use capital to buy other companies - or acquisitions.  Third, it can buy back its own stock.  And fourth, it can pay a dividend.  How a company allocates its capital across these opportunities varies from company to company.  And depending on the current business priorities, economic environment or company valuation, a company's capital allocation can change over time.  No two companies are alike.

So why does a share repurchase program matter?  Simply stated, ceteris paribus, buying back shares reduces the number of shares outstanding and increases shareholders' stake in the future cash flows of the company.

Some have asked if we will borrow to fund our share repurchase plan since most of our cash, like many global companies, is outside of the United States.  We look at our investments in aggregate - so this includes share repurchase, capital expenditures and acquisitions. Right now we believe we have sufficient liquidity to fund these activities - but this could change over time and we have said that we could use the cash we have on our balance sheet as well as debt to fund investments.  At the end of the day we want to maintain our financial flexibility.

Since we will start to execute this current authorization through open market purchases, many people would like us to say exactly when and how we will buy the stock. This is really not prudent and most companies don't do it.  What we have said is that share repurchase will likely be one of the key uses of our capital both now an in the future.  

Tonight, we announced the results from our fiscal third quarter and hosted our first conference call in over a year (a replay of the call and downloads of the financials & presentation can be found here).  Since wrapping up our investigation, this was our first opportunity to host an earnings call to discuss not only our most recent quarter's results, but the long-term strategy of our company

Before getting into some of the details around our earnings, and consistent with this blog's purpose, I wanted to highlight the value and importance of listening to earnings calls - not just our own, but of any company's.  These calls provide investors and analysts (including individual shareholders to institutional investors, and sell-side brokerage analysts) one of the best ways to keep abreast of a company's performance and strategic priorities.   You are welcome to join ours or listen to the replay (here).

As for our performance in the third quarter, the key takeaways were that we improved revenues, units, and profitability. We saw strength in our mobility products and continued to expand our business in international markets - particularly in Europe and Asia. We achieved $766 million in net income, generated roughly $1 billion in cash from operations, and drove our cash and investments balance up to $14.6 billion. This in particular is important because when we talk about creating value for our shareholders, cash generation is the ultimate litmus test, and essentially our goal is to maximize cash flows from operations over the long-term

During the call, Michael Dell, Don Carty and Steve Schuckenbrock discussed our efforts and progress towards improving our current business, re-igniting growth, and building for the future. Here, we touched upon our new executive leadership team and global business groups, new XPS products and small business product line, and factory openings in Latin America and Eastern Europe. And with our recent acquisitions of Zing, Silverback, ASAP, and our planned acquisitions of EqualLogic and Everdream, you are seeing us expand our portfolio of products and services and position ourselves for long-term growth.

Each specific business priority is part of the larger picture of business priorities that are being driven by our belief that information technology can be simplified and that we can drive long term shareholder value by focusing on growth in the consumer market, emerging countries, notebooks, solutions for the enterprise, and products and services for small to medium sized businesses. Our goal is to grow faster than the addressable opportunity in these areas, while keeping the company focused on driving strong cash flows from operations. These are more than ample growth opportunities for growth; the key will be to prioritize and execute.

We feel 3Q's results highlight the progress we're making towards our strategic priorities and building for the future. We're making good progress towards these goals, but there's more to be done To be sure, the path of progress won't be completely linear, but that happens sometimes when you're building and investing for the future.

Recently, we received a comment from a shareholder unhappy with our use of cash and lack of quarterly dividend, so we thought this would be an excellent opportunity to address the topic in the form of a blog post. First, we appreciate the comment and understand that Dell stock is part of many shareholders' savings.  Second, shareholders voted on this proposal last year, and 94% of shareholders did not support the measure. 

The Board's position has been that shareholder value is best delivered by using the company's cash to reinvest in growth, while returning capital to shareholders by managing dilution through a stock repurchase program. While the writer mentioned P&G, I think it's important to remember that different businesses demand different strategies.  Dell's business and the current business climate requires that we pursue growth, which involves investments that will help the company achieve a global position and growth rate necessary to return value to our shareholders. For example, in FY'07 we spent $895M on property, plant, and equipment to support our global expansion efforts; such as new customer contact centers in the Philippines, Malaysia, India, and Canada; new manufacturing facilities in Brazil, India, and Poland; new business centers in Philippines, Malaysia, and Canada; and expansion of design centers in China, India, and Taiwan.

Also, it's important to note that a stock repurchase program offers several advantages over a quarterly dividend: 1) the elimination or reduction of dilution; 2) more flexibility in balancing the return of capital to shareholders with other business objectives; and 3) more flexibility for shareholders to determine when they want to convert all or a portion of their investment into cash.

Dell shareholders will have the opportunity to vote on this topic again at this year's annual shareholder meeting. The Board's members, who are elected by shareholders, regularly consider whether we should pay a dividend and review how we deploy our available cash, while balancing the needs of the company for liquidity, the ability to generate earnings and cash flow, and the most effective means to enhance shareholder value. At this time, we believe we are headed in the right direction.

This week, we announced a definitive agreement to acquire EqualLogic, a provider of iSCSI storage products in the fast-growing storage area network market. While the deal still requires regulatory approval, we're extremely pleased to be acquiring the #1 pure-play iSCSI provider in an industry expected to grow from $0.6B to $6.0B by 2011 (according to market research firm IDC).  Now data storage may sound a little boring, but to give you another example of the growth in data and why markets like this matter, there was more content on YouTube in 2006 than on the Web in 2000.  Whether it's in a business or on the web, technology is being used to create and save content like never before.  Brad Anderson, our Senior VP of the Business Products Group, provides additional insight into EqualLogic and its offerings here. 

Like EqualLogic, all of our recent acquisitions help drive one or more of our strategic initiatives - Consumer, Emerging Markets, Mobility, Enterprise, and Small-Medium Business - while helping position Dell for long term, profitable growth. For example, EqualLogic's technology will augment our current storage portfolio and enhance our midmarket iSCSI offerings, while its relationships will expand our customer base in SMB (which is part of our heritage) & channel partnerships. Then there's ASAP, which we announced an agreement to acquire in August of '07, whose software management tools will bolster our S&P offerings and improve account retention. Other recent acquisitions - such as Silverback Technologies (remote monitoring and management technology) and Zing (mobile audio and entertainment) - will better position the company for growth in the consumer, mobile, and enterprise markets.

As a company that has traditionally relied on organic growth, we're excited about acquisitions that make sense for our business.  Ultimately, each one of these companies will help us provide increased value to our customers and grow our business. Be sure, we've been listening to what you've had to say; we're committed to strengthening and expanding the growth opportunities for both EqualLogic and Dell.

We encourage you to share your thoughts about EqualLogic, other recent acquisitions, and our acquisition strategy overall.