UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    August 1, 2008oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission File
    Number: 0-17017
  Dell Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

74-2487834(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer Identification No.)    One Dell
    Way
    Round Rock, Texas 78682 (Address
    of principal executive offices) (Zip Code)
   (512) 338-4400
 (Registrants telephone
    number, including area code)
   15(d)
 þ o
   Rule 12b-2
 Large accelerated filer
    þ

Accelerated filer
    oNon-accelerated filer
    o
    (Do not check if a smaller reporting company)

Smaller reporting company
    o    Rule 12b-2
 o þ




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##### 



INDEX
  PagePart I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Statements of Financial Position at
    August 1, 2008 (unaudited), and February 1, 2008

1Condensed Consolidated Statements of Income for the three and
    six-month periods ended August 1, 2008 (unaudited), and
    August 3, 2007 (unaudited)

2Condensed Consolidated Statements of Cash Flows for the
    six-month periods ended August 1, 2008 (unaudited), and
    August 3, 2007 (unaudited)

3Notes to Condensed Consolidated Financial Statements (unaudited)

4Item 2. Managements Discussion and Analysis
    of Financial Condition and Results of Operations

22Item 3. Quantitative and Qualitative Disclosures
    About Market Risk

37Item 4. Controls and Procedures

38Part II  OTHER INFORMATIONItem 1. Legal Proceedings

39Item 1A. Risk Factors

39Item 2. Unregistered Sales of Equity Securities and
    Use of Proceeds

39Item 4. Submission of Matters to a Vote of Security
    Holders

39Item 6. Exhibits

40




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##### 



PART I 
    FINANCIAL INFORMATION  ITEM 1.
    Financial
    Statements  DELL
    INC.CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
    POSITION
    (in millions)
  August 1,


February 1,2008


2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
8,623


$
7,764Short-term investments


410



208Accounts receivable, net


6,451



5,961Financing receivables, net


1,629



1,732Inventories, net


1,104



1,180Other


3,559



3,035Total current assets


21,776



19,880Property, plant, and equipment, net


2,588



2,668Investments


501



1,560Long-term financing receivables, net


348



407Goodwill


1,753



1,648Purchased intangible assets, net


781



780Other non-current assets


660



618Total assets

$
28,407


$
27,561LIABILITIES AND EQUITYCurrent liabilities:Short-term debt

$
129


$
225Accounts payable


11,215



11,492Accrued and other


4,271



4,323Short-term deferred service revenue


2,572



2,486Total current liabilities


18,187



18,526Long-term debt


1,840



362Long-term deferred service revenue


3,117



2,774Other non-current liabilities


2,357



2,070Total liabilities


25,501



23,732Commitments and contingencies (Note 10)Redeemable common stock and capital in excess of $.01 par
    value; shares issued and outstanding: 4 and 4, respectively
    (Note 13)


83



94Stockholders equity:Preferred stock and capital in excess of $.01 par value;
    shares issued and outstanding: none


-



-Common stock and capital in excess of $.01 par value;
    shares authorized: 7,000; shares issued: 3,332 and 3,320,
    respectively; shares outstanding: 1,960 and 2,060, respectively


10,781



10,589Treasury stock at cost: 897 and 785 shares, respectively


(27,488
)


(25,037
)Retained earnings


19,599



18,199Accumulated other comprehensive loss


(69
)


(16
)Total stockholders equity


2,823



3,735Total liabilities and equity

$
28,407


$
27,561    1




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##### 



DELL
    INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    (in millions, except per share amounts; unaudited)
  Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007Net revenue

$
16,434


$
14,776


$
32,511


$
29,498Cost of net revenue


13,607



11,825



26,719



23,709Gross margin


2,827



2,951



5,792



5,789Operating expenses:Selling, general, and administrative


1,840



1,894



3,752



3,657Research, development, and engineering


168



155



320



297In-process research and development


-



-



2



-Total operating expenses


2,008



2,049



4,074



3,954Operating income


819



902



1,718



1,835Investment and other income, net


18



96



143



174Income before income taxes


837



998



1,861



2,009Income tax provision


221



252



461



507Net income

$
616


$
746


$
1,400


$
1,502Earnings per common share:Basic

$
0.31


$
0.33


$
0.70


$
0.67Diluted

$
0.31


$
0.33


$
0.69


$
0.66Weighted-average shares outstanding:Basic


1,991



2,237



2,013



2,236Diluted


1,999



2,264



2,019



2,259     2




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##### 



DELL
    INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in millions; unaudited)  Six Months EndedAugust 1,


August 3,2008


2007Cash flows from operating activities:Net income

$
1,400


$
1,502Adjustments to reconcile net income to net cash provided by 
    operating activities:Depreciation and amortization


381



271Stock-based compensation


128



194Excess tax benefits from stock-based compensation


-



(12
)Effects of exchange rate changes on monetary assets and 
    liabilities denominated in foreign currencies


(110
)


31Deferred income taxes


(19
)


(61
)Other


85



28Changes in operating assets and liabilities, net of effects from
    acquisitions:Accounts receivable


(392
)


(565
)Financing receivables


19



(118
)Inventories


77



(311
)Other assets


(473
)


92Accounts payable


(328
)


114Deferred service revenue


405



440Accrued and other liabilities


78



149Change in cash from operating activities


1,251



1,754Cash flows from investing activities:Investments:Purchases


(788
)


(1,765
)Maturities and sales


1,752



2,127Capital expenditures


(264
)


(464
)Proceeds from sale of facility and land


44



-Acquisition of business, net of cash received


(165
)


(19
)Change in cash from investing activities


579



(121
)Cash flows from financing activities:Repurchase of common stock


(2,451
)


-Issuance of common stock under employee plans


68



21Excess tax benefits from stock-based compensation


-



12Issuance (payment) of commercial paper, net


100



(40
)Proceeds from issuance of debt


1,519



25Repayments of debt


(223
)


(29
)Other


-



(5
)Change in cash from financing activities


(987
)


(16
)Effect of exchange rate changes on cash and cash equivalents


16



41Change in cash and cash equivalents


859



1,658Cash and cash equivalents at beginning of period


7,764



9,546Cash and cash equivalents at end of period

$
8,623


$
11,204    3




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
  NOTE 1 
    BASIS OF
    PRESENTATION  Basis of Presentation Form 10-K
      Recently Issued and Adopted Accounting
    Pronouncements Fair Value Measurements 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2),
  The Fair
    Value Option for Financial Assets and Financial Liabilities
  Recently Issued Accounting
    Pronouncements Disclosures about Derivative
    Instruments and Hedging Activities, an amendment of FASB
    Statement No. 133 , Accounting for Derivative Instruments and Hedging
    Activities
 4




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    Out of Period Adjustments
  Reclassifications
  NOTE 2 
    INVENTORIES  August 1,

February 1,2008

2008(a)(in millions)Inventories, net:Production materials

$
573


$
714Work-in-process


182



144Finished goods


349



322Inventories, net

$
1,104


$
1,180     (a)
    
    Certain prior period amounts have
    been changed to conform to the current year presentation. There
    is no impact to the condensed consolidated financial statements
    as a result of this change.  NOTE 3 
    EARNINGS
    PER COMMON SHARE   5




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007(in millions, except per share amounts)Numerator:Net income

$
616


$
746


$
1,400


$
1,502Denominator:Weighted-average shares outstanding:Basic


1,991



2,237



2,013



2,236Effect of dilutive options, restricted stock units, restricted
    stock, and other


8



27



6



23Diluted


1,999



2,264



2,019



2,259Earnings per common share:Basic

$
0.31


$
0.33


$
0.70


$
0.67Diluted

$
0.31


$
0.33


$
0.69


$
0.66   NOTE 4 
    COMPREHENSIVE
    INCOME    Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007(in millions)Comprehensive income:Net income

$
616


$
746


$
1,400


$
1,502Unrealized gains (losses) on foreign currency hedging
    instruments, net


14



8



(17)



(74)Unrealized gains (losses) on marketable securities, net


2



3



(23)



15Foreign currency translation adjustments


28



3



(13)



4Comprehensive income

$
660


$
760


$
1,347


$
1,447   NOTE 5 
    FINANCIAL
    SERVICES  Dell
    Financial Services L.L.C.
     6




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
        small-and-medium
  Financing
    Receivables
    August 1,

February 1,2008

2008(in millions)Financing receivables, net:Customer receivables:Revolving loans, gross

$
784


$
1,063Fixed-term leases and loans, gross


698



654Customer receivables, gross


1,482



1,717Customer receivables allowance


(102)



(96)Customer receivables, net


1,380



1,621Residual interest


285



295Retained interest


312



223Financing receivables, net

$
1,977


$
2,139Short-term

$
1,629


$
1,732Long-term


348



407Financing receivables, net

$
1,977


$
2,139     
    Customer receivables are presented net of allowance for
    uncollectible accounts. The allowance is based on factors
    including historical experience, past due receivables,
    receivable type, and the risk composition of the receivables. 7




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    As of August 1, 2008, and February 1, 2008, customer
    financing receivables 60 days or more delinquent were
    $42 million and $34 million, respectively. These
    amounts represent 3.0% and 2.1% of the ending customer financing
    receivables balances for the respective periods.Net credit losses for the three months ended August 1,
    2008, and August 3, 2007, were $19 million and
    $10 million, respectively. These amounts represent
    annualized credit losses of 5.7% and 2.8% of the average
    outstanding customer financing receivables balance for the
    respective three-month periods. Net credit losses for the six
    months ended August 1, 2008, and August 3, 2007, were
    $37 million and $17 million, respectively. These
    amounts represent annualized credit losses of 5.0% and 2.3% of
    the average outstanding customer financing receivables balance
    for the respective six-month periods.The following is a description of the components of customer
    receivables:  
    Revolving loans offered under private label credit financing
    programs provide qualified customers with a revolving credit
    line for the purchase of products and services offered by Dell.
    Revolving loans bear interest at a variable annual percentage
    rate that is tied to the prime rate. From time to time, account
    holders may have the opportunity to finance their Dell purchases
    with special programs during which, if the outstanding balance
    is paid in full, no interest is charged. These special programs
    generally range from 3 to 12 months and have an average
    original term of approximately 12 months. At August 1,
    2008, and February 1, 2008, $379 million and
    $668 million, respectively, were receivables under these
    special programs.
    Leases with business customers have fixed terms of two to five
    years. Future maturities of minimum lease payments at
    August 1, 2008, are as follows: 2009: $94 million;
    2010: $128 million; 2011: $77 million; 2012:
    $24 million; and 2013: $1 million. Fixed-term loans
    are also offered to qualified small businesses and primarily
    consist of loans with short-term maturities.  
    Dell retains a residual interest in the leased equipment. The
    amount of the residual interest is established at the inception
    of the lease based upon estimates of the equipment value at the
    end of the lease term using historical studies, industry data,
    and future
    value-at-risk
    demand valuation methods. On a periodic basis, Dell assesses the
    carrying amount of its recorded residual values for impairment.
    Anticipated declines in specific future residual values that are
    considered to be other-than-temporary are recorded in current
    earnings.
    Retained interests represent the residual beneficial interest
    Dell retains in certain pools of securitized financing
    receivables. Retained interests are stated at the present value
    of the estimated net beneficial cash flows after payment of all
    senior interests. Dell values the retained interest at the time
    of each receivable sale and at the end of each reporting period.
    All gains and losses are recognized in income immediately. The
    fair value of the retained interest is determined using a
    discounted cash flow model with various key assumptions,
    including payment rates, credit losses, discount rates, and the
    remaining life of the receivables sold. These assumptions are
    supported by both Dells historical experience and
    anticipated trends relative to the particular receivable pool.   8




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
      Three Months Ended


Six Months EndedAugust 1,



August 3,


August 1,


August 3,2008



2007


2008


2007(in millions)Retained interest:Retained interest at beginning of period

$
317



$
164


$
223


$
158Issuances


76




37



232



80Distributions from conduits


(85)




(41)



(140)



(81)Net accretion


10




8



20



11Change in fair value for the period


(6)




3



(23)



3Retained interest at end of period

$
312



$
171


$
312


$
171     Weighted Average Key AssumptionsMonthlyPayment


Credit


DiscountRates


Losses


Rates


Life(lifetime)


(annualized)


(months)Time of sale valuation of retained interest


11
%


7
%


15
%


14Valuation of retained interests


8
%


11
%


14
%


12     August 1,2008(in millions)Adverse change of:Expected prepayment speed: 10%

$
(9
)Expected prepayment speed: 20%

$
(14
)Expected credit losses: 10%

$
(12
)Expected credit losses: 20%

$
(23
)Discount rate: 10%

$
(5
)Discount rate: 20%

$
(9
)    9




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    Asset
    Securitization
  Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of
    Liabilities  a Replacement of FASB Statement
    No. 125
          NOTE 6 
    FAIR
    VALUE  FSP 157-2,
 10




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
      
    Level 1: Inputs based on quoted market prices for
    identical assets or liabilities in active markets at the
    measurement date.
    Level 2: Observable inputs other than quoted prices
    included in Level 1, such as quoted prices for similar assets
    and liabilities in active markets; quoted prices for identical
    or similar assets and liabilities in markets that are not
    active; or other inputs that are observable or can be
    corroborated by observable market data.
    Level 3: Inputs reflect managements best
    estimate of what market participants would use in pricing the
    asset or liability at the measurement date. The inputs are
    unobservable in the market and significant to the instruments
    valuation.    Level 1


Level 2


Level 3


TotalQuotedPrices in


SignificantActive


Other


SignificantMarkets for


Observable


UnobservableIdentical


Inputs


InputsAssets(in millions)Investments - available for sale securities

$
-


$
848


$
26


$
874Investments - trading securities


2



104



-



106Retained interest


-



-



312



312Derivative instruments


-



77



-



77Total assets measured at fair value on recurring basis

$
2


$
1,029


$
338


$
1,369Derivative instruments


-



44



-



44Total liabilities measured at fair value on recurring basis

$
-


$
44


$
-


$
44     Investments Available for Sale 
 11




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    Investments Trading Securities 
  Retained Interests in Securitized Receivables 
  Derivative Instruments 
    InvestmentsRetained


AvailableThree Months Ended
    August 1, 2008

Interest


for Sale


Total(in millions)Balance at May 2, 2008

$
317


$
25


$
342Net unrealized gains included in earnings


4



1



5Issuances and settlements


(9)



-



(9)Purchases


-



-



-Balance at August 1, 2008

$
312


$
26


$
338   InvestmentsRetained


AvailableSix Months Ended August 1,
    2008

Interest


for Sale


Total(in millions)Balance at February 1, 2008

$
223


$
-


$
223Net unrealized gains (losses) included in earnings


(3)



1



(2)Issuances and settlements


92



-



92Purchases


-



25



25Balance at August 1, 2008

$
312


$
26


$
338     Items Measured at Fair Value on a Nonrecurring
    Basis 
 12




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
    NOTE 7 
    WARRANTY
    LIABILITY AND RELATED DEFERRED SERVICE REVENUE    Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007(b)


2008


2007(b)(in millions)Deferred service revenue:Deferred service revenue at beginning of period

$
5,424


$
4,408


$
5,260


$
4,221Revenue deferred for new extended warranty and service contracts
    sold


1,055



923



2,007



1,747Revenue recognized


(790)



(669)



(1,578)



(1,306)Deferred service revenue at end of period

$
5,689


$
4,662


$
5,689


$
4,662Current portion

$
2,572


$
2,223


$
2,572


$
2,223Non-current portion


3,117



2,438



3,117



2,438Deferred service revenue at end of period

$
5,689


$
4,662


$
5,689


$
4,662   Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007(in millions)Warranty liability :Warranty liability at beginning of period

$
1,014


$
889


$
929


$
958Costs accrued for new warranty contracts and changes in
    estimates for pre-existing
    warranties(a)


315



308



667



560Service obligations honored


(251)



(283)



(518)



(604)Warranty liability at end of period

$
1,078


$
914


$
1,078


$
914Current portion

$
725


$
643


$
725


$
643Non-current portion


353



271



353



271Warranty liability at end of period

$
1,078


$
914


$
1,078


$
914     (a)
    
    Changes in cost estimates related
    to pre-existing warranties are aggregated with accruals for new
    warranty contracts. Dells warranty liability process does
    not differentiate between estimates made for pre-existing
    warranties and new warranty obligations.(b)
    
    Prior period amounts have been
    changed to reflect a reclassification between the current
    portion and non-current portion of deferred service revenue.
    There is no impact to the Condensed Consolidated Statements of
    Income as a result of this change. 13




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
   NOTE 8 
    ACQUISITIONS      Business Combinations
  NOTE 9 
    GOODWILL
    AND INTANGIBLE ASSETS  Goodwill
    Americas


EMEA


APJ


GlobalCommercial


Commercial


Commercial


Consumer


Total(in millions)Balance at February 1, 2008

$
822


$
412


$
127


$
287


$
1,648Goodwill acquired


72



34



20



-



126Adjustments to goodwill


(18)



(6)



(7)



10



(21)Balance at August 1, 2008

$
876


$
440


$
140


$
297


$
1,753    14




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
  Intangible
    Assets
    August 1, 2008


February 1, 2008Accumulated








AccumulatedGross


Amortization


Net


Gross


Amortization


Net(in millions)Technology

$
524


$
(47)


$
477


$
492


$
(16)


$
476Customer relationships


248



(27)



221



231



(9)



222Tradenames


41



(6)



35



39



(6)



33Covenants
    not-to-compete


26



(3)



23



23



(1)



22Amortizable intangible assets

$
839


$
(83)


$
756


$
785


$
(32)


$
753Indefinite lived intangible assets


25



-



25



27



-



27Total intangible assets

$
864


$
(83)


$
781


$
812


$
(32)


$
780     Fiscal Years

(in millions)2009 (remaining 6 months)

$
542010


1612011


1452012


1222013


100Thereafter


174Total

$
756   NOTE 10 
    COMMITMENTS
    AND CONTINGENCIES  Severance Costs and Facility Closures
  Restricted Cash
 15




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##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
  Legal Matters Accounting for
    Contingencies
    
    Investigations and Related Litigation In
    August 2005, the SEC initiated an inquiry into certain of
    Dells accounting and financial reporting matters and
    requested that Dell provide certain documents. The SEC expanded
    that inquiry in June 2006 and entered a formal order of
    investigation in October 2006. The SECs requests for
    information were joined by a similar request from the United
    States Attorney for the Southern District of New York
    (SDNY), who subpoenaed documents related to
    Dells financial reporting from and after Fiscal 2002. In
    August 2006, because of potential issues identified in the
    course of responding to the SECs requests for information,
    Dells Audit Committee, on the recommendation of management
    and in consultation with PricewaterhouseCoopers LLP, Dells
    independent registered public accounting firm, initiated an
    independent investigation, which was completed in the third
    quarter of Fiscal 2008. Although the Audit Committee
    investigation has been completed, the investigations being
    conducted by the SEC and the SDNY are ongoing. Dell continues to
    cooperate with the SEC and the SDNY.  Dell and several of its current and former directors and
    officers are parties to securities, Employee Retirement Income
    Security Act of 1974 (ERISA), and shareholder
    derivative lawsuits all arising out of the same events and
    facts. Four putative securities class actions that were filed in
    the Western District of Texas, Austin Division, against Dell and
    certain of its current and former officers have been
    consolidated as In re Dell Securities Litigation, and a
    lead plaintiff has been appointed by the court. The lead
    plaintiff has asserted claims under sections 10(b), 20(a),
    and 20A of the Securities Exchange Act of 1934 based on alleged
    false and misleading disclosures or omissions regarding
    Dells financial statements, governmental investigations,
    internal controls, known battery problems and business model,
    and based on insiders sales of Dell securities. This
    action also includes Dells independent registered public
    accounting firm, PricewaterhouseCoopers LLP, as a defendant.
    Four other putative class actions that were also filed in the
    Western District, Austin Division, by purported participants in
    the Dell 401(k) Plan have been consolidated as In re Dell
    ERISA Litigation, and lead plaintiffs have been appointed by
    the court. The lead plaintiffs have asserted claims under ERISA
    based on allegations that Dell and certain current and former
    directors and officers imprudently invested and managed
    participants funds and failed to disclose information
    regarding its stock held in the 401(k) Plan. On June 23,
    2008, the court granted the defendants motion to dismiss
    as to the plaintiffs claims under ERISA based on
    allegations of imprudence, but the court denied the motion to
    dismiss as to the claims under ERISA based on allegations of a
    failure to accurately disclose information. In addition, seven
    shareholder derivative lawsuits that were filed in three
    separate jurisdictions were consolidated as In re Dell
    Derivative Litigationinto three actions. One of those
    consolidated actions was pending in the Western District of
    Texas, Austin Division, but was dismissed without prejudice by
    an order filed October 9, 2007. The two other consolidated
    shareholder derivative actions are pending in Delaware Chancery
    Court and in state district court in Williamson County, Texas.
    These shareholder derivative lawsuits name various current and
    former officers and directors as defendants and Dell as a
    nominal defendant, and assert various claims derivatively on
    behalf of Dell under state law, including breaches of fiduciary
    duties. Dell intends to defend all of these lawsuits.   16




---



##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
  
    Copyright Levies Proceedings against the IT
    industry in Germany seek to impose levies on equipment such as
    personal computers and multifunction devices that facilitate
    making private copies of copyrighted materials. The total levies
    due, if imposed, would be based on the number of products sold
    and the per-product amounts of the levies, which vary. Dell,
    along with other companies and various industry associations,
    are opposing these levies and instead are advocating
    compensation to rights holders through digital rights management
    systems.  On December 29, 2005, Zentralstelle Für private
    Überspielungrechte (ZPÜ), a joint
    association of various German collection societies, instituted
    arbitration proceedings against Dells German subsidiary
    before the Arbitration Body in Munich. ZPÜ claims a levy of
    18.4 per PC that Dell sold in Germany from January 1,
    2002, through December 31, 2005. On July 31, 2007, the
    Arbitration Body recommended a levy of 15 on each PC sold
    during that period for audio and visual copying capabilities.
    Dell and ZPÜ rejected the recommendation, and on
    February 21, 2008, ZPÜ filed a lawsuit in the German
    Regional Court in Munich. Dell plans to continue to defend this
    claim vigorously and does not expect the outcome to have a
    material adverse effect on its financial condition or results of
    operations. Dell is currently not aware of any other pending
    levy cases before the German Federal Supreme Court that could
    reasonably be expected to have a material adverse impact on Dell.  
    Lucent v. Dell In February 2003, Lucent
    Technologies, Inc. filed a lawsuit against Dell alleging that
    Dell infringed 12 patents owned by Lucent and seeking monetary
    damages and injunctive relief. The asserted patents are owned by
    two parties: Alcatel-Lucent and Multimedia Patent Trust
    (MPT). Dell settled with MPT, licensing the patents
    asserted by MPT in the lawsuit, but not with Alcatel-Lucent.
    Trial as to the Alcatel-Lucent owned patents resulted in a jury
    verdict on April 4, 2008. The verdict was in Dells
    favor except for a $51,000 liability for infringement of one of
    the Alcatel-Lucent owned patents (which is subject to indemnity
    by Microsoft). Given the recent favorable court rulings and the
    resolution of the indemnity coverage related to Microsoft
    products, Dell reduced its reserves by $55 million through
    cost of sales in the first quarter of Fiscal 2009. In a decision
    dated May 8, 2008, the Federal Circuit Court of Appeals
    reversed the claim interpretation and remanded to the District
    Court one of the patents on which Dell had won summary judgment
    (which is also subject to the Microsoft indemnity). Dell does
    not expect the outcome of this legal proceeding to have a
    material adverse effect on its financial condition or results of
    operations or cash flows.  non-United
    NOTE 11 
    SEGMENT
    INFORMATION   17




---



##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
        Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007(in millions)Net revenue:Americas Commercial

$
8,096


$
7,680


$
15,394


$
14,931EMEA Commercial


3,503



3,162



7,309



6,479APJ Commercial


2,054



1,765



4,078



3,472Global Consumer


2,781



2,169



5,730



4,616Net revenue

$
16,434


$
14,776


$
32,511


$
29,498Consolidated operating income:Americas Commercial

$
700


$
757


$
1,288


$
1,401EMEA Commercial


72



202



293



484APJ Commercial


157



142



288



228Global Consumer


(5
)


5



30



23Consolidated segment operating income


924



1,106



1,899



2,136Stock-based compensation expense


(78
)


(204
)


(128
)


(301
)In-process research and development


-



-



(2
)


-Amortization of intangible assets


(27
)


-



(51
)


-Consolidated operating income

$
819


$
902


$
1,718


$
1,835  18




---



##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
  NOTE 12 
    DEBT  Commercial
    Paper
      India
    Credit Facilities
    Long-Term
    Debt and Interest Rate Risk Management
  non-U.S. persons
 19




---



##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
  360-day 30-day
  90-day 90-day
        NOTE 13 
    REDEEMABLE
    COMMON STOCK   20




---



##### 



DELL
    INC.
  NOTES TO
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 (unaudited)
   21




---



##### 



ITEM 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  SPECIAL NOTE:  This section,
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations, contains
    forward-looking statements based on our current expectations.
    Actual results in future periods may differ materially from
    those expressed or implied by those forward-looking statements
    because of a number of risks and uncertainties. For a discussion
    of risk factors affecting our business and prospects, see
    Part I  Item 1A  Risk
    Factors in our Annual Report on
    Form 10-K
    for the fiscal year ended February 1, 2008.
  All percentage amounts and ratios were calculated using
    the underlying data in thousands. Unless otherwise noted, all
    references to industry share and total industry growth data are
    for personal computers (including desktops, notebooks, and x86
    servers), and are based on preliminary information provided by
    IDC Worldwide Quarterly PC Tracker, July 25, 2008. Share
    data is for the calendar quarter and all our growth rates are on
    a fiscal year-over-year basis. Unless otherwise noted, all
    references to time periods refer to our fiscal periods.
  Overview
  Our
    Company
            
    Global Consumer  In the first quarter of
    Fiscal 2009, we realigned our management and reporting structure
    to focus on worldwide sales to individual consumers and
    retailers as a part of an internal consolidation of our consumer
    business. Our global consumer business is comprised of on-line
    sales, sales over the phone, and sales through our retail
    channel. The global consolidation of this business will improve
    our global sales execution and coverage through better customer
    alignment, targeted sales force investments in rapidly growing
    countries, and 22




---



##### 



improved marketing tools. We are also designing new, innovative
    products with faster development cycles and competitive features
    including the new Studio line of notebooks, which allow
    consumers greater personalization and self expression. Finally,
    we have rapidly expanded our retail business in order to reach
    more consumers.  
    Enterprise In the enterprise, our
    solution mission is to help companies of all sizes simplify
    their IT environments. The complete solution includes servers,
    storage, services, and software. At the core of this
    simplification problem is complexity in IT architecture and
    operations developed over decades and ineffective services
    models that create unnecessary complexity and cost. We are
    focused on helping customers identify and remove this
    unnecessary cost and complexity. As a result of our
    simplify IT focus, we have become the industry
    leader in server virtualization, power, and cooling performance.
    We recently launched our broadest ever lineup of virtualization
    solutions combining PowerEdge servers, switches, EqualLogic SAN,
    along with VM Ware software enabling the virtual cloud.
    Notebooks Our goal is to reclaim
    notebook leadership by creating the best products while
    shortening our development cycle and being the most innovative
    developer of notebooks. To help meet this goal, we have
    separated our consumer and commercial design functions to drive
    greater focus and launched several notebook products. Industry
    analysts expect the sale of notebook units globally to outpace
    that of desktops for the first time next year and for that trend
    to continue into the future. Recently, we had the largest global
    product launch in our companys history with our new E
    Series commercial Latitude and Dell Precision notebooks. We
    expect to continue to launch a number of new notebook products
    throughout the remainder of Fiscal 2009, targeting various price
    and performance bands.
    Small and Medium Business We are focused
    on providing small and medium businesses the simplest and most
    complete IT solution, customized for their needs, by extending
    our channel direct program (PartnerDirect) and expanding our
    offerings to mid-sized businesses. We are committed to improving
    our storage products and services as evidenced by our new
    Building IT-as-a-Service solution, which provides businesses
    with remote and lifecycle management,
    e-mail
    backup, and software license management.
    Emerging countries We are focused on and
    investing resources in emerging countries  with an
    emphasis on Brazil, Russia, India, and China, from where we
    expect a majority of the worldwide growth will come in the next
    four years. We are also creating custom products and services to
    meet the preferences and demands of individual countries and
    various regions, including the new Vostro A notebooks and
    desktops designed specifically for cost sensitive growing
    businesses in emerging economies.    Second
    Quarter Performance
  Share position



We shipped approximately 11.5 million units, resulting in a
    worldwide PC share position of 16.4%, an increase of
    approximately one percentage point year-over-year.Net revenue



Net revenue increased 11% year-over-year to $16.4 billion,
    with unit shipments up 19% year-over-year.Operating income



Operating income was $819 million for the current quarter,
    or 5.0% of revenue, as compared to $902 million or 6.1% of
    revenue for the second quarter of Fiscal 2008.Earnings per share



Earnings per share decreased 6% to $0.31 for the current quarter
    compared to $0.33 for the second quarter of Fiscal 2008.  23




---



##### 



Results
    of Operations
    Three Months Ended


Six Months EndedAugust 1, 2008


August 3, 2007


August 1, 2008


August 3, 2007% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


Revenue(in millions, except per share amounts and percentages)Net revenue

$
16,434



100.0%


$
14,776



100.0%


$
32,511



100.0%


$
29,498



100.0%Gross margin

$
2,827



17.2%


$
2,951



19.9%


$
5,792



17.8%


$
5,789



19.6%Operating expenses

$
2,008



12.2%


$
2,049



13.8%


$
4,074



12.5%


$
3,954



13.4%Operating income

$
819



5.0%


$
902



6.1%


$
1,718



5.3%


$
1,835



6.2%Net income

$
616



3.7%


$
746



5.1%


$
1,400



4.3%


$
1,502



5.1%Earnings per share diluted

$
0.31



N/A


$
0.33



N/A


$
0.69



N/A


$
0.66



N/A   Consolidated
    Operations
         24




---



##### 



Revenues
    by Segment
        Three Months Ended


Six Months EndedAugust 1, 2008


August 3, 2007


August 1, 2008


August 3, 2007% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


Revenue(in millions, except percentages)Net revenueAmericas Commercial

$
8,096



49%


$
7,680



52%


$
15,394



47%


$
14,931



50%EMEA Commercial


3,503



21%



3,162



21%



7,309



22%



6,479



22%APJ Commercial


2,054



13%



1,765



12%



4,078



13%



3,472



12%Global Consumer


2,781



17%



2,169



15%



5,730



18%



4,616



16%Net revenue

$
16,434



100%


$
14,776



100%


$
32,511



100%


$
29,498



100%  25




---



##### 




    Americas Commercial Americas
    Commercial revenue increased 5% with unit shipments up by 7%
    year-over-year for the second quarter of Fiscal 2009. Growth in
    Latin America and increasing sales to the Federal government
    drove the majority of the increase in revenue in Americas
    Commercial. This growth was partially offset by weaker
    performance with our global customers and
    small-and-medium
    business customers. We anticipate continued conservative
    spending in the U.S. in the second half of Fiscal 2009.
    From a product perspective, the slow net revenue growth was due
    to decreases in desktop sales of 1% and 7% for the second
    quarter and first six months of Fiscal 2009, respectively, on
    desktop unit growth of 3% and 1%, for the second quarter and
    first half of Fiscal 2009, respectively. This was offset by
    strong revenue growth of services and software and peripherals,
    which grew 18% and 14%, respectively, during the second quarter
    of Fiscal 2009 and 22% and 14% for the first half of Fiscal
    2009. Growth in Latin America was led by Brazil and Chile, which
    experienced a 38% and 35% respectively, year-over-year increase
    in revenue during the second quarter of Fiscal 2009 as compared
    to Fiscal 2008.
    EMEA Commercial  EMEA Commercial
    had 11% year-over-year net revenue growth on unit shipment
    growth of 20%. The unit volume increases were the result of
    strong growth in mobility, with units up 52% and continued
    strength in emerging markets. The revenue growth was primarily a
    result of higher demand for mobility products, represented by a
    33% increase in revenue. Growth in software and peripherals
    revenue also contributed to EMEA Commercials strong second
    quarter Fiscal 2009 revenue performance, with revenue growth of
    21% year-over-year. These increases were partially offset by
    desktop sales with a revenue decrease of 6% year-over-year. EMEA
    experienced strong revenue growth in emerging countries and
    small-and-medium
    business. This growth, while consistent with our overall
    strategy, drove a mix shift in the EMEA Commercial revenue base
    coupled with softness in EMEA Commercials global and large
    commercial customers revenue. As a result, during the second
    quarter of Fiscal 2009, total average revenue per unit decreased
    8%, which reflects our product and customer mix.    
    APJ Commercial During the second
    quarter and first six months of Fiscal 2009, APJ Commercial
    experienced a 16% and 17% year-over-year increase in revenue to
    $2.1 billion and $4.1 billion, respectively. For the
    second quarter and first half of Fiscal 2009, sales of mobility
    products and unit volume increased year-over-year by 24% and
    27%, and 30% and 36%, respectively, compared to same period last
    year. Sales of mobility products grew due to the continued shift
    in customer preference from desktops to notebooks. APJ
    Commercial also reported 16% revenue growth in servers and
    networking on unit growth of 21% primarily due to our focus on
    delivering greater value within customer data centers with our
    rack optimized server platforms, whose average selling prices
    are higher than our tower servers. From a country perspective,
    Malaysia, Australia, and New Zealand experienced strong revenue
    growth during the second quarter of Fiscal 2009. Significant
    growth in India, and China during the second quarter of Fiscal
    2009 contributed to a revenue growth rate of 31% and 19%,
    respectively, for these targeted BRIC countries.
    Global Consumer  Global Consumer
    revenue increased 28% and 24% year-over-year for second quarter
    of Fiscal 2009 and first half of Fiscal 2009, respectively, on
    unit growth of 53% and 50% for the second quarter and first half
    of Fiscal 2009, respectively. We grew faster than the industry
    on a unit basis and increased our global share. This growth was
    led by APJ Consumer with 65% year-over-year increase in revenue.
    The increase in Global Consumer revenue is mainly due to strong
    mobility sales. Mobility revenue increased 62% and 56% in the
    second quarter and first six months of Fiscal 2009,
    respectively, on a unit increase of 101% and 90%, respectively,
    as compared to the same periods last year. Software and
    peripherals revenue grew 24% and 26% during the second quarter
    and first half of Fiscal 2009, respectively. Our mobility growth
    in this segment can be primarily attributed to our entrance into
    retail distribution arrangements, which began in the second half
    of 26




---



##### 



Fiscal 2008, and the continued shift of consumer preference from
    desktops to notebooks. Our software and peripherals growth is
    due to a strong performance in software licensing. These
    increases were offset by a 8% and 7% decrease in desktop revenue
    although desktop units grew 5% and 11% for the second quarter
    and first half of Fiscal 2009, respectively.  Revenue
    by Product and Services Categories
      Three Months Ended


Six Months EndedAugust 1, 2008


August 3, 2007


August 1, 2008


August 3, 2007% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


Revenue(in millions, except percentages)Net revenue:Desktop PCs

$
4,928



30%


$
5,017



34%


$
9,628



30%


$
9,959



34%Mobility


4,871



30%



3,865



26%



9,775



30%



7,881



26%Software & Peripherals


2,790



17%



2,380



16%



5,531



17%



4,721



16%Servers & Networking


1,702



10%



1,618



11%



3,355



10%



3,211



11%Services


1,462



9%



1,283



9%



2,910



9%



2,564



9%Storage


681



4%



613



4%



1,312



4%



1,162



4%Net revenue

$
16,434



100%


$
14,776



100%


$
32,511



100%


$
29,498



100%   
    Desktop PCs  During the second
    quarter and first six months of Fiscal 2009, revenue from
    desktop PCs (which includes desktop computer systems and
    workstations) decreased 2% and 3%, respectively, from the same
    periods of Fiscal 2008. The decline was primarily due to the
    on-going competitive pricing pressure for lower priced desktops.
    The demand for desktops continues to decrease as customers
    preference shifts to mobility products. Consequently, our
    average selling price for desktops decreased 6% and 9%
    year-over-year during the first quarter and first half of Fiscal
    2009, respectively, as we aligned our prices and product
    offerings with the marketplace. As a result of our pricing
    strategy, we were able to gain share during the second quarter
    and first half of calendar 2008. Average industry unit growth
    was 1% during those time periods compared to our unit growth of
    5% and 7% during the second quarter and first six months of
    Fiscal 2009. Desktop revenue declined across all of our segments
    except for APJ Commercial, which experienced year-over-year
    revenue growth of 11% for both the second quarter and first six
    months of Fiscal 2009. Our Americas Commercial, EMEA Commercial,
    and Global Consumer segments experienced weaker performance in
    desktop sales with year-over-year decreases of 1%, 6%, and 8%,
    respectively, for the second quarter of Fiscal 2009, and revenue
    decreases of 7%, 3%, and 7%, respectively, for the six months
    ending August 1, 2008. We are continuing to see rising user
    demand for mobility products that contributes to further slowing
    demand for desktop PCs as mobility growth is expected to outpace
    desktop growth at a rate of approximately six-to-one.
    Mobility  During the second
    quarter and first half of Fiscal 2009, revenue from mobility
    products grew 26% and 24%, respectively, on unit growth of 44%
    for both periods. This unit growth rate outpaced the
    industrys year-over-year unit growth of 37% and 38% for
    the second quarter and first six months of calendar 2008,
    respectively. We posted strong double-digit revenue growth
    across all segments, except for Americas Commercial, whose
    mobility revenue increased year-over-year only 4% and 1% for the
    second quarter and first six months of Fiscal 2009. We continued
    to see conservative spending in the
    small-and-medium
    business sector and with our large global customers in our
    Americas Commercial business; however, Americas Commercial
    experienced strong growth in its Federal government and Latin
    America sectors. Additionally, competitive pricing pressures,
    which were most pronounced in our Global Consumer and EMEA
    Commercial 27




---



##### 



segments, drove our average unit pricing down in Fiscal 2009.
    For the second quarter of Fiscal 2009, mobility revenue in
    Global Consumer, APJ Commercial, and EMEA Commercial grew 62%,
    24%, and 33% year-over-year, respectively, on unit growth of
    101%, 27%, and 52%, respectively. For the six months ending
    August 1, 2008, mobility revenue in Global Consumer, APJ
    Commercial, and EMEA Commercial grew 56%, 30%, and 33%
    year-over-year, respectively, on unit growth of 90%, 36%, and
    55%, respectively. The year-over-year growth in mobility was
    driven by our expansion into consumer retail and also increasing
    our notebook platforms by 50% this year. We recently announced a
    completely new line of
    Latitudetm
    and Dell Precision notebooks, ranging from the lightest
    ultra-portable in our history to the most powerful workstation.
    We also introduced the industrys first convertible tablet
    with multi-touch capabilities on the Dell
    LatitudetmXT.
    As notebooks become more affordable and wireless products become
    standardized, demand for our mobility products continues to be
    strong.  
    Software and Peripherals  Revenue
    from sales of software and peripherals consists of Dell-branded
    printers, monitors (not sold with systems), projectors, and a
    multitude of competitively priced third-party peripherals
    including plasma and LCD televisions, software, and other
    products. This revenue grew 17% year-over-year for both the
    second quarter and first six months of Fiscal 2009 driven by
    strength in software licensing. The growth was driven by our
    acquisition of ASAP Software (ASAP) in the fourth
    quarter of Fiscal 2008. With ASAP, we now offer products from
    over 2,000 software publishers. At a segment level, Global
    Consumer led the revenue growth with a 24% year-over-year
    increase for the second quarter of Fiscal 2009 and a 26%
    year-over-year growth rate for the first half of Fiscal 2009.
    APJ Commercial, EMEA Commercial, and Americas Commercial also
    experienced strong revenue growth of 18%, 21%, and 14%,
    respectively, for the three months ending August 1, 2008,
    and 19%, 19%, and 14%, respectively, for the six months ending
    August 1, 2008. From a dollars perspective, Americas
    Commercial led software and peripherals revenue growth with
    year-over-year increases of $200 million and
    $375 million for the second quarter and first six months of
    Fiscal 2009, which reflects the strong performance of ASAP. Our
    software and peripherals growth can also be attributed to
    improved performance in our displays business where we regained
    our number one position worldwide in flat panel displays.
    Servers and Networking Revenue
    from sales of servers and networking products grew 5%
    year-over-year for both the second quarter and first six months
    of Fiscal 2009 on unit growth of 19% and 20%, respectively. Our
    year-over-year unit growth outpaced the industrys growth
    of 13% and 11% during the second quarter and first six months of
    calendar 2008, respectively. Our server and networking revenue
    grew slower than units due to our pricing strategy as we shift
    our product offerings to lower price bands to drive growth. APJ
    Commercial, EMEA Commercial, and Americas Commercial contributed
    to the modest revenue growth, and in the second quarter and
    first half of calendar 2008, we were again ranked number one in
    the United States with a 39% and 37% share, respectively, in
    server units shipped. Servers and networking revenue growth
    benefitted from the success of our cloud computing initiatives
    featuring energy-efficient Dell customer solutions. During the
    quarter, we released our broadest lineup of dedicated
    virtualization solutions ever, including more than a dozen new
    servers, tools, and services, as a part of our mission to help
    companies of all sizes to simplify their IT environments.
    Services Services consists of a
    wide range of services including assessment, design and
    implementation, deployment, asset recovery and recycling,
    training, enterprise support, client support, and managed
    lifecycle. Services revenue increased 14% year-over-year for the
    three and six-month periods ended August 1, 2008, to
    $1.5 billion and $2.9 billion, respectively, aided by
    our new ProSupport offerings, which distilled ten service
    offerings down to two customizable packages spanning our
    commercial product and solutions portfolios with flexible
    options for service level and proactive management. Americas
    Commercial and APJ Commercial drove the increase in services
    revenue with revenue growth of 18% and 17%, respectively, in the
    second quarter of Fiscal 2009 as compared to the second quarter
    of Fiscal 2008, and revenue growth of 22% and 18%, respectively,
    for the first half of Fiscal 2009 as compared to the first half
    of Fiscal 2008. EMEA Commercial contributed with year-over-year
    revenue growth of 3% for the second quarter and 6% for the first
    six months of Fiscal 2009. EMEA Commercials services
    revenue is lower than our other segments mainly due to a higher
    level of deferred service revenue related to strategic changes
    in our service offerings. The year-over-year growth is
    attributed to the strong performance of our Lifecycle services
    in our Americas Commercial and APJ 28




---



##### 



Commercial segments and amortization of deferred service
    revenue. During Fiscal 2008, we acquired a number of service
    technologies and capabilities through strategic acquisitions of
    certain companies. These capabilities are being used to
    build-out our mix of service offerings. We are continuing to
    make solid progress in services, including ProSupport, remote
    infrastructure management, and Software as a Service (SaaS),
    which are aimed at simplifying IT for our customers. Our
    deferred service revenue balance increased from
    $5.3 billion at February 1, 2008, to $5.7 billion
    at August 1, 2008, due to continued strength in as sold
    services sales.  
    Storage Revenue from sales of
    storage products increased 11% and 13% year-over-year for the
    second quarter and first six months of Fiscal 2009.
    Year-over-year storage growth was led by strength in our
    Powervault line and the strong performance of our EqualLogic
    iSCSI networked storage solutions. To date since acquisition,
    EqualLogics business performance has met our expectations.
    The APJ Commercial, EMEA Commercial, and Americas Commercial
    regions all contributed to the strong year-over-year revenue
    growth. APJ Commercial led the revenue growth, with a 31%
    increase for the second quarter of Fiscal 2009; whereas, EMEA
    Commercial led storage revenue growth for the six-month period
    ending August 1, 2008, with a growth rate of 31%.  Gross
    Margin
    Three Months Ended

Six Months EndedAugust 1, 2008

August 3, 2007

August 1, 2008

August 3, 2007% of



% of



% of



% ofDollars

Revenue

Dollars

Revenue

Dollars

Revenue

Dollars

Revenue(in millions, except percentages)Net revenue

$
16,434



100.0
%

$
14,776



100.0
%

$
32,511



100.0
%

$
29,498



100.0
%Gross margin

$
2,827



17.2
%

$
2,951



19.9
%

$
5,792



17.8
%

$
5,789



19.6
%      29




---



##### 



Operating
    Expenses
    Three Months Ended


Six Months EndedAugust 1, 2008


August 3, 2007


August 1, 2008


August 3, 2007% of





% of





% of





% ofDollars


Revenue


Dollars


Revenue


Dollars


Revenue


Dollars


Revenue(in millions, except percentages)Operating expenses:Selling, general, and administrative

$
1,840



11.2
%

$
1,894



12.8
%

$
3,752



11.5
%

$
3,657



12.4
%Research, development, and engineering


168



1.0
%


155



1.0
%


320



1.0
%


297



1.0
%IPR&D


-



-



-



-



2



0.0
%


-



-Operating expenses

$
2,008



12.2
%

$
2,049



13.8
%

$
4,074



12.5
%

$
3,954



13.4
%   
    Selling, general, and
    administrative During the second
    quarter of Fiscal 2009, selling, general, and administrative
    (SG&A) expenses decreased 3% to
    $1.8 billion compared to $1.9 billion in the same
    period of Fiscal 2008. The decrease in SG&A expenses from
    the second quarter of Fiscal 2008 to the second quarter of
    Fiscal 2009 is primarily due to a reduction in compensation and
    outside consulting expenses of approximately $50 million.
    This $50 million decrease is due to decreases in
    stock-based compensation expense, which in the second quarter of
    Fiscal 2008 also included $86 million of additional expense
    for cash payments for expiring stock options. Additionally,
    costs associated with the U.S. Securities and Exchange
    Commission (SEC) investigation and the Audit
    Committees independent investigation decreased by
    $49 million from the prior year. Partially offsetting these
    decreases was an increase in depreciation, maintenance, and
    amortization of intangibles expenses of approximately
    $45 million year-over-year. 30




---



##### 




    Research, development, and engineering During the second quarter and first six months
    of Fiscal 2009, research, development, and engineering
    (RD&E) expenses remained flat as a percentage
    of revenue. During the second quarter of Fiscal 2009, RD&E
    expenses increased approximately $13 million to
    $168 million, and for the six months ending August 1,
    2008, RD&E expenses increased approximately
    $23 million to $320 million. We manage our research,
    development, and engineering spending by targeting those
    innovations and products most valuable to our customers and by
    relying upon the capabilities of our strategic partners. We will
    continue to invest in research, development, and engineering
    activities to support our growth and to provide for new,
    competitive products. We have obtained 2,109 patents worldwide
    and have applied for 2,429 additional patents worldwide as of
    August 1, 2008.
    In-Process research and
    development We recognized in-process
    research and development (IPR&D) charges in
    connection with acquisitions accounted for as business
    combinations. During the first half of Fiscal 2009, we recorded
    IPR&D charges of $2 million, primarily related to our
    acquisition of Message One, Inc.    Investment
    and Other Income, net
    Three Months Ended


Six Months EndedAugust 1,


August 3,


August 1,


August 3,2008


2007


2008


2007(in millions)Investment and other income, net:Investment income, primarily interest

$
49


$
123


$
104


$
239Gains (losses) on investments, net


(14
)


1



(11
)


5Interest expense


(26
)


(12
)


(38
)


(24
)CIT minority interest


-



(9
)


-



(14
)Foreign exchange


20



(9
)


110



(31
)Other


(11
)


2



(22
)


(1
)Investment and other income, net

$
18


$
96


$
143


$
174    31




---



##### 



Form 10-K
  Income
    Taxes
      Financing
    Receivables
  Financing Receivables
   32




---



##### 



small-and-medium
  Off-Balance
    Sheet Arrangements
  Asset Securitization 
  Accounting for Transfers and
    Servicing of Financial Assets and Extinguishment of
    Liabilities
     33




---



##### 



Liquidity
    and Capital Commitments
  Liquidity
      Form 10-K
 34




---



##### 



Six Months EndedAugust 1,


August 3,2008


2007(in millions)Net cash flow provided by (used in):Operating activities

$
1,251


$
1,754Investing activities


579



(121
)Financing activities


(987
)


(16
)Effect of exchange rate changes on cash and
    cash equivalents


16



41Net change in cash and cash equivalents

$
859


$
1,658   Operating Activities
    August 1,


August 3,2008


2007Days of sales
    outstanding(a)


38



35Days of supply in
    inventory(b)


7



7Days in accounts
    payable(c)


(74
)


(80
)Cash conversion cycle


(29
)


(38
)     (a)
    
    Days of sales outstanding
    (DSO) calculates the average collection period of
    our receivables. DSO is based on the ending net trade
    receivables and the most recent quarterly revenue for each
    period. DSO also includes the effect of product costs related to
    customer shipments not yet recognized as revenue that are
    classified in other current assets. DSO is calculated by adding
    accounts receivable, net of allowance for doubtful accounts, and
    customer shipments in transit and dividing that sum by average
    net revenue per day for the current quarter (90 days). At
    August 1, 2008, and August 3, 2007, DSO and days of
    customer shipments not yet recognized were 35 and 3 days,
    and 32 and 3 days, respectively.(b)
    
    Days of supply in inventory
    (DSI) measures the average number of days from
    procurement to sale of our product. DSI is based on ending
    inventory and most recent quarterly cost of sales for each
    period. DSI is calculated by dividing inventory by average cost
    of goods sold per day for the current quarter (90 days).(c)
    
    Days in accounts payable
    (DPO) calculates the average number of days our
    payables remain outstanding before payment. DPO is based on
    ending accounts payable and most recent quarterly cost of sales
    for each period. DPO is calculated by dividing accounts payable
    by average cost of goods sold per day for the current quarter
    (90 days).     35




---



##### 



Investing Activities
  Financing Activities
    Capital
    Commitments
  Redeemable Common Stock
  Share Repurchase Program
   36




---



##### 



Capital Expenditures
  Restricted Cash
  Contractual
    Cash Obligations
  Purchase Obligations
  Debt
  Recently
    Issued and Adopted Accounting Pronouncements
    Fair Value Measurements FAS 157-1, Application of FASB Statement No. 157 to FASB
    Statement No. 13 and Other Accounting Pronouncements That
    Address Fair Value Measurements for Purposes of Lease
    Classification or Measurement under Statement 13 FAS 157-2, Effective Date of FASB Statement No. 157
  ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-K Form 10-K.
 37




---



##### 



ITEM 4.
    Controls
    and Procedures  Rule 13a-14
  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Changes
    in Internal Control Over Financial Reporting
   38




---



##### 



PART II 
    OTHER INFORMATION  ITEM 1.
    Legal
    Proceedings    ITEM 1A.
    Risk
    Factors  Form 10-K
  ITEM 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds  Purchases
    of Common Stock
  Share
    Repurchase Program
    Total

ApproximateNumber of

Dollar ValueShares

of Shares thatTotal

Average

Repurchased

May Yet BeNumber

Price

as Part of

Repurchasedof

Paid

Publicly

Under theShares

per

Announced

AnnouncedPeriod

Repurchased

Share

Plans

Plan(in millions, except average price paid per share)Repurchases from May 3, 2008, through
    May 30, 2008

-

-

-

$6,385Repurchases from May 31, 2008, through 
    June 27, 2008

50

$23.71

50

$5,209Repurchases from June 28, 2008, through 
    August 1, 2008

10

$22.77

10

$4,965Total

60

$23.54

60   ITEM 4.
    Submission
    of Matters to a Vote of Security Holders    (1)
    Proposal 1 (Election of Directors)  A proposal
    for the election of the persons who will serve as Dells
    directors until next years annual meeting.(2)
    Proposal 2 (Ratification of Independent
    Auditor)  A proposal for the ratification of the
    Audit Committees selection of PricewaterhouseCoopers LLP
    as Dells independent auditor for Fiscal 2009.(3)
    Proposal 3 (Approval of Executive Annual Incentive Bonus
    Plan)  A proposal for the approval of the Executive
    Annual Incentive Bonus Plan 39




---



##### 



(4)
    Stockholder Proposal 1 (Reimbursement of Proxy
    Expenses)  A proposal to amend our Bylaws to provide
    for the reimbursement of certain proxy expenses incurred in
    connection with a stockholder proposed director nomination.(5)
    Stockholder Proposal 2 (Advisory Vote on Executive
    Compensation)  A proposal regarding adoption of a
    policy providing for an advisory stockholder vote on executive
    compensation.    Number of VotesProposalProposal 1:

For


WithheldElection of directors:Donald J. Carty


1,752,482,808



31,494,973Michael S. Dell


1,722,596,207



61,381,575William H. Gray, III


1,735,952,085



48,025,696Sallie L. Krawcheck


1,729,444,710



54,533,071Alan (A.G.) Lafley


1,729,515,350



54,462,431Judy C. Lewent


1,722,789,711



61,188,070Thomas W. Luce, III


1,592,693,941



191,283,841Klaus S. Luft


1,714,391,232



69,586,549Alex J. Mandl


1,702,329,438



81,648,343Michael A. Miles


1,604,990,854



178,986,927Samuel A. Nunn, Jr.


1,741,295,464



42,682,317BrokerFor


Against


Abstain


Non-VotesRatification of Independent 
    Auditor


1,639,921,449



128,394,191



15,662,140Proposal 3:Approval of Executive 
    Annual Incentive Bonus


1,680,400,555



85,206,230



18,349,218PlanStockholder Proposal 1:Reimbursement of Proxy 
    Expenses


502,051,847



951,177,961



35,899,342



294,848,631Stockholder Proposal 2:Advisory Vote on Executive 
    Compensation


557,661,512



901,151,264



30,290,302



294,874,703     ITEM 6.
    Exhibits  (a)  Exhibits
 40




---



##### 



SIGNATURE
    DELL INC./s/  THOMAS W. SWEETDate: September 3, 2008Thomas W. SweetVice President, Corporate Finance andChief Accounting Officer(On behalf of the registrant and asprincipal accounting officer)  41




---



##### 



INDEX TO
    EXHIBITS
  ExhibitNo.



Description of Exhibit3
.1



Restated Certificate of Incorporation, filed February 1,
    2006 (incorporated by reference to Exhibit 3.3 of
    Dells Current Report on
    Form 8-K
    filed on February 2, 2006, Commission File
    No. 0-17017)3
.2



Restated Bylaws, as amended and effective March 8, 2007
    (incorporated by reference to Exhibit 3.1 of Dells
    Current Report on
    Form 8-K
    filed on March 13, 2007, Commission
    File No. 0-17017)4
.1



Indenture, dated as of April 27, 1998, between Dell
    Computer Corporation and Chase Bank of Texas, National
    Association (incorporated by reference to Exhibit 99.2 of
    Dells Current Report on
    Form 8-K
    filed April 28, 1998, Commission File
    No. 0-17017)4
.2



Officers Certificate pursuant to Section 301 of the
    Indenture establishing the terms of Dells
    7.10% Senior Debentures Due 2028 (incorporated by reference
    to Exhibit 99.4 of Dells Current Report on
    Form 8-K
    filed April 28, 1998, Commission File
    No. 0-17017)4
.3



Form of Dells 7.10% Senior Debentures Due 2028
    (incorporated by reference to Exhibit 99.6 of Dells
    Current Report on
    Form 8-K
    filed April 28, 1998, Commission
    File No. 0-17017)4
.4



Indenture, dated as of April 17, 2008, between Dell Inc.
    and The Bank of New York Trust Company, N.A., as trustee
    (including the form of notes) (incorporated by reference to
    Exhibit 4.1 of Dells Current Report on
    Form 8-K
    filed April 17, 2008, Commission
    File No. 0-17017)4
.5



Exchange and Registration Rights Agreement, dated as of
    April 17, 2008, among Dell Inc. and Barclays Capital Inc.,
    Goldman, Sachs & Co. and J.P. Morgan Securities
    Inc., as representatives of the several purchasers named therein
    (incorporated by reference to Exhibit 4.2 of Dells
    Current Report on
    Form 8-K
    filed April 17, 2008, Commission
    File No. 0-17017)31
.1



Certification of Michael S. Dell, President and Chief Executive
    Officer, pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934, as adopted pursuant
    to Section 302 of the Sarbanes-Oxley Act of 200231
.2



Certification of Brian T. Gladden, Senior Vice President and
    Chief Financial Officer, pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 1934, as adopted pursuant
    to Section 302 of the Sarbanes-Oxley Act of 200232
.1



Certifications of Michael S. Dell, Chairman and Chief Executive
    Officer, and Brian T. Gladden, Senior Vice President
    and Chief Financial Officer, pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002   
    
    Filed herewith.
    
    Furnished herewith. 42