Dell Technologies Inc.

Previous wording

•Infrastructure Solutions Group (“ISG”) — ISG includes our servers and networking offerings and our storage offerings. Our server portfolio includes high-performance general-purpose and AI-optimized servers. Our networking portfolio includes wide area network infrastructure, data center and edge networking switches, and cables and optics. Our comprehensive storage portfolio includes modern and traditional storage solutions, including all-flash arrays, scale-out file, object platforms, hyper-converged infrastructure, and software-defined storage. ISG also offers software, peripherals, and services, including consulting and support and deployment.

Current wording

•Infrastructure Solutions Group (“ISG”) — ISG includes our servers and networking offerings and our storage offerings. Our server portfolio includes high-performance general-purpose and AI-optimized servers. Our networking portfolio includes wide area network infrastructure, data center and edge networking switches, and cables and optics. Our comprehensive storage portfolio includes modern and traditional storage solutions that span primary, unstructured and data protection offerings and are delivered through multiple architectures, including all-flash, purpose-built, software-defined and hyper-converged infrastructure platforms. ISG also offers software, peripherals, and services, including consulting and support and deployment.

Previous wording

Our other businesses primarily consist of our historical resale of standalone offerings of VMware LLC (formerly VMware, Inc. and individually and together with its subsidiaries, “VMware”), referred to as “VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”) through the date of the sale of Secureworks as discussed below. These businesses are divested businesses or their offerings are no longer actively sold, and are not classified as reportable segments, either individually or collectively. Their operating results are reported within Corporate and other. On February 3, 2025, the sale of Secureworks to Sophos Inc., an affiliate of Thoma Bravo, L.P., was completed in an all-cash transaction for a purchase price of approximately $0.9 billion. We received total cash consideration for the equity interest held in Secureworks of approximately $0.6 billion, resulting in a gain on sale recorded of $0.2 billion recognized in interest and other, net in the Condensed Consolidated Statements of Income during the six months ended August 1, 2025.

Current wording

Our other businesses primarily consist of our historical resale of standalone offerings of VMware LLC (formerly VMware, Inc. and individually and together with its subsidiaries, “VMware”), referred to as “VMware Resale,” and offerings of SecureWorks Corp. (“Secureworks”) through the date of the sale of Secureworks as discussed below. These businesses are divested businesses or their offerings are no longer actively sold, and are not classified as reportable segments, either individually or collectively. Their operating results are reported within Corporate and other. On February 3, 2025, the sale of Secureworks to Sophos Inc., an affiliate of Thoma Bravo, L.P., was completed in an all-cash transaction for a purchase price of approximately $0.9 billion. We received total cash consideration for the equity interest held in Secureworks of approximately $0.6 billion, resulting in a gain on sale recorded of $0.2 billion recognized in interest and other, net in the Condensed Consolidated Statements of Income during the nine months ended October 31, 2025.

Previous wording

During the second quarter and first six months of Fiscal 2026, we executed our strategy with strong operating results, generating overall net revenue and operating income growth. The following trends and conditions affected the environment in which we operated:

Current wording

During the third quarter and first nine months of Fiscal 2026, we executed our strategy with strong operating results, generating overall net revenue and operating income growth. The following trends and conditions affected the environment in which we operated:

Previous wording

•Macroeconomic environment: Demand significantly increased for our AI-optimized server offerings, resulting in ISG net revenue growth and a shift in the mix of the business towards our ISG offerings. Additionally, we experienced moderate net revenue growth in our traditional servers and networking offerings and commercial offerings, although demand moderated in our domestic market as customers reevaluated spending in the current macroeconomic environment.

Current wording

•Macroeconomic environment: We experienced continued significant demand for our AI-optimized server offerings, resulting in ISG net revenue growth and a shift in the mix of the business towards our ISG offerings. Additionally, the demand environment remained strong for our traditional servers and networking offerings and commercial offerings, for which we saw sequential improvement in our domestic market.

Previous wording

•Demand of AI-optimized solutions: Our ISG business continued to benefit from significant increased demand for AI-optimized solutions as customers continue to adopt and further integrate AI. While backlog levels remain elevated compared to the prior year, significant shipments in the current quarter resulted in a sequential backlog decline. Given the scale of the AI opportunities, the varying stages of customer readiness, and the frequency of component part updates or transitions, there is inherent non-linearity in the timing of demand and subsequent shipments for our AI-optimized server offerings, which continues to drive variability in our revenue.

Current wording

•Demand of AI-optimized solutions: Our ISG business continued to benefit from significant increased demand for AI-optimized solutions as customers continue to adopt and further integrate AI, which resulted in significant backlog levels that remained elevated as we exited the quarter. Given the scale of the AI opportunities, the varying stages of customer readiness, and the frequency of component part updates or transitions, there is inherent non-linearity in the timing of demand and subsequent shipments for our AI-optimized server offerings, which continues to drive variability in our revenue.

Previous wording

•Technology refresh in core markets: Within our CSG business, the PC refresh cycle is underway as customers have begun upgrading their devices, which has contributed to increased demand for our commercial offerings and modest CSG net revenue growth. Additionally, within our ISG business, we continue to see customers modernize and consolidate their data centers as more customers transition to next-generation products, which has contributed to moderate net revenue growth within our traditional servers and networking offerings.

Current wording

•Technology refresh in core markets: Within our CSG business, the PC refresh cycle is underway as customers continue to upgrade their devices, which has contributed to increased demand for our commercial offerings and modest CSG net revenue growth. Additionally, within our ISG business, we continue to see customers modernize and consolidate their data centers as more customers transition to next-generation products, which has contributed to strong demand and moderate net revenue growth during the year within our traditional servers and networking offerings.

Previous wording

We expect net revenue growth for the full fiscal year driven by ISG and CSG net revenue, most notably within ISG. We expect ISG net revenue growth driven by demand growth across our servers and networking offerings, largely in our AI-optimized server offerings. While we expect overall ISG net revenue growth, we anticipate demand moderation to persist into the second half of the year within our traditional servers and networking offerings and storage offerings as customers within our domestic market continue to reevaluate IT spending behavior due to uncertainty in the macroeconomic environment. We expect modest CSG net revenue growth driven in part by the continuation of the PC refresh cycle. Additionally, we expect a continued reduction of our Corporate and other net revenue driven by offerings that are no longer actively sold and businesses that have been divested.

Current wording

For both the fourth quarter and the full fiscal year, we expect ISG and CSG net revenue growth, most notably within ISG. We expect that ISG net revenue growth will be driven by increased demand across our servers and networking offerings, largely in our AI-optimized server offerings. We expect modest CSG net revenue growth to be driven in part by the continuation of the PC refresh cycle. Additionally, we expect a continued reduction of our Corporate and other net revenue due to offerings that are no longer actively sold and businesses that have been divested.

Previous wording

We remain focused on executing our key strategic priorities, creating long-term value for our stakeholders, and addressing our customers’ needs while continuing to make prudent decisions in response to the environment. We expect margin growth for the full fiscal year, while balancing anticipated margin rate pressure resulting from a continuing shift in mix towards our AI-optimized servers and a competitive environment. We look to balance profitability and growth while maintaining disciplined pricing as we navigate through competitive pricing pressures.

Current wording

We expect margin growth for both the fourth quarter and the full fiscal year, while balancing anticipated margin rate pressure resulting from a continuing shift in mix towards our AI-optimized servers and a competitive environment. We continue to monitor the commodity supply environment and anticipate increased inflation for component costs, with a modest increase in input costs expected for the remainder of Fiscal 2026 and more notable dynamics expected for Fiscal 2027. We continue to leverage the agility and scale of our world-class supply chain and seek to balance profitability and growth while maintaining disciplined pricing as we navigate through competitive pricing pressures. We remain focused on executing our key strategic priorities, creating long-term value for our shareholders, and addressing our customers’ needs.

Previous wording

We continue to advance our own capabilities to change the way we work and make decisions, improve business outcomes and the customer experience, and reduce costs by leveraging new technology and optimizing business processes. We remain committed to disciplined cost management in coordination with our ongoing business modernization initiatives and expect continued reductions in operating expenses as we take targeted measures to reduce costs, including employee reorganizations, limitation of external hiring, and other actions to align our investments with our strategic priorities and customer needs. We anticipate these actions will result in additional reductions in our overall headcount. We believe our unique operating advantages provide a foundation to foster business growth, enable innovation, drive efficiencies, and continue to position us for long-term success.

Current wording

We continue to advance our own capabilities to change the way we work and make decisions, improve business outcomes and the customer experience, and reduce costs by leveraging new technology and optimizing business processes. We remain committed to disciplined cost management in coordination with our ongoing business modernization initiatives, and expect to continue to scale operating expenses as we take targeted measures to reduce costs, including employee reorganizations, limitation of external hiring, and other actions to align our investments with our strategic priorities and customer needs. We anticipate these actions will result in additional reductions in our overall headcount. We believe our unique operating advantages provide a foundation to foster business growth, enable innovation, drive efficiencies, and continue to position us for long-term success.

Previous wording

Relationship with VMware — On March 25, 2024, we terminated our Commercial Framework Agreement with VMware, whereby we acted as a distributor of Broadcom Inc.’s VMware standalone products and services. We no longer act as a distributor of such products and services, although we continue to support customers that have purchased resale offerings sold in prior periods. We continue to integrate and embed certain VMware products and services with our VxRail solution to end-user customers. The results for this integrated offering are reflected within ISG.

Current wording

Relationship with VMware — On March 25, 2024, we terminated our Commercial Framework Agreement with VMware, whereby we acted as a distributor of Broadcom Inc.’s VMware standalone products and services. We no longer act as a distributor of such products and services, although we continue to support customers that have purchased resale offerings sold in prior periods. We continue to integrate and embed certain VMware products and services with our VxRail solution for end-user customers. The results for this integrated offering are reflected within ISG.

Previous wording

We expect that growth in data will continue to generate long-term demand for our storage solutions and services. Cloud native applications are expected to continue to be a key trend in the infrastructure market. We continue to expand our offerings in external storage arrays, which incorporate flexible, cloud-based functionality. We benefit from offering solutions that address software-defined storage, hyper-converged infrastructure, and modular solutions based on server-centric architectures. Our storage business is subject to seasonal trends, which may continue to impact ISG results.

Current wording

We expect that growth in data will continue to generate long-term demand for our storage solutions and services. We continue to expand our offerings in external storage arrays, which incorporate flexible, cloud-based functionality. We benefit from offering solutions that provide the foundation for AI, enabling organizations to store, protect, and manage data across environments for both traditional and AI workloads. Our storage business is subject to seasonal trends, which may continue to impact ISG results.

Previous wording

Competitive dynamics remain an important factor in our CSG business and continue to impact pricing and operating results. We are committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio. We expect that the CSG demand environment will be subject to seasonal trends and will continue to be influenced by the PC refresh cycle.

Current wording

Competitive dynamics remain an important factor in our CSG business and continue to impact pricing and operating results. We are committed to our long-term CSG strategy and will continue to make investments to innovate across the portfolio. We expect that the CSG demand environment will continue to be subject to seasonal trends and to be influenced by the PC refresh cycle.

Previous wording

Foreign Currency Exposure — We manage our business on a U.S. Dollar basis. However, we have a large global presence, generating approximately 40% and 45% of our net revenue from sales to customers outside of the United States during the second quarter and first six months of Fiscal 2026, respectively, and 50% during both the second quarter and first six months of Fiscal 2025. As a result, our operating results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates. We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.

Current wording

Foreign Currency Exposure — We manage our business on a U.S. Dollar basis. However, we have a large global presence, generating approximately 40% and 45% of our net revenue from sales to customers outside of the United States during the third quarter and first nine months of Fiscal 2026, respectively, and 50% during both the third quarter and first nine months of Fiscal 2025. As a result, our operating results can be, and particularly in recent periods have been, impacted by fluctuations in foreign currency exchange rates. We utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time, and we adjust pricing when possible to further minimize foreign currency impacts.

Previous wording

Other Macroeconomic Risks and Uncertainties — During the first six months of Fiscal 2026, a number of countries, including the United States, imposed or proposed tariffs on imports, and may continue to do so. The impacts of trade protection measures, including increases or changes in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility, and global macroeconomic conditions, or uncertainty regarding the impact of proposed or future trade protection measures, may affect our results of operations in some markets. We continue to leverage the agility and scale of our world-class supply chain to mitigate impacts of tariffs and will continue to respond to changing market conditions as needed.

Current wording

Other Macroeconomic Risks and Uncertainties — During the first nine months of Fiscal 2026, a number of countries, including the United States, imposed or proposed tariffs on imports, and may continue to do so. The impacts of trade protection measures, including increases or changes in tariffs and trade barriers, changes in government policies and international trade arrangements, geopolitical volatility, and global macroeconomic conditions, or uncertainty regarding the impact of proposed or future trade protection measures, may affect our results of operations in some markets. We continue to leverage the agility and scale of our world-class supply chain to mitigate impacts of tariffs and will continue to respond to changing market conditions as needed.

Previous wording

•Other Corporate Expenses — Other corporate expenses consist primarily of severance expenses, transaction-related impacts on the sales of businesses, payroll taxes associated with stock-based compensation, incentive charges related to equity investments, transaction-related expenses, facility action costs, and impairment charges. Severance costs are primarily related to severance and benefits for employees impacted by cost management initiatives. During the first six months of Fiscal 2026 and Fiscal 2025, we recognized $0.3 billion and $0.4 billion, respectively, of severance expense related to workforce reduction activities. During the first six months of Fiscal 2026, we recognized a $0.2 billion gain related to the sale of Secureworks. Although we may incur these types of items in the future, we exclude other corporate expenses as they can vary from period to period, are significantly impacted by the timing and nature of these events, and are not used by management in assessing operating performance of the business.

Current wording

•Other Corporate Expenses — Other corporate expenses consist primarily of severance expenses, transaction-related impacts on the sales of businesses, payroll taxes associated with stock-based compensation, incentive charges related to equity investments, transaction-related expenses, facility action costs, and impairment charges. Severance costs are primarily related to severance and benefits for employees impacted by cost management initiatives. During the first nine months of Fiscal 2026 and Fiscal 2025, we recognized $0.4 billion and $0.6 billion, respectively, of severance expense related to workforce reduction activities. During the first nine months of Fiscal 2026, we recognized a $0.2 billion gain related to the sale of Secureworks. Although we may incur these types of items in the future, we exclude other corporate expenses as they can vary from period to period, are significantly impacted by the timing and nature of these events, and are not used by management in assessing operating performance of the business.

Previous wording

•Aggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments described above and determined based on the tax jurisdictions where those adjustments were incurred, as well as an adjustment for discrete tax items. During the first six months of Fiscal 2025, the aggregate adjustment for income taxes included discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain U.S. statutes of limitations and $0.2 billion related to stock-based compensation. We exclude these benefits or charges for purposes of calculating non-GAAP net income due to the variability in recognition of discrete tax items from period to period. The tax effects are determined based on the tax jurisdictions where the above items were incurred. See Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information about our income taxes. Our non-GAAP income tax was calculated using a fixed estimated annual tax rate that is determined based on historical trends and projections for the current fiscal year. We may adjust our estimated annual tax rate during the fiscal year to take into account events that would significantly impact our income tax expense, including significant changes resulting from tax legislation, material changes in geographic mix of net revenue and expenses, changes to our corporate structure, and other significant events.

Current wording

•Aggregate Adjustment for Income Taxes — The aggregate adjustment for income taxes is the estimated combined income tax effect for the adjustments described above and determined based on the tax jurisdictions where those adjustments were incurred, as well as an adjustment for discrete tax items. During the first nine months of Fiscal 2025, the aggregate adjustment for income taxes included discrete tax benefits of $0.4 billion related to changes in uncertain tax benefits resulting from the expiration of certain U.S. statutes of limitations and $0.2 billion related to stock-based compensation. We exclude these benefits or charges for purposes of calculating non-GAAP net income due to the variability in recognition of discrete tax items from period to period. The tax effects are determined based on the tax jurisdictions where the above items were incurred. See Note 11 of the Notes to the Condensed Consolidated Financial Statements included in this report for additional information about our income taxes. Our non-GAAP income tax was calculated using a fixed estimated annual tax rate that is determined based on historical trends and projections for the current fiscal year. We may adjust our estimated annual tax rate during the fiscal year to take into account events that would significantly impact our income tax expense, including significant changes resulting from tax legislation, material changes in geographic mix of net revenue and expenses, changes to our corporate structure, and other significant events.

Previous wording

In addition to the above measures, we use free cash flow and adjusted free cash flow as non-GAAP liquidity measures to evaluate our performance. As presented in the following table, we define free cash flow as cash flow from operations after excluding capital expenditures and capitalized software costs, net. To measure adjusted free cash flow, we exclude the impact of financing receivables and equipment under operating leases from free cash flow, as the initial funding of these DFS offerings at the time of origination is largely subsequently replaced with cash inflows from our DFS debt, the majority of which is asset-backed.

Current wording

In addition to the above measures, we use free cash flow and adjusted free cash flow as non-GAAP liquidity measures to evaluate our performance. As presented in the following table, we define free cash flow as cash flow from operations after excluding capital expenditures and capitalized software development costs, net. To measure adjusted free cash flow, we exclude the impact of financing receivables and equipment under operating leases from free cash flow, as the initial funding of these DFS offerings at the time of origination is largely subsequently replaced with cash inflows from our DFS debt, the majority of which is asset-backed.

Previous wording

During the second quarter and first six months of Fiscal 2026, net revenue increased by 19% and 12%, respectively, driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other net revenue. The increase in ISG net revenue was driven by growth in our servers and networking offerings. Corporate and other net revenue declined primarily due to a decrease in VMware Resale revenue as we no longer act as a distributor of standalone VMware offerings. During the first six months of Fiscal 2026, the increase in net revenue was also attributable to an increase in CSG net revenue driven by an increase in sales of our commercial offerings.

Current wording

During the third quarter and first nine months of Fiscal 2026, net revenue increased by 11% and 12%, respectively, driven by an increase in ISG net revenue and, to a lesser extent, CSG net revenue that was partially offset by a decrease in Corporate and other net revenue. The increase in ISG net revenue was driven by growth in our servers and networking offerings. The increase in CSG net revenue was attributable to an increase in sales of our commercial offerings. Corporate and other net revenue declined primarily due to a decrease in VMware Resale revenue, as we no longer act as a distributor of standalone VMware offerings.

Previous wording

During the second quarter of Fiscal 2026, operating income and non-GAAP operating income increased by 27% to $1.8 billion and 10% to $2.3 billion, respectively. During the first six months of Fiscal 2026, operating income and non-GAAP operating income increased by 25% to $2.9 billion and 10% to $4.0 billion, respectively. The increases for both periods were primarily attributable to an increase in ISG operating income that was driven primarily by our storage offerings and, to a lesser extent, our servers and networking offerings.

Current wording

During the third quarter of Fiscal 2026, operating income and non-GAAP operating income increased by 23% to $2.1 billion and 11% to $2.5 billion, respectively. During the first nine months of Fiscal 2026, operating income and non-GAAP operating income increased by 24% to $5.1 billion and 10% to $6.5 billion, respectively. The increases for both periods were primarily attributable to an increase in ISG operating income that was driven primarily by our storage offerings and, to a lesser extent, our servers and networking offerings.

Previous wording

During the second quarter and first six months of Fiscal 2026, operating income as a percentage of net revenue increased 40 basis points to 6.0% and 50 basis points to 5.5%, respectively. During the second quarter and first six months of Fiscal 2026, non-GAAP operating income as a percentage of net revenue decreased 60 basis points to 7.7% and 20 basis points to 7.4%, respectively. Operating income and non-GAAP operating income as a percentage of net revenue during both the second quarter and first six months of Fiscal 2026 were impacted by a decline in gross margin rate as a result of a shift in mix towards our AI-optimized server offerings. The decline in gross margin rate was largely offset by the favorable impact of a decline in operating expense rate as a result of strong net revenue growth coupled with continued disciplined cost management. During both periods, operating income as a percentage of net revenue was further impacted by lower other corporate expenses.

Current wording

During the third quarter and first nine months of Fiscal 2026, operating income as a percentage of net revenue increased 70 basis points to 7.8% and 60 basis points to 6.3%, respectively. During the third quarter and first nine months of Fiscal 2026, non-GAAP operating income as a percentage of net revenue increased 10 basis points to 9.3% and decreased 10 basis points to 8.1%, respectively. Operating income and non-GAAP operating income as a percentage of net revenue during both the third quarter and first nine months of Fiscal 2026 benefitted from the favorable impact of a decline in operating expense rate as a result of strong net revenue growth coupled with continued disciplined cost management. The favorable impact of operating expense rate was largely offset by a decline in gross margin rate as a result of a shift in mix towards our AI-optimized server offerings. During the first nine months of Fiscal 2026, operating income as a percentage of net revenue was further impacted by lower other corporate expenses.

Previous wording

Cash provided by operating activities was $5.3 billion during the first six months of Fiscal 2026 and was driven by net revenue growth, profitability, and working capital dynamics. Working capital was primarily impacted by increased demand for our AI-optimized server offerings, which led to higher accounts payable, accounts receivable, and inventory levels. During the first six months of Fiscal 2025, cash provided by operating activities was $2.4 billion and was driven by profitability, partially offset by working capital dynamics primarily due to growth in our AI-optimized server offerings. See “Liquidity, Cash Requirements, and Market Conditions” for additional information about our cash flow metrics.

Current wording

Cash provided by operating activities was $6.5 billion during the first nine months of Fiscal 2026 and was driven by net revenue growth and profitability, partially offset by higher financing receivables and working capital levels, both of which were primarily impacted by increased demand for our AI-optimized server offerings. During the first nine months of Fiscal 2025, cash provided by operating activities was $3.9 billion and was driven by profitability, partially offset by working capital dynamics. Working capital during the Fiscal 2025 period was primarily impacted by AI dynamics, which led to higher inventory, accounts receivable, and accounts payable levels. See “Liquidity, Cash Requirements, and Market Conditions” for additional information about our cash flow metrics.

Previous wording

During the second quarter and first six months of Fiscal 2026, net revenue increased 19% and 12%, respectively, primarily driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other net revenue. During the first six months of Fiscal 2026, the increase in net revenue was also attributable to an increase in CSG net revenue. See “Business Unit Results” for further information.

Current wording

During the third quarter and first nine months of Fiscal 2026, net revenue increased 11% and 12%, respectively, driven by an increase in ISG net revenue and, to a lesser extent, CSG net revenue that was partially offset by a decrease in Corporate and other net revenue. See “Business Unit Results” for further information.

Previous wording

•Product Net Revenue — Product net revenue includes revenue from the sale of hardware products and software licenses. During the second quarter and first six months of Fiscal 2026, product net revenue increased 26% and 18%, respectively, due to an increase in ISG product net revenue driven by growth in our servers and networking offerings. During the first six months of Fiscal 2026, the increase in product net revenue was also driven to a lesser extent by an increase in CSG product revenue. The increase in CSG product net revenue reflected growth in our commercial offerings, partially offset by lower demand for our consumer offerings.

Current wording

•Product Net Revenue — Product net revenue includes revenue from the sale of hardware products and software licenses. During the third quarter and first nine months of Fiscal 2026, product net revenue increased 16% and 18%, respectively, due to an increase in ISG product net revenue and, to a lesser extent, CSG product net revenue. The increase in ISG product net revenue was driven by growth in our servers and networking offerings. The increase in CSG product net revenue reflected growth in our commercial offerings during both periods, which was partially offset by lower demand for our consumer offerings during the first nine months of Fiscal 2026.

Previous wording

•Services Net Revenue — Services net revenue includes revenue from our services offerings and support services related to hardware products and software licenses. During the second quarter and first six months of Fiscal 2026, services net revenue decreased 4% and 5%, respectively, due to a decline in Corporate and other services net revenue, as we no longer act as a distributor of standalone VMware offerings.

Current wording

•Services Net Revenue — Services net revenue includes revenue from our services offerings and support services related to hardware products and software licenses. During both the third quarter and first nine months of Fiscal 2026, services net revenue decreased 5% due to a decline in Corporate and other services net revenue, as we no longer act as a distributor of standalone VMware offerings. During the first nine months of Fiscal 2026, this decrease was partially offset by growth within services net revenue attributable to ISG and CSG, which was driven by support and maintenance associated with products sold in prior periods within both CSG and ISG and higher AI-optimized server offerings within ISG.

Previous wording

From a geographical perspective, net revenue increased in the Americas, driven by our AI-optimized server offerings, and, to a lesser extent, EMEA and APJ during the second quarter and first six months of Fiscal 2026.

Current wording

From a geographical perspective, net revenue increased in the Americas, driven by our AI-optimized server offerings, and, to a lesser extent, EMEA during the third quarter and first nine months of Fiscal 2026. Net revenue decreased in APJ during the third quarter of Fiscal 2026 and remained flat during the first nine months of Fiscal 2026.

Previous wording

During the second quarter of Fiscal 2026, gross margin and non-GAAP gross margin increased 2% to $5.4 billion and 1% to $5.6 billion, respectively, driven by an increase in ISG gross margin that was primarily attributable to growth in our servers and networking offerings. During the first six months of Fiscal 2026 gross margin and non-GAAP gross margin increased 2% to $10.4 billion and 1% to $10.6 billion, respectively, driven by an increase in ISG gross margin that was primarily attributable to growth in our storage offerings and servers and networking offerings.

Current wording

During the third quarter of Fiscal 2026, gross margin and non-GAAP gross margin increased 4% to $5.6 billion and 4% to $5.7 billion, respectively, primarily due to an increase in ISG gross margin that was driven by growth in our AI-optimized server offerings and our core storage offerings. During the first nine months of Fiscal 2026, gross margin and non-GAAP gross margin increased 3% to $16.0 billion and 2% to $16.3 billion, respectively, primarily due to an increase in ISG gross margin that was driven by growth in our core storage offerings and our AI-optimized server offerings.

Previous wording

During the second quarter of Fiscal 2026, gross margin and non-GAAP gross margin percentage decreased 310 basis points to 18.3% and 330 basis points to 18.7%, respectively. During the first six months of Fiscal 2026, gross margin and non-GAAP gross margin percentage decreased 210 basis points to 19.5% and 220 basis points to 20.0%, respectively. The decreases in gross margin percentage and non-GAAP gross margin percentage were primarily driven by a shift in mix towards our AI-optimized server offerings.

Current wording

During the third quarter of Fiscal 2026, gross margin and non-GAAP gross margin percentage decreased 130 basis points to 20.7% and 140 basis points to 21.1%, respectively. During the first nine months of Fiscal 2026, gross margin and non-GAAP gross margin percentage decreased 180 basis points to 19.9% and 190 basis points to 20.4%, respectively. The decreases in gross margin percentage and non-GAAP gross margin percentage were primarily driven by a shift in mix towards our AI-optimized server offerings.

Previous wording

•Product Gross Margin — During the second quarter of Fiscal 2026, product gross margin and non-GAAP product gross margin decreased 1% to $2.9 billion and 2% to $3.0 billion, respectively. During the first six months of Fiscal 2026, product gross margin and non-GAAP product gross margin increased 1% to $5.4 billion and remained flat at $5.5 billion, respectively.

Current wording

•Product Gross Margin — During the third quarter of Fiscal 2026, product gross margin and non-GAAP product gross margin increased 6% to $3.0 billion and 5% to $3.0 billion, respectively. During the first nine months of Fiscal 2026, product gross margin and non-GAAP product gross margin increased 3% to $8.4 billion and 2% to $8.5 billion, respectively. The increases in product gross margin and non-GAAP product gross margin were primarily attributable to an increase in ISG product gross margin due to the mix in our storage offerings.

Previous wording

During the second quarter of Fiscal 2026, product gross margin percentage and non-GAAP product gross margin percentage decreased 330 basis points to 12.1% and 350 basis points to 12.3%, respectively. During the first six months of Fiscal 2026, product gross margin percentage and non-GAAP product gross margin percentage decreased 230 basis points to 12.9% and 240 basis points to 13.2%, respectively. The decreases for both periods were primarily attributable to a shift in mix towards our AI-optimized server offerings.

Current wording

During the third quarter of Fiscal 2026, product gross margin percentage and non-GAAP product gross margin percentage decreased 130 basis points to 14.0% and 140 basis points to 14.3%, respectively. During the first nine months of Fiscal 2026, product gross margin percentage and non-GAAP product gross margin percentage decreased 190 basis points to 13.3% and 210 basis points to 13.6%, respectively. The decreases for both periods were primarily attributable to a shift in mix towards our AI-optimized server offerings.

Previous wording

•Services Gross Margin — During the second quarter of Fiscal 2026, services gross margin and non-GAAP services gross margin increased 5% and 4%, respectively, to $2.6 billion. During the first six months of Fiscal 2026, services gross margin and non-GAAP services gross margin increased 3% to $5.0 billion and 2% to $5.1 billion, respectively. The increases for both periods were primarily attributable to an increase in ISG services gross margin primarily driven by higher AI-optimized server offerings and hardware support and maintenance associated with products sold in prior periods.

Current wording

•Services Gross Margin — During the third quarter of Fiscal 2026, services gross margin and non-GAAP services gross margin increased 2% to $2.6 billion and 2% to $2.7 billion, respectively. During the first nine months of Fiscal 2026, services gross margin and non-GAAP services gross margin increased 3% to $7.6 billion and 2% to $7.8 billion, respectively. The increases for both periods were principally attributable to an increase in ISG services gross margin, which was primarily driven by higher AI-optimized server offerings and hardware support and maintenance associated with products sold in prior periods.

Previous wording

During the second quarter of Fiscal 2026, services gross margin percentage and non-GAAP services gross margin percentage increased 370 basis points to 43.8% and 360 basis points to 44.9%, respectively. During the first six months of Fiscal 2026, services gross margin percentage and non-GAAP services gross margin percentage increased 310 basis points to 43.1% and 290 basis points to 44.1%, respectively. The increases for both periods were primarily driven by a shift in mix, as we no longer act as a distributor of standalone VMware offerings.

Current wording

During the third quarter of Fiscal 2026, services gross margin percentage and non-GAAP services gross margin percentage increased 340 basis points to 45.5% and 310 basis points to 46.1%, respectively. During the first nine months of Fiscal 2026, services gross margin percentage and non-GAAP services gross margin percentage increased 320 basis points to 43.9% and 300 basis points to 44.8%, respectively. The increases for both periods were primarily driven by a shift in mix, as we no longer act as a distributor of standalone VMware offerings.

Previous wording

The terms and conditions of our vendor rebate programs are largely based on product volumes and are generally negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing and amount of vendor rebates and other discounts we receive under the programs may vary from period to period, reflecting changes in the competitive environment. We monitor our component costs and seek to address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross margins for the second quarter and first six months of Fiscal 2026 were not materially affected by any changes to the terms of our vendor rebate programs, as the amounts we received under these programs were generally stable relative to our total net cost. We are not aware of any significant changes to our vendor rebate programs that will materially impact our results in the near term.

Current wording

The terms and conditions of our vendor rebate programs are largely based on product volumes and are generally negotiated either at the beginning of the annual or quarterly period, depending on the program. The timing and amount of vendor rebates and other discounts we receive under the programs may vary from period to period, reflecting changes in the competitive environment. We monitor our component costs and seek to address the effects of any changes to terms that might arise under our vendor rebate programs. Our gross margins for the third quarter and first nine months of Fiscal 2026 were not materially affected by any changes to the terms of our vendor rebate programs, as the amounts we received under these programs were generally stable relative to our total net cost. We are not aware of any significant changes to our vendor rebate programs that will materially impact our results in the near term.

Previous wording

During the second quarter and first six months of Fiscal 2026, total operating expenses decreased 7% and 5%, respectively, due to a decline in selling, general, and administrative (“SG&A”) expenses.

Current wording

During both the third quarter and first nine months of Fiscal 2026, total operating expenses decreased 5% primarily due to a decline in selling, general, and administrative (“SG&A”) expenses.

Previous wording

•Selling, General, and Administrative — During the second quarter and first six months of Fiscal 2026, SG&A expenses decreased 9% and 7%, respectively, driven by a decrease in employee compensation and benefits expense that primarily resulted from a decline in overall headcount.

Current wording

•Selling, General, and Administrative — During the third quarter and first nine months of Fiscal 2026, SG&A expenses decreased 6% and 7%, respectively, driven by a decrease in employee compensation and benefits expense that primarily resulted from a decline in overall headcount.

Previous wording

•Research and Development —Research and development (“R&D”) expenses are primarily composed of personnel-related expenses incurred in connection with product development. R&D expenses increased 1% and 3% during the second quarter and first six months of Fiscal 2026, respectively, principally due to continued support of R&D initiatives.

Current wording

•Research and Development —Research and development (“R&D”) expenses are primarily composed of personnel-related expenses incurred in connection with product development. R&D expenses increased 1% and 2% during the third quarter and first nine months of Fiscal 2026, respectively, principally due to continued support of investments in R&D initiatives.

Previous wording

As a percentage of net revenue, R&D expenses for the second quarter of Fiscal 2026 and Fiscal 2025 were 2.6% and 3.1%, respectively, and for the first six months of Fiscal 2026 and Fiscal 2025 were 3.0% and 3.3%, respectively. We continue to support R&D initiatives to innovate and introduce new and enhanced solutions into the market.

Current wording

As a percentage of net revenue, R&D expenses for the third quarter of Fiscal 2026 and Fiscal 2025 were 2.8% and 3.1%, respectively, and for the first nine months of Fiscal 2026 and Fiscal 2025 were 2.9% and 3.2%, respectively. We continue to support R&D initiatives to innovate and introduce new and enhanced solutions into the market.

Previous wording

During the second quarter and first six months of Fiscal 2026, non-GAAP operating expenses decreased 4% and 3%, respectively, driven by a decline in employee compensation and benefits expense that primarily resulted from a decline in overall headcount. The decline in employee compensation and benefits expense was partially offset by continued support of R&D initiatives.

Current wording

During the third quarter and first nine months of Fiscal 2026, non-GAAP operating expenses decreased 2% and 3%, respectively, driven by a decline in employee compensation and benefits expense that primarily resulted from a decline in overall headcount. The decline in employee compensation and benefits expense was partially offset by continued support of investments in R&D initiatives.

Previous wording

During the second quarter of Fiscal 2026, operating income and non-GAAP operating income increased by 27% to $1.8 billion and 10% to $2.3 billion, respectively. During the first six months of Fiscal 2026, operating income and non-GAAP operating income increased by 25% to $2.9 billion and 10% to $4.0 billion, respectively. The increases for both periods were primarily attributable to an increase in ISG operating income that was driven primarily by our storage offerings and, to a lesser extent, our servers and networking offerings.

Current wording

During the third quarter of Fiscal 2026, operating income and non-GAAP operating income increased by 23% to $2.1 billion and 11% to $2.5 billion, respectively. During the first nine months of Fiscal 2026, operating income and non-GAAP operating income increased by 24% to $5.1 billion and 10% to $6.5 billion, respectively. The increases for both periods were primarily attributable to an increase in ISG operating income that was driven primarily by our storage offerings and, to a lesser extent, our servers and networking offerings.

Previous wording

During the second quarter and first six months of Fiscal 2026, operating income as a percentage of net revenue increased 40 basis points to 6.0% and 50 basis points to 5.5%, respectively. During the second quarter and first six months of Fiscal 2026, non-GAAP operating income as a percentage of net revenue decreased 60 basis points to 7.7% and 20 basis points to 7.4%, respectively. Operating income and non-GAAP operating income as a percentage of net revenue during both the second quarter and first six months of Fiscal 2026 were impacted by a decline in gross margin rate as a result of a shift in mix towards our AI-optimized server offerings. The decline in gross margin rate was largely offset by the favorable impact of a decline in operating expense rate as a result of strong net revenue growth coupled with continued disciplined cost management. During both periods, operating income as a percentage of net revenue was further impacted by lower other corporate expenses.

Current wording

During the third quarter and first nine months of Fiscal 2026, operating income as a percentage of net revenue increased 70 basis points to 7.8% and 60 basis points to 6.3%, respectively. During the third quarter and first nine months of Fiscal 2026, non-GAAP operating income as a percentage of net revenue increased 10 basis points to 9.3% and decreased 10 basis points to 8.1%, respectively. Operating income and non-GAAP operating income as a percentage of net revenue during both the third quarter and first nine months of Fiscal 2026 benefitted from the favorable impact of a decline in operating expense rate as a result of strong net revenue growth coupled with continued disciplined cost management. The favorable impact of operating expense rate was largely offset by a decline in gross margin rate as a result of a shift in mix towards our AI-optimized server offerings. During the first nine months of Fiscal 2026, operating income as a percentage of net revenue was further impacted by lower other corporate expenses.

Previous wording

During the second quarter of Fiscal 2026, the change in interest and other, net was favorable primarily due to an increase in investment income. During the first six months of Fiscal 2026, the change in interest and other, net was favorable primarily due to the gain on the sale of Secureworks and, to a lesser extent, the gains recognized within our strategic investments portfolio.

Current wording

During the third quarter of Fiscal 2026, the change in interest and other, net was favorable primarily due to gains recognized within our strategic investments portfolio, partially offset by increased interest expense. During the first nine months of Fiscal 2026, the change in interest and other, net was favorable primarily due to the gain on the sale of Secureworks and gains recognized within our strategic investments portfolio, partially offset by increased interest expense.