Dell Technologies Inc.

Previous wording

This management’s discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses Fiscal 2025 and Fiscal 2024 items. This section also discusses Fiscal 2024 and Fiscal 2023 results, as the Company revised its Fiscal 2024 items to correct for a misstatement in its financial statements discovered during the fourth quarter of Fiscal 2025. The revisions ensure comparability across all periods reflected herein. For additional information, see Note 1 and Note 22 of the Notes to the Consolidated Financial Statements included in this report.

Current wording

This management’s discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying Notes included in this Annual Report on Form 10-K. This section generally discusses Fiscal 2026 results compared to Fiscal 2025 results. Discussion of Fiscal 2025 results compared to Fiscal 2024 results, to the extent not included in this Form 10-K, are presented in “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2025.

Previous wording

Unless the context indicates otherwise, references in this report to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries, references to “Dell” mean Dell Inc. and Dell Inc.’s consolidated subsidiaries, and references to “EMC” mean EMC Corporation and EMC Corporation’s consolidated subsidiaries.

Current wording

Unless the context indicates otherwise, references in this management’s discussion and analysis to “we,” “us,” “our,” the “Company,” and “Dell Technologies” mean Dell Technologies Inc. and its consolidated subsidiaries.

Previous wording

Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ended January 31, 2025, February 2, 2024, and February 3, 2023 as “Fiscal 2025,” “Fiscal 2024,” and “Fiscal 2023,” respectively. Both Fiscal 2025 and Fiscal 2024 included 52 weeks, while Fiscal 2023 included 53 weeks.

Current wording

Our fiscal year is the 52- or 53-week period ending on the Friday nearest January 31. We refer to our fiscal years ended January 30, 2026, January 31, 2025, and February 2, 2024 as “Fiscal 2026,” “Fiscal 2025,” and “Fiscal 2024,” respectively. All fiscal years presented included 52 weeks. We refer to our fiscal year ending January 29, 2027 as “Fiscal 2027.”

Previous wording

•Client Solutions Group (“CSG”) — CSG includes offerings designed for commercial and consumer customers. Our CSG portfolio includes branded PCs, including notebooks, desktops, and workstations, branded peripherals, and third-party software and peripherals. CSG also includes services offerings, such as configuration, support and deployment, and extended warranties.

Current wording

Client Solutions Group (“CSG”) — Our CSG portfolio includes branded personal computers (“PCs”), including notebooks, desktops, and workstations, branded peripherals, and third-party software and peripherals. CSG also includes services offerings, such as configuration, support and deployment, and extended warranties. Our major product categories within CSG include our commercial offerings and consumer offerings.

Previous wording

Our other businesses primarily consist of our 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”). 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 October 21, 2024, Secureworks announced that it had entered into a definitive agreement providing for its sale to Sophos Inc., an affiliate of Thoma Bravo, L.P., a private equity and growth capital firm. The transaction was completed on February 3, 2025, subsequent to the close of the Company’s fiscal year ended January 31, 2025, in an all-cash transaction for a purchase price of approximately $0.9 billion.

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 of $0.2 billion recognized in interest and other, net in the Consolidated Statements of Income during Fiscal 2026.

Previous wording

We offer customers choice in how they acquire our solutions, including traditional purchasing and offerings under the Dell Payment Solutions portfolio. These offerings provide both payment and consumption solutions, including as-a-Service, subscription, utility, leases, and loans, which allow our customers to pay over time and provide them with operational and financial flexibility. Dell Financial Services and its affiliates (“DFS”) support financing solutions and services as part of the portfolio. For additional information about our financing arrangements, see Note 5 of the Notes to the Consolidated Financial Statements included in this report.

Current wording

We offer customers choices in how they acquire our solutions, including traditional purchasing and offerings under the Dell Payment Solutions portfolio. These offerings provide both payment and consumption solutions, including utility, subscription, as-a-Service, leases, and loans, which allow our customers to pay over time and provide them with operational and financial flexibility. Dell Financial Services and its affiliates (“DFS”) support financing solutions and services as part of the portfolio. For additional information about our financing arrangements, see Note 5 of the Notes to the Consolidated Financial Statements included in this report.

Previous wording

Fiscal 2025 Significant Developments — During Fiscal 2025, we executed our strategy with strong operating results, generating net revenue and operating income growth. The following trends and conditions affected the environment in which we operated:

Current wording

During Fiscal 2026, we executed our strategy and delivered exceptional operating results, generating significant net revenue and operating income growth. The following trends and conditions affected the environment in which we operated:

Previous wording

•Macroeconomic environment: The demand environment was strong for our servers and networking offerings, which contributed to overall net revenue growth. Additionally, we saw modest demand improvement in our commercial offerings within CSG. Given the demand dynamics for the year, we experienced a shift in the mix of the business towards our ISG offerings.

Current wording

•Macroeconomic environment: We experienced significant demand for our AI-optimized servers offerings and strong demand for our traditional servers and networking offerings, resulting in ISG net revenue growth and a shift in the mix of the business towards our ISG offerings. The demand environment was also strong for our commercial offerings, resulting in moderate CSG net revenue growth.

Previous wording

We expect demand growth across our servers and networking offerings and, to a lesser extent, our storage offerings, which we expect will result in ISG net revenue growth in Fiscal 2026. We expect modest CSG net revenue growth for the full fiscal year, driven in part by the anticipated PC refresh cycle in the latter part of Fiscal 2026. Additionally, we expect a continued reduction of our Corporate and other net revenue as we no longer act as a distributor of VMware’s standalone products and services.

Current wording

•Revenue: We expect significant ISG and modest CSG net revenue growth. We expect ISG net revenue growth will be driven by increased demand across our servers and networking offerings, largely in our AI-optimized servers offerings, and, to a lesser extent, our storage offerings. We anticipate 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. Overall, while customers continue to reassess their priorities throughout the year driven by the dynamic commodity supply environment, we anticipate net revenue growth for the full fiscal year.

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 certain measures to reduce costs, including limitation of external hiring, employee reorganizations, 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 growth, drive efficiencies, and continue to position us for long-term success.

Current wording

•Operating expenses: 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.

Previous wording

Relationship with VMware — On November 22, 2023, VMware was acquired by Broadcom, and subsequently announced changes to its go-to-market approach for VMware offerings that impacted our commercial relationship with VMware. On March 25, 2024, we terminated our Commercial Framework Agreement with VMware, which provided the framework under which we and VMware continued our commercial relationship following our spin-off of VMware on November 1, 2021. We no longer act as a distributor of Broadcom’s VMware standalone products and services, although we will 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 selected Dell Technologies’ offerings to end-users, such as through our VxRail solution. The results of such offerings are reflected within CSG or ISG, depending upon the nature of the underlying offering sold.

Current wording

Relationship with VMware — In March 2024, following the acquisition of VMware by Broadcom, we terminated our Commercial Framework Agreement with VMware, whereby we acted as a distributor of VMware standalone products and services. We no longer act as a distributor of those 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

VMware was a related party until the date of its acquisition by Broadcom. The acquisition terminated the preexisting related party relationship with VMware such that no related party relationship exists with either Broadcom or VMware effective as of November 22, 2023. For more information regarding the impact of the Broadcom acquisition of VMware and our prior related party transactions with VMware, see Note 19 of the Notes to the Consolidated Financial Statements included in this report.

Current wording

VMware was a related party until its acquisition by Broadcom on November 22, 2023. The acquisition terminated the preexisting related party relationship with VMware such that no related party relationship exists with either Broadcom or VMware effective as of November 22, 2023. For more information regarding the impact of the Broadcom acquisition of VMware and our prior related party transactions with VMware, see Note 19 of the Notes to the Consolidated Financial Statements included in this report.

Previous wording

ISG — We expect ISG will continue to be impacted by the evolving nature of the IT infrastructure market and competitive environment. With our scale and market-leading solutions portfolio, we believe we are well-positioned to address the ongoing competitive dynamics and trends in technology and customer needs. Through our collaborative, customer-focused approach to innovation, we strive to deliver new and relevant solutions and software to our customers quickly and efficiently. We continue to focus on customer base expansion and the lifetime value of customer relationships.

Current wording

ISG — We expect that ISG will be influenced by the dynamic nature of the IT infrastructure market and the competitive landscape. With our extensive scale and market-leading solutions portfolio, we believe we are well-positioned to navigate these competitive dynamics and evolving technology trends to meet customer needs. By leveraging our collaborative, customer-focused approach to innovation, we aim to deliver relevant new and next-generation solutions and software to our customers swiftly and efficiently. We remain focused on expanding our customer base and enhancing the lifetime value of our customer relationships.

Previous wording

We anticipate ISG will continue to benefit from technology advancements and interest in AI as customers continue to adopt and integrate AI into their operations. The timing of customer purchases reflects the varying stages of adoption of AI by different customer segments and drives variability in our revenue. To meet the growing demand and increasing complexity of our AI-optimized offerings, we have increased our purchases of certain components with suppliers, which has resulted in increased inventory levels, higher purchase obligations, and new working capital dynamics. Additionally, frequent component part updates or transitions create additional challenges in managing demand and supply levels. While we have seen lead times shorten, we anticipate the next-generation of these components will be subject to supply constraints as demand for these components remains high.

Current wording

We anticipate that ISG will continue to benefit from technology advancements and interest in AI as customers continue to adopt and integrate AI. The timing of customer purchases reflects the varying stages of adoption of AI by different customer segments and drives variability in our revenue. To meet the growing demand and increasing complexity of our AI-optimized servers offerings, we have increased our purchases of certain components with suppliers, which has resulted in increased inventory levels, higher purchase obligations, and new working capital dynamics. Additionally, frequent component part updates or transitions create additional challenges in managing demand and supply levels. While we have seen lead times shorten, we anticipate the next generation of these components, for which demand remains high, will be subject to supply constraints.

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

CSG —We participate in all segments of the PC market with a focus on commercial and high-end consumer computing devices, which we believe represent the most stable and profitable markets. We anticipate that CSG will benefit from advances in AI over the long-term as customers will require PCs with the ability to run their complex AI workloads.

Current wording

CSG —Our CSG offerings are an important element of our strategy, generating strong cash flow and opportunities for cross-selling of complementary solutions. We maintain a broad presence across all segments of the PC market. Our strategic focus is on driving share gain while balancing profitability across all segments, enhancing our product portfolio to address evolving customer needs, and expanding our presence across the broader PC ecosystem through branded peripherals. We anticipate that CSG will benefit from advances in AI over the long-term as customers will require PCs with the ability to run their complex AI workloads.

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 influenced by the timing and scale of the anticipated PC refresh cycle.

Current wording

Competitive dynamics remain an important factor in our CSG business and continue to influence 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

Recurring Revenue and Consumption Models — We expect that our flexible consumption models will further strengthen our customer relationships and provide a foundation for growth in recurring revenue. We define recurring revenue as revenue recognized that is primarily related to hardware and software maintenance, as well as operating leases, subscription, as-a-Service, and usage-based offerings.

Current wording

Recurring Revenue and Consumption Models — We expect that our flexible consumption models will further strengthen our customer relationships and provide a foundation for recurring revenue. We define recurring revenue as revenue recognized that is primarily related to hardware and software maintenance, as well as operating leases, subscription, as-a-Service, and usage-based offerings.

Previous wording

Foreign Currency Exposure — We manage our business on a U.S. Dollar basis. However, we have a large global presence, generating approximately half of our net revenue from sales to customers outside of the United States during Fiscal 2025 and Fiscal 2024. 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 45% and 50% of our net revenue from sales to customers outside of the United States during Fiscal 2026 and Fiscal 2025, respectively. 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

•Amortization of Intangible Assets — Amortization of intangible assets primarily consists of the amortization of customer relationships, developed technology, and trade names. In connection with our acquisition by merger of EMC, referred to as the “EMC merger transaction,” and the acquisition of Dell by Dell Technologies Inc., referred to as the “going-private transaction,” all of the tangible and intangible assets and liabilities of EMC and Dell, respectively, were accounted for and recognized at fair value on the transaction dates. We exclude amortization charges for the amortization of intangible assets as they do not reflect our current operating performance and charges are significantly impacted by the timing and magnitude of our acquisitions and, as a result, may vary in amount from period to period.

Current wording

•Amortization of Intangible Assets — Amortization of intangible assets primarily consists of the amortization of customer relationships, developed technology, and trade names. In connection with our acquisition by merger of EMC Corporation in 2016, all of the tangible and intangible assets and liabilities were accounted for and recognized at fair value on the transaction date. We exclude amortization charges for the amortization of intangible assets as they do not reflect our current operating performance and charges are significantly impacted by the timing and magnitude of our acquisitions and, as a result, may vary in amount from period to period.

Previous wording

•Stock-based Compensation Expense — Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of performance-based awards containing a market condition, we use the Monte Carlo valuation model. For other share-based awards, the fair value is generally based on the closing price of the Class C Common Stock as reported on the New York Stock Exchange on the date of grant. Although stock-based compensation is an important aspect of the compensation of our employees and executives, we exclude such expense because the fair value of the stock-based awards may fluctuate based on factors unrelated to the operating performance of the business and may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards.

Current wording

•Stock-based Compensation Expense — Stock-based compensation expense consists of equity awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of performance-based awards containing a market condition, we use the Monte Carlo valuation model. For other share-based awards, the fair value is generally based on the closing price of the Class C Common Stock as reported on the New York Stock Exchange on the date of grant or most recent preceding trading day if the grant date falls on a non-trading day. Although stock-based compensation is an important aspect of the compensation of our employees and executives, we exclude such expense because the fair value of the stock-based awards may fluctuate based on factors unrelated to the operating performance of the business and may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards.

Previous wording

•Other Corporate Expenses — Other corporate expenses consist primarily of severance expenses, payroll taxes associated with stock-based compensation, incentive charges related to equity investments, facility action costs, transaction-related expenses, and impairment charges. Severance costs are primarily related to severance and benefits for employees terminated pursuant to cost management initiatives. During Fiscal 2025, Fiscal 2024, and Fiscal 2023, we recognized $0.7 billion, $0.6 billion, and $0.5 billion, respectively, of severance expense related to workforce reduction activities. During Fiscal 2023, other corporate expenses also included $0.9 billion of net expense recognized within interest and other, net, in connection with an agreement to settle the Class V transaction litigation. See Note 11 of the Notes to the Consolidated Financial Statements included in this report for information about this matter. Transaction-related expenses typically consist of acquisition, integration, and divestitures related costs, primarily representing costs for legal, banking, consulting, and advisory services, and are expensed as incurred. Although we may incur these types of expenses 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 of 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 Fiscal 2026, Fiscal 2025, and Fiscal 2024, we recognized $0.6 billion, $0.7 billion, and $0.6 billion, respectively, of severance expense related to workforce reduction activities. During 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 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 12 of the Notes to the Consolidated Financial Statements included in this report for additional information about our income taxes. Beginning in Fiscal 2025, 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 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 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 12 of the Notes to the 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 related debt.

Previous wording

During Fiscal 2025, net revenue increased by 8%, driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other net revenue and, to a lesser extent, CSG 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. The decline in CSG net revenue was attributable to a decrease in sales of our consumer offerings.

Current wording

During Fiscal 2026, net revenue increased by 19% 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 primarily driven by growth in our AI-optimized servers offerings and, to a lesser extent, our traditional 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, and, to a lesser extent, the sale of Secureworks.

Previous wording

During Fiscal 2025, operating income and non-GAAP operating income increased by 15% to $6.2 billion and 8% to $8.5 billion, respectively. During Fiscal 2025, the increases in operating income and non-GAAP operating income were primarily attributable to an increase in ISG operating income that was driven by our servers and networking offerings and, to a lesser extent, our storage offerings, which was partially offset by a decrease in CSG operating income.

Current wording

During Fiscal 2026, operating income and non-GAAP operating income increased by 31% to $8.1 billion and 17% to $10.0 billion, respectively. The increases in operating income and non-GAAP operating income were primarily attributable to an increase in ISG operating income that was driven by our servers and networking offerings and our storage offerings.

Previous wording

Cash provided by operating activities was $4.5 billion during Fiscal 2025, and was driven by profitability, partially offset by working capital dynamics. Working capital was primarily impacted by AI, which led to higher inventory, accounts receivable, and accounts payable levels. During Fiscal 2024, cash provided by operating activities was $8.7 billion, which was primarily driven by profitability coupled with strong inventory management and cash collections performance. Cash provided by operating activities during Fiscal 2024 also reflected the impact of the $0.9 billion net payment to settle the Class V transaction litigation and $0.4 billion in proceeds from the sale of our U.S. consumer revolving customer receivables portfolio. See “Liquidity, Cash Requirements, and Market Conditions” for additional information about our cash flow metrics.

Current wording

Cash provided by operating activities was $11.2 billion during Fiscal 2026 and was driven by net revenue growth, profitability, and working capital dynamics, partially offset by higher financing receivables. Financing receivables and working capital were primarily affected by increased demand for our AI-optimized servers offerings. During Fiscal 2025, cash provided by operating activities was $4.5 billion and was driven by profitability, partially offset by working capital dynamics. Working capital during Fiscal 2025 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 Fiscal 2025, net revenue increased 8%, primarily driven by an increase in ISG net revenue that was partially offset by a decrease in Corporate and other net revenue and, to a lesser extent, CSG net revenue. See “Business Unit Results” for further information.

Current wording

During Fiscal 2026, net revenue increased 19%, 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 Fiscal 2025, product net revenue increased 11% due to an increase in ISG product net revenue driven by growth in our servers and networking offerings. The increase was partially offset by a decrease in CSG product net revenue as a result of a decrease in the average selling prices of our CSG offerings and, to a lesser extent, a decline in units sold within our consumer offerings, as well as a decline in Corporate and other product net revenue as we no longer act as a distributor of standalone VMware offerings.

Current wording

•Product Net Revenue — Product net revenue includes revenue from the sale of hardware products and software licenses. During Fiscal 2026, product net revenue increased 27%, 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 primarily driven by growth in our AI-optimized servers offerings and, to a lesser extent, our traditional servers and networking offerings. The increase in CSG product net revenue reflected growth in our commercial offerings, which was partially offset by lower demand for our consumer offerings.

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 Fiscal 2025, services net revenue was flat as the growth within CSG services net revenue and, to a lesser extent, ISG services net revenue was offset by a decline in Corporate and other services net revenue. The increase in CSG services net revenue was primarily due to CSG third-party software support and maintenance as well as support and maintenance associated with products sold in prior periods. The increase in ISG services net revenue was primarily due to support and maintenance associated with products sold in prior periods. Corporate and other services net revenue declined 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 Fiscal 2026, services net revenue decreased 4% due to a decline in Corporate and other services net revenue. The decline was primarily due to a decrease in VMware Resale revenue, as we no longer act as a distributor of standalone VMware offerings and, to a lesser extent, the sale of Secureworks. The decline 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 servers offerings within ISG.

Previous wording

A substantial portion of services net revenue is derived from offerings that have been deferred over a period of time, and, as a result, reported growth rates for services net revenue will be different than reported growth rates for product net revenue.

Current wording

A substantial portion of services net revenue is derived from offerings that have been deferred over a period of time. As a result, reported growth rates for services net revenue will be different than reported growth rates for product net revenue.

Previous wording

During Fiscal 2025, both gross margin and non-GAAP gross margin increased 1%, to $21.3 billion and $21.8 billion, respectively, driven by an increase in ISG gross margin that was largely offset by a decrease in CSG gross margin. The increase in ISG gross margin was primarily attributable to growth in our AI-optimized server offerings and, to a lesser extent, our storage offerings. The decrease in CSG gross margin was primarily attributable to a competitive pricing environment.

Current wording

During Fiscal 2026, gross margin and non-GAAP gross margin increased 7% to $22.7 billion and 6% to $23.2 billion, respectively, primarily due to an increase in ISG gross margin that was driven by growth in our servers and networking offerings and, to a lesser extent, growth in our core storage offerings. The increase in ISG gross margin was partially offset by a decline in Corporate and other gross margin driven by the sale of Secureworks.

Previous wording

During Fiscal 2025, gross margin and non-GAAP gross margin percentage decreased 160 basis points to 22.2% and 170 basis points to 22.8%, respectively. The decreases in gross margin percentage and non-GAAP gross margin percentage were primarily driven by a shift in mix towards AI-optimized server offerings and a competitive CSG pricing environment.

Current wording

During Fiscal 2026, gross margin percentage and non-GAAP gross margin percentage decreased 220 basis points to 20.0% and 240 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 servers offerings.

Previous wording

•Services Gross Margin — During Fiscal 2024, services gross margin and non-GAAP services gross margin increased 4% to $9.8 billion and 3% to $10.0 billion, respectively. The increases were primarily attributable to growth within ISG services gross margin and, to a lesser extent, CSG services gross margin that were driven by support and maintenance associated with products sold in prior periods.

Current wording

•Services Gross Margin — During Fiscal 2026, services gross margin and non-GAAP services gross margin increased 4% to $10.4 billion and 3% to $10.6 billion, respectively. The increases were principally attributable to an increase in ISG services gross margin, which was primarily driven by higher AI-optimized servers offerings and hardware support and maintenance associated with products sold in prior periods. The increase in ISG services gross margin was partially offset by a decline in Corporate and other gross margin driven by the sale of Secureworks.

Previous wording

During Fiscal 2025, services gross margin percentage and non-GAAP services gross margin percentage increased 60 basis points to 41.4% and 80 basis points to 42.4%, respectively. The increases in services gross margin percentage and non-GAAP services gross margin percentage were primarily driven by a shift in mix as we no longer act as a distributor of standalone VMware offerings.

Current wording

During Fiscal 2026, services gross margin percentage and non-GAAP services gross margin percentage increased 340 basis points to 44.8% and 320 basis points to 45.6%, respectively, 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 Fiscal 2025 and Fiscal 2024 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 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 Fiscal 2025, total operating expenses decreased 4%, due to a decline in selling, general, and administrative (“SG&A”) expenses.

Current wording

During Fiscal 2026, total operating expenses decreased 3% due to a decline in selling, general, and administrative (“SG&A”) expenses.

Previous wording

•Selling, General, and Administrative — During Fiscal 2025, SG&A expenses decreased 7%, driven by a decrease in employee compensation and benefits expense, principally due to a decline in overall headcount.

Current wording

•Selling, General, and Administrative — During Fiscal 2026, SG&A expenses decreased 4%, driven by a decrease in employee compensation and benefits expense, which 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 9% during Fiscal 2025, principally due to an increase in R&D-related employee compensation and benefits expense.

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 3% during Fiscal 2026, principally due to continued support of investments in R&D initiatives.

Previous wording

As a percentage of net revenue, R&D expenses for both Fiscal 2025 and Fiscal 2024 were 3.2%. 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 Fiscal 2026 and Fiscal 2025 were 2.8% and 3.2%, respectively. We continue to support R&D initiatives to innovate and introduce new and enhanced solutions into the market.