Expanding Access and Changing the World

THE DELL EFFECT

We’re proud of the impact the Dell Effect has made on the global economy.By making technology more affordable for businesses, consum-ers, and governments, we are improving the quality of life for people around the world.

Michael DellChairman of the Board

Kevin RollinsChief Executive Officer

1 The Democratization of Technology

3 The Dell Direct Model

6 Dell Values in Action

11 The Dell Effect: Expanding Access

12 The Dell Effect on the Economy and Society

15 Public Policy for a Better Future

Michael Dell founded his company in 1984 with a simple vision: sell customized, built-to-order personal computers directly to customers. Twenty years later, the impact of this insight on the company is obvious—Dell Inc. is a global leader in providing technology solutions to businesses, governments, institutions, and individuals with worldwide sales in the tens of billions of dollars and a global team of about 50,000. Under the leadership of Chairman Michael Dell and Chief Executive Officer Kevin Rollins, Dell is widely recognized as a blue-chip company that consistently delivers customer satisfaction and shareholder value. Dell’s simple vision has come a long way.

The global economy has undergone a massive transformation. Technology tools once available only to well-capitalized companies and wealthy individuals are now commonplace in small businesses and homes. Entire industries have been transformed through the deployment of productivity-enhancing databases and networks. The Internet, once the private realm of scientists and engineers, is now part of the fabric of daily life. Innovations in wireless net-working are untethering people and their machines from their desktops, making technology an even bigger part of how we work and live. The central role of computing in our lives today could scarcely be imagined even 10 years ago.

In 1965, Intel co-founder Gordon Moore famously predicted that growth in the power of computing devices would double every 18 months. But even Gordon Moore could not foresee that computers would become so affordable. This explosion in access to information technology is a result of Dell’s industry-leading focus on serving the customers’ needs and improving efficiency. Dell’s leadership, in turn, drives ever-improving quality and ever-decreasing costs in every part of the value chain, from component costs like disk drives and chips to peripherals and accessories such as printers and Personal Digital Assistants (PDAs). Because of Dell’s direct model—and the industry’s response to it—information technology across the spectrum is more powerful, easier to use, and far more affordable, giving everyone the opportunity to take advantage of powerful new tools. This industry-wide phenomenon has come to be known as The Dell Effect, and it represents the democratization of technology.

The Dell Effect 1

Dell | The Democratization of Technology

The Dell Effect is revolutionizing the industry to make computing far more affordable; it’s the democratization of technology.

The Dell Effect2

The Dell Direct Model and The Dell Effect

EXPANDING

Access to Computing

Global Connectivity

MODERNIZING

Education

Small Business

Health Care

Government

THE DELL EFFECT

THE DELL DIRECT MODEL

IMPROVING Supplier Relations

Processes

Productivity

Value

At the heart of Dell’s leadership in the computing marketplace is the Dell Direct model—our systems are built to the customer’s specifications after an order is placed, and then shipped directly to the customer. While this model has distinct business advantages, the primary benefits are to our customers:

1. Customers get leading-edge technologyThe computing industry innovates so quickly that computers sitting in warehouses or on retail shelves can become outdated even before they are sold

2. Customers only pay for what they needWorking at our Web site or with our order specialists, customers can choose from thousands of possible configurations to ensure that their computers will meet their needs, without paying for extra storage, devices, or software that won’t be used

3. Customers know where to get helpWe provide an efficient single point of access for any hardware assistance because we maintain records on the configuration of every computer we build

4. Customers reap the benefits of innovationThe Dell Direct model represents a revolution in supply-chain management. Collaborative research and development and improved efficiency enables Dell to make computers—and its suppliers to make computer components—faster and more powerful, while driving down costs

The Dell Direct model changed the way the world shops for technology and revolutionized the computer manufacturing industry with five simple principles:

1. Stay close to the customer

2. Provide a single point of accountability

3. Empower consumers with customization

4. Drive down costs through continual improvement

5. Deliver standards-based technology that is easy to use

The Dell Effect 3

Dell | The Dell Direct Model

The Dell Direct Model is built on staying close to the customer and constantly improving.

Transforming the World with Affordable Computing

IMPROVING

PRODUCTIVITY IN ACTION

The key to the Dell Direct Model and the Dell Effect is constant innovation through-out the company. Every division must work to improve efficiency and reduce costs at all times. The only way to keep giving students, businesses, and con-sumers the benefits of the Dell Effect—affordable access to more kinds of technology—is to harness the creativity of every member of the Dell team.

The Business Process Improve-ment program is Dell’s way of getting every team member working to create the Dell Effect. Every employee is eli-gible for BPI training, which is offered in advancing lev-els represented by the martial arts-inspired “belts” award-ed for completing a course, from yellow belts for a basic BPI training to black belts for high-level engineers. While the training varies by level, the underlying goals of BPI are the same across the board:

1. Engage our team members in contributing to making our business more efficient and responsive to customers, and

2. Give our team control over having their ideas imple-mented within the company.

One outstanding example of BPI in action took place at our Texas manufacturing facility. The team responsible for put-ting completed systems into boxes for shipment undertook, at their own initiative, a reor-ganization of their work area to make frequently-used parts easier to reach. The result of their project: they boosted the number of systems boxed from 300 to 350 per hour, an aston-ishing 17 percent productivity increase.

It’s stories like this that have been key to Dell’s success. Like so many U.S. companies, we find that our workers are an endless source of great ideas—ideas that would be wasted without a clear pro-cess for turning them into re-ality. No matter what color the belt, every BPI-trained team member knows exactly where to go when inspiration strikes to put their ideas into place.

The results speak for them-selves—year after year, Dell posts productivity improve-ments many times greater than the economy as a whole, and year after year our prod-ucts become more affordable as a result. Our commitment to the BPI program has been rewarded many times over, because the underlying phi-losophy is undeniably true: em-power workers with the tools to make a difference, and the innovation will follow.

5

Business Process Improvement ProgramThe Dell Direct Model and the Dell Effect are driven by constant innovation through-out the company.

The key to the success of the Dell Direct model is a Winning Culture—the fun-damental philosophy under which the Dell team works together. Essential to our culture is our commitment to:

1. CustomersEvery team member’s goal is to provide a superior customer experience through efficiency and operational excellence

2. Direct RelationshipsWe believe strongly in treating people—customers, partners, suppliers, and each other—fairly, openly, and respectfully

3. Global CitizenshipWe believe in participating responsibly in the global marketplace; we are committed to understanding and respecting national laws, values and cultures; promoting a healthy business climate globally and contributing positively in every community we call home

4. Team SuccessWe believe our highly-skilled team is our greatest asset, and we cultivate and reward leadership, diversity, and contributions to the success of the entire team

5. WinningWe have a passion for excellence, leading the markets we serve, and providing superior shareholder return over time

These values are so ingrained among our team that we’ve given them a name: The Soul of Dell. Our Winning Culture has made Dell a global leader in the technology industry, and our leadership has dramatically reduced the cost of that technology—the Dell Effect.

Dell | Dell Values in Action

The Dell Effect6

The power in a company resides in the people who go to work every day, clear about their objectives, and committed to achieving them in the right way.Kevin Rollins

At Dell we cultivate a “Winning Culture” and every member of the team is commit-ted to making customers hap-py and growing the business. But we know that a Winning Culture requires integrity and a commitment to deal fairly, honestly, and ethically with every customer, supplier, and investor. Our commitment to integrity is reflected in our Winning Culture initiative:

1. We hold ourselves to a higher standardEvery individual is committed to following the letter and spirit of every law, regulation, accounting rule, and contract; we don’t seek competitive advantage by splitting legal or ethical hairs.

2. We place equal emphasis on leadership and personal responsibilityOur Global Ethics Committee cen-tralizes our policy development and Code of Conduct, but each team member is responsible for ensuring that all of their actions on behalf of Dell meet the highest ethical standards.

3. We are proactive in preventing ethical lapsesOur emphasis is on preserving the reputation of our brand; our ethical risk assessment model will iden-tify areas where ethical breaches might occur so we can stop them from happening in the first place.

4. We hold our managers accountableOur “Tell Dell” employee feed- back program gives team members the chance to rate the ethical behavior of their supervisors; low ratings can trigger scrutiny or audits from senior management.

Dell’s higher standard is a simple statement of the values we hold dear as a team: “Success without integrity is essentially meaningless.” Every person at Dell takes that statement to heart, which is why Dell takes pride in its reputation for integrity.

VALUES IN ACTION

Winning with Integrity

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We promote diversity for one simple reason: our success depends upon it. We recognize that diversity in our team is key to connecting with customers, gaining new insights, and driving innova-tion. Diversity at Dell is not merely a corporate program or a distant goal, it is an in-grained part of our Winning Culture—we encourage every team member to be the best at what they do. Our commitment to diversity means that:

1. Women and minorities make up more than one- half of our total U.S. work-force, more than one-third of our U.S. managers, and more than one-fourth of our executive team

2. We are increasing diversi-ty throughout the industry by reaching out to minority-and women-owned suppliers

3. We invest heavily and are actively involved in com- munity diversity programs and organizations

Dell has won numerous awards for diversity. While we appreciate the recognition, the bottom line is that diversity makes us a better company, and it is our customers who reap the benefits.

Encouraging Diversity

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While the Dell Effect has made computing technology avail-able to many people who could not afford it in the past, we understand that merely having access to technology is not enough. Every comput-er owner needs a basic set of knowledge and skills to make the most of the myriad tools in a modern personal computer. Developing those skills is especially important for low-income students, who may not have regular access to computers either at home or in the classroom.

To meet this challenge, we developed the Dell TechKnow program, a 40-hour, hands-on course where low-income middle school students work in teams to learn how com-puters work. Upon successful completion of the program, the students can keep a free refurbished desktop computer, having demonstrated compe-tencies in key areas:

1. Taking apart and reassembling the computer

2. Performing basic hardware upgrades

3. Installing and using common software programs

4. Navigating the Internet

5. Working collaboratively as a team

Thousands of students from around the country have already participated in the Dell TechKnow program. But the impact has been even greater—the students use their new computers and new skills to spread their knowledge to their siblings, their class-mates, and even their parents and teachers. The Dell Tech-Know program is about more than giving computers to kids; it’s about giving them a chance to succeed in the 21st century global marketplace.

Bringing 21st Century Skills to Disadvantaged Kids

The Dell TechKnow program is about more than giving computers to low-income kids; it’s about giving them a chance to succeed in the 21st century global marketplace.

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VALUES IN ACTION

Bringing 21st Century Skills to Disadvantaged KidsAs personal computers have become more ubiquitous, their environmental impact has become more troubling. Computing devices not only consume electricity contribut-ing to greenhouse emissions but traditionally have been built with materials such as lead and flame-retardant plastic that could be hazardous if collected in landfills.

To protect the health of our environment, Dell has started an industry-leading program focused on reducing the environmental impact of our products at every stage of the product life cycle:

1. Product Concept and DesignWe are focused on reducing the inherent impact of our products by designing devices that consume far less energy and contain far fewer hazardous materials than government standards require.

2. Manufacturing and OperationsWe have implemented numerous workplace programs to conserve energy, reduce waste, and increase recycling.

3. Customer OwnershipWe have significantly reduced the amount of paper and packag-ing materials that we ship to our customers, as well as educating our customers on how to use their computers in an environmentally-friendly manner.

4. Equipment End-of-LifeBuilding on the idea that “no computer should go to waste,” we have implemented programs that allow customers either to donate their old computers for refurbishment or (for a nominal cost) participate in our recycling program that minimizes waste and properly disposes of hazardous materials.

Before the Dell Effect made computing devices so commonplace, little thought was given to the impact that computers made on the environment. We fully expect that the Dell Effect will work as well for environmental responsibility—Dell’s direct relationship with customers and suppliers will help the in-dustry become more conscious of our impact on the planet.

Promoting Environmental Responsibility

Affordable Computing Through Innovation and Productivity

EXPANDING

The Dell Effect is the result of our team’s winning culture and relentless focus on delivering value to the customer through the speed and efficiency of our business model. Through the collective efforts of our global team, Dell has been able to boost productivity at industry-leading rates. In one key productivity metric—the number of computers built per Dell employee—we have seen an increase of 240 percent in just five years, a productivity jump nearly 10 times greater than the economy at large.

As a result of these dramatic productivity gains, the price of computing devices and associated peripheral equipment has declined dramatically. The average price of a personal computer has been cut nearly in half since 1999. These price declines are all the more dramatic when viewed in light of technology improvements: a new computer built today is 20 times faster and has 50 times as much storage as seven years ago, yet costs half as much. The Dell Direct model has harnessed the power of Moore’s Law and added new efficiencies to deliver unprecedented value to customers.

As a result of Dell’s industry leadership, more people than ever are able to own and use computing devices. Because the Dell Effect has made personal computers more affordable, the number of people using the Internet has grown dramatically over the past few years, and what was once an expensive luxury is now an affordable and indispensable part of daily life in America. The end result is clear: more Ameri-cans are buying computers for their businesses and homes. The Dell Effect has dramatically expanded access to technology by those previously unable to afford it—the democratization of technology.

The Dell Effect 11

Dell | The Dell Effect: Expanding Access

Dell Productivity Gains1000

750

500

250

02000

Systems Built per EmployeeSOURCE Dell corporate data

2001 2002 2003 2004

Average Cost Per System$1750

$1550

$1350

$1150

$950

$750

Average Cost Per SystemSOURCE Dell corporate data

2000 2001 2002 2003 2004

Personal Computers in the U.S.$1750

$1550

$1350

$1150

$950

$7502000

Cost of Average Computer U.S. Homes with Personal Computers

SOURCE Dell corporate data and Jupiter Research

70%

68%

66%

64%

62%

60%2001 2002 2003

Persons Using the Internet$1750

$1550

$1350

$1150

$950

$750

Cost of Average Computer Americans using the internet

SOURCE Dell corporate data and IDC

70%

68%

66%

64%

62%

60%2000 2001 2002 2003

America’s largest corporations have known for decades that deploying computing technology has tangible and valuable benefits. Indeed, government data show a direct link between greater IT deployment and increased productivity.

The Dell Effect is bringing the benefits of IT-driven transformation to more and more segments of the economy and society. Consider some of the dramatic changes we’ve seen in the last few years alone:

Empowering Small Business The number of small businesses purchasing server technology has nearly doubled since 1998 as the Dell Effect has cut the cost of serv-ers by over one-third. These servers give small businesses the storage and computing power necessary to take advantage of the Internet to reach customers around the world and to improve the customer experience. Custom home designers Donald A. Gardner Architects, Inc., who won the 2004 Small Business Excellence in Customer Experience Award from Dell and the National Federation of Independent Businesses, deployed an Internet tool to help its customers quickly examine different floor plan options and find builders in their area. These high-level software tools are available to small business because powerful hardware has become so affordable. Don Gardner is not alone in taking advantage of valuable new technology—more than two-thirds of small businesses now use the Internet as a business tool.

Upgrading Public Education The need to both teach technology literacy and improve administrative efficiency is requiring many school districts to invest in new technologies. Thanks to the Dell Effect, which has dramatically lowered prices on both computers and servers used in educational settings, districts such as Beacon City, New York and thousands of others can afford to deploy institutional networks that connect classrooms, students, teachers, and administrators into an integrated whole. And through the Internet educators can reach out to parents and families, while also provid-ing access to educational resources in a way that was unimaginable just 10 years ago.

Dell | The Dell Effect on the Economy and Society

The Dell Effect12

Change in Workplace Productivity5%

4%

3%

2%

1%

0

-1%

-2%1990

More IT-intensive industries All industries Less IT-intensive industries

SOURCE Digital Economy 2003, U.S. Department of Commerce

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

The Dell Effect 13

Modernizing Higher Education The Dell Effect is transforming learning and college life, from intelligent classrooms to campus-wide wireless networks. Dell has lowered its prices in the education market by nearly half since 1998, and the results are clear: Our shipments to educational institutions have grown over 200 percent in that period. Today nearly 90 percent of college students own a personal computer, up from 61 percent in 1998. In fact, computers are so important to higher education that many colleges and universities are making computer ownership mandatory for incoming students. Dell proudly participates in hundreds of programs designed to give new students their own laptops pre-loaded with all of the necessary hardware and soft-ware for learning and campus life.

Enabling Advanced Research The Dell Effect has made it possible for many univer-sities and research institutions to afford supercomputing through the development of high-performance computing clusters (HPCCs)—large groups of inexpensive servers linked together to act as a single massive computing machine. The National Center for Supercomputing Applications (NCSA) at the University of Illinois, Urbana-Cham-paign linked together 1,400 Dell PowerEdge servers in an HPCC called “Tungsten.” Tungsten is one of the fastest computers in the world, built at a fraction of the cost of a traditional supercomputer.

As important as these developments have been, there is more to be done. The Dell Effect can be harnessed to transform some of our most important social endeavors, such as the efficient and effective delivery of health care and government services.

The Dell Effect is bringing the benefits of IT driven information to more and more segments of the economy and society.

Dell and Public Policy: A Committed Partnership

MODERNIZING

In the coming years, Dell looks forward to being an active partner in building a public policy agenda that adapts the innovative practices of the technology industries to the needs and goals of people and governments worldwide. With government leaders, we hope to achieve four primary goals:

Help governments at all levels harness the benefits of the technology revolution. Policy makers will face serious challenges in the coming years to transform health care, education, and government services. Meeting these challenges will require not only the use of computing technology, but also the implementation of the lessons learned by cutting-edge companies over the past two decades. Most sectors of the economy have harnessed the power of the technology revolution to reap the benefits of increased productivity, customer responsiveness, and continual workforce skill improvement. Those benefits, however, have not yet been fully realized in government, education, and health care. The proven success of the technology industry can play a role in meeting the challenges of efficient and effective delivery of critical government services.

Build a highly-skilled workforce. Growing competition from around the globe means American businesses will need workers who can harness the power of information technology. Today’s students need to learn not only how to operate com-puters, but how to use computers as tools for communication and skill acquisition. Modernizing the education system to make learning and skill acquisition a lifelong process will be critical to remaining competitive in the coming decades. Working together, businesses will need to identify the 21st century skills necessary in a highly competitive workforce; and government will need to transform education to ensure that every person has the opportunity to acquire those skills.

The Dell Effect 15

Dell | Public Policy for a Better Future

The benefits of the technology revolution must be expanded from the private sector into government, education, and health care.

Make widespread access to computing an international priority. Despite dramatic reductions in cost over the years, there remain millions of Americans and billions of people around the world for whom computing remains out of reach. It is a truism in the technology industries that the value of a network increases exponentially with each person who joins. This powerful truth demands that bringing more people into the networked world become a priority for governments around the world. Doing so will not only benefit the newcomers by expanding opportunity, but will also bring the benefit of added ingenuity and creativity to those already participating in the global communication network.

Create a climate in which innovative business models can grow and succeed. Successful American companies depend on constant innovation in their business models to compete in the global marketplace. Government must work to create an environment in which U.S. companies can continue to lead the world. Fostering innovation and global business practices are essential elements of suc-cess. Avoiding policies that undermine these successful strategies will also be critically important. Although American businesses and workers are ready to rise to the challenge of a rapidly-changing global economy, well-meaning efforts to manage economic transformation can backfire. We must be mindful of even unintentional interference that could damage the competitiveness of America’s most creative and visionary companies.

Dell’s entire worldwide team stands ready to help. We reaffirm our commitment not only to make Dell a continuing American success story, but to partner with government to ensure that the benefits of the networked world are brought to every human being around the globe. Working together, we must strive to achieve this important goal.

Dell | Public Policy for a Better Future

The Dell Effect16

Bringing more people into the networked world must become a priority for governments around the world.

Dell, the Dell logo, PowerEdge, PowerVault, PowerConnect, Dell Precision, Inspiron, Latitude, OptiPlex, Dimension and Axim are trademarks of Dell Inc. Other trademarks and trade names used in this document refer either to the entities claiming the marks and names, or to their products. Dell disclaims proprietary interest in the marks and names of others.

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