Legends Live @Citi, featuring Michael Dell and Leon Kalvaria

Thank you, Leon. It's great to be here. Great to be at Citibank and let me just say it's an honor to be here. We appreciate the relationship that we have with Citibank, it goes back many, many decades. We know that a large portion of the financial activity in the world runs through Citibank, and a large portion of your most critical infrastructure runs on Dell technology. So, we take that responsibility very seriously and we're committed to making sure that it works. It works well 24/7, 365. Well, so far, no matter what.

We go where you go. And vice versa, except a few countries.

I can't claim to have had a difficult childhood. My parents were intellectual and as you said, my father was an orthodontist. My mother was kind of the financial brains of the operation and she became a stock broker, you know, as we got a little bit older and could sort of take care of ourselves as kids. And we didn't really talk about sports at our house. My parents were talking about economics and the price of oil in the 70s and the stock market and sort of what was going on in the world. And as a tight-knit family, two brothers, an older brother and a younger brother. And my parents were sort of middle class on their way to upper middle class. And when I was in junior high school, one of my math teachers said, 'Oh, well, you're pretty good at math. You should be in the numbers sense club.' Okay. And so I wasn't on the football team, wasn't on the basketball team. I was in the number sense club. And so what did we do? Well, we would do math equations in our head and there were like contests and so a few of us did that and one day the teacher that was sort of teaching us how to do all these math equations in our head got a teletype terminal at our public junior high school, right? She didn't really know what to do with it so she just kind of let us play with it.

No, we didn't pull it apart.

But we sort of figured out how to program it. And that was about I was about 12 years old. It was sort of the dawn of the microprocessor age. I also happened to, you know, ride my bike to school every day back and forth. And on the way, sort of riding my bike back to school, there was a Radio Shack store, right? And you go there and see all sorts of electronics and buy parts and see the early personal computers that were being developed and yeah, just became fascinated. And so from about age 12, I was just obsessed with computers and microprocessors and learning everything I could.

I did sell newspaper subscriptions.

Yeah. I was always trying to find ways to make a little money when I was a kid. And when I turned 16, you know, I didn't have to ride my bike everywhere. And my father said, 'Okay, here's this giant station wagon that's a gazillion years old. You can drive that because you'll probably not kill yourself if you hit something.' And so we'll get insurance and it'll be okay. So, that opened up my job options considerably, right? And so I got this job working for one of the two newspapers in Houston at the time. They've merged now, but it was called the Houston Post. And my job was to call people on the phone and convince them to buy the newspaper. And what I discovered pretty quickly was that there were certain people that almost always wanted to buy the newspaper. And they were people that were moving into a new house or apartment or people that were getting married. It was just pattern recognition. And so then I started thinking about, well, how could I find a lot of those people? Well, it turns out when you want to get married in Texas, you have to apply for a marriage license. And it's public information. So, if you go down to the county courthouse and you say, 'I'd like to see the list of all the people that applied for marriage licenses.' They'll give you a very funny look like, 'Oh my god.' You know, then they'll bring this giant book out and it literally has written all the names of the people and the address they want the license sent to. So, I hired a bunch of my friends, went to all 13 counties. We got all those lists. And then the other thing is Houston was kind of a boom town in the 80s and there were all these housing developments and apartment complexes and condominiums and things. So I would, you know, sort of go out to those places and find a way to sign a bunch of them up at one time. And so yeah, that worked out pretty well.

So my first full month there I was the top salesperson.

Yes.

Yeah. My parents did not like that.

Well, I was just super curious, just wanted to know how it worked, right? So, you know, telephones, televisions, and then, you know, when I got interested in computers, of course, I really wanted to know how that worked. And that sort of led me to upgrading computers. And I was upgrading computers sort of for my own purposes. You know, I wanted to make the computer more powerful, make it do more things. And then I started, you know, some parents sort of figured out that I knew something about computers and they're like, 'Hey, will you teach my kid how to use a computer?' I'm like, 'Sure, yeah, we'll do that.' And then some of the parents would say, 'Well, I want a computer, will you help me get a computer?' Sure, we can get you a computer. And what I noticed was, you know, back in that time there were all these computer stores. You had like ComputerLand and BusinessLand. You might remember those two of the bigger ones. There were a bunch of them. And these stores were franchises. They just popped up everywhere. And as a customer, I was pretty frustrated because they charged a whole bunch of money. They didn't know anything about the product they were selling. It just seemed like not a great deal. And you know, as I was taking apart these computers and sort of figuring out what all the parts cost, 1981 August, IBM, which was at the time the most valuable company in the world and had 80% of the market cap of what was then the IT sector. You know, no company's anywhere near that really in any sector, certainly not in technology. 80% of the market cap of one sector, right? Totally dominant. They come out with this IBM PC. And of course, they were the name in business at the time. And so, you know, I immediately got one of those, took it apart, and you know, they were selling it for about $3,000. And to my calculation, it was about $500 worth of parts. And so, it just didn't seem fair, right? That it was, you know, six times the price of the components. And so I started upgrading these machines and yeah, that ultimately led to the business being created.

You know, I was sort of upgrading all these machines as sort of a way to make some money on the side. You know, there was enough margin in there to make it work. Yeah. And it was fun. It was interesting and I liked doing it. I loved computers and all that. And so I go off to college and you know, I'm pre-med and of course, you know, my parents aren't there and I'm at the University of Texas so you know, the classrooms a lot of them were bigger than this auditorium right so if you didn't show up for class nobody really knew right. And so I just started doing more of the computer stuff right and I was selling to local businesses and I was bidding in state contracts and I was just, you know, just kind of ramping up this business. Anyway, my parents kind of heard about it. They got super upset. They said, 'You got to stop with this crazy computer stuff and focus on your studies and, you know, become a doctor like your brother and all that.' And so they kind of guilted me into stopping. I stopped for 10 days, couldn't stand it, and at that point decided, you know, I've got to make this a serious business. So, then here I am.

Well, first of all, this device, the personal computer is just an incredibly empowering device, right? An individual can get one of these, can program it to do pretty much whatever you want it to do. And that's kind of amazing because now you got this machine that calculates things and you know all the software is being developed and that's just incredible. So I was very excited about that. At the same time, you know, there was just sort of this obvious opportunity that looked to me and so I started by making kits to upgrade the IBM computers, right? And that's kind of how the business started. And we had a fast growing business making hard disk drive upgrade kits. We would buy hard disk drives. We'd get controller cards and controller chips. We'd write some software, make the cables, make the whole kit and we'd have all these computers and we'd format the drives and we'd sell them.

Well, I mean, I started me.

Well, I incorporated the company two weeks before my final exams of my freshman year. And then I moved into a thousand square foot office that lasted for a month, then 2300 square feet. And the company had in the first nine months like $6 million in revenues. And then it was 33 million. And it grew 80% a year for the first eight years. And then 60% a year for the six years after that. So that gets you to tens of billions, you know, if you can do math.

Well, they didn't really agree when I dropped out of college. But the way it worked at the University of Texas at the time was you could sort of like take a semester off and go back and it was like no problem. And so I kind of convinced them that I would do it for a while and then see how I was doing and then we'd decide whether I go back to college. So, you know, everything worked and, you know, I had financial statements. So, I showed them to my parents and they said, 'Well, yeah, we're not really sure what's going on here, but it looks like it's working, so you know.'

Yeah. And they were still pretty upset though.

Not as much, but after a couple years they totally came around. So it started as this upgrade business and there was a particular moment that I remember we had this customer Martin Marietta, you know, it's part of some big defense company now. And we had this customer and he wanted to buy 150 of these hard disk drive kits which was a lot for us at the time. And so the guy says, 'I want to come and see your factory.' And we're like, 'Uh oh, that's a problem.' It's like, 'We have a sort of factory, but it sort of looks like a massive dorm room, right?' You know, it's like not particularly well organized, never ran a company before. And so we did our best to sort of clean the place up. And we'd actually started building computers so we could format the hard drives, right? But they weren't computers we were going to sell. And so the guy's walking around and he's like inspecting the whole process. And he goes, 'What are these computers that you have to format the hard drives?' Well, those are computers we built so we could format the hard drives. Well, can I buy those? And we're like, never really occurred to us, but that might be a good idea. And so yeah, in three months we kind of changed the whole business to making our own computers.

That's right. And at the time there was also kind of a simultaneous development of a whole ecosystem around IBM PC compatible computers. There was a company called Chips and Technologies that created an ASIC chipset, application specific integrated circuits. And they took essentially the core logic beyond the microprocessor that would go in a 286-based PC and put it in this ASIC chipset. And so I found some engineers, got this ASIC chipset, we started designing our own motherboards and writing our own BIOS and we were making IBM compatible computers that were twice as fast as IBM's and half the price. So we had no problem selling them.

So, I have to make a slight correction there. 80 plus percent of our business was to businesses, governments, institutions, businesses of all kinds. 1985, our biggest customer was Exxon Corporation, right? I mean, we were selling to giant companies, right? We were also selling to consumers. That wasn't really our main business. Now, if you sort of looked from the outside in, you know, at ads in magazines, you might have thought, oh, this company sells to consumers, right? But actually, most of the business was to companies.

Well, it was IBM and of course Compaq was a famous company at the time and no longer. Those were the competitors, right? But it was a big deal for an Exxon to say we're going to use your product from the standpoint of safety, soundness, capability, etc.

Actually before I started the company. I realized that and it had to do with my older brother had graduated from college in three and a half years. He was quite... as opposed to you in less than one. I didn't graduate. Exactly. He decided before going to medical school, like a good son should do, to go to London for six months. And so in the spring of 1984, like two months before I started the company, my parents took me and my little brother to London to see our big brother and check in on him. And so, you know, we were in London and of course, I wanted to go to all the computer stores in London and see what is going on in the computer stores in London, right? And is this any different than the computer stores in the United States? Same thing. High prices. Yep. They didn't know what they were selling, but they were selling a lot of it. They were very happy. And so I decided about two years after starting the company that we had to expand internationally and the first place to go was the UK and so that was in '87. Then in '88 we did Canada and Germany and France and then by the early 90s we had gone all the way to as far as you could go in Europe, Poland, Czechoslovakia at the time, etc. And then we went to Asia. We went to Japan, Australia, southern Asia. There was really nothing to do in China until a little bit later. And then India, of course. And Latin America and Middle East too.

Yeah. And you know I would say all those countries, the first 30 or 40 of them I would go myself, right? You know, like hire the person to run it. And we would have factories in all these countries, right? You know, and so you had to make sure it all has the same quality and it worked.

He drank a lot of martinis and I just had water.

Yeah, you have to sort of back up a little bit. So, in the early to mid 2000s, we had an alliance with EMC. And I remember that, you know, sort of the idea here was, okay, Dell's got the servers, EMC's got the storage, you know, you put the server and the storage together, it's like peanut butter and jelly, you know, they go together perfectly. And you know, in fact we were selling them a bunch of servers that were embedded in their things and so we had all this stuff going and actually we had a lot of discussions around 2008 about combining the companies together. Then the great financial crisis comes along. Nobody's doing any deals. Forget about it. Right? So then we sort of start to go private. We get that done in the fall of 2013, right? And we're just like on a rampage to grow, pay down debt, generate cash flow, you know, private company, totally re-energized, and we were making incredible progress. And you know we sort of came back to this idea of wow if you could put Dell and EMC together along with the stake that EMC owned in VMware at the time. That would just be an incredible company and customers would really like to buy from number one in everything all in one place.

Right. But how could a private company, you know, buy something for 67 billion dollars? So anyway, we had some great bankers, including a number of them at Citibank that helped us figure that out and finance it. And we, you know, kind of started in 2015 and it was done in 2016 and it worked out super well. You know, we generated organic growth of the combination way more than we had planned. Because everybody loved the number one, you know, in everything all in one place. And you know we knew that data was important that if you go back and look at our statements around the time we were talking about artificial intelligence and machine learning nobody knew what would be happening today but there was a well-known understanding in the industry that there was a ton of data but the secret was nobody was really doing anything with it that was super valuable. And maybe at some point something would come along. Machine learning had already started. You know, AI was at least theorized to be something that would unlock all the data. And so here we are.

I don't know that I've really changed that much except maybe I have a lot more experience. But you know, I would say kind of the core beliefs and ideas are very, very similar to ones I started with. And you know, there's a lot of experimentation and curiosity and learning and wanting to continually improve things, you know, being pleased but never satisfied. And we'll come back to that. And sort of constantly trying to figure out, okay, what's around the corner? What opportunities are there? What could go wrong? You know, what can we learn from this situation? And how do we best position ourselves to continue to win.

Yeah, and I talk about lots and lots of failures.

I mean, you know, one early one for sure is we go public in 1988. And actually, it somewhat relates to something that's going on right now. You probably heard that the price of memory chips has been going up. So there have actually been eight memory cycles that I can remember going back to 1984. And so 1988, 1989 was one of those memory cycles. And we had sort of made a wrong bet in the way we had laid out our motherboards with respect to which kind of memory. And we made a horrible mistake, and it was kind of right after we went public and the stock kind of went flat on our face. I remember very embarrassing, and it was not the most auspicious debut.

Well, we learned a whole lot about planning and inventory management and optionality in designs. And we sort of went from not very good at inventory management to maybe one of the best. And a lot of people would look at our inventory and velocity and say, 'How do you do that?' There's some tradecraft in there that we have that we've been doing for a long time.

Completely. Negative cash conversion cycle, figuring out how to manage that. And look, I mean, we had some overly ambitious technical projects. I mean, you make a lot of mistakes, right? You don't want to make the same mistake over and over again. If you do that, then you're really in trouble.

Yeah, so it's sort of this idea, you know, complacency kills. We say, 'Celebrate for a nanosecond, now everybody get back to work.' And also, when you're in a business like this, there's so much opportunity, you kind of have to use your imagination to say, 'How high is up?' How big is this market? How fast is it growing? What's the opportunity? And you just want to be continually focused on improving. And look, I think all businesses, the rate of change is accelerating, and we're in a super interesting moment right now where companies have to reimagine themselves just to be around in five years, right? But I actually think this has been happening for a long time. This is accelerating. You know, I say in the book, there's the quick, there's the dead, you change or you die. And I really believe that. And so we have to constantly be reinventing ourselves. Our strategies from five years ago are fully amortized. They're not really worth much. And we have to be figuring out new problems that our customers have. How do we solve them? How do we solve them more effectively than others and create those outcomes? And so yeah, it's kind of a paranoia.

There's a long list of computer companies of the past that no longer exist. And I met Ken Olsen from DEC and I knew a bunch of these characters, you know, from Wang Labs, and kind of saw their incredible rise and fall. In fact, there was a great Fortune magazine cover, and I still have it, and it has Ken Olsen on the cover, and it says, 'World's Greatest Entrepreneur.' And it's just a great reminder that being on the cover of a magazine could be very dangerous.

Right. And if you believe that, that's the beginning of the end, right? So don't believe that stuff.

I mean, I tend to have a more optimistic view that AI will dramatically enable human potential and flourishing. That is not to say that there won't be problems and dangers. I mean, all technology has potentially bad uses, and this is super powerful and it's improving at a rate that is staggering, right? And it appears that recently it's sort of broken through to a level where it's approaching sort of genius or super genius levels in almost any knowledge domain. And I don't really see that slowing down. And so I think you will have accelerated scientific discovery. I think you will have enormous productivity and flourishing, but also a lot of change. And organizations or people that sort of hang on to the old ways of doing things... You know, when I was coming here in the car in this neighborhood, you still got some of those cobblestone roads. Guess they were great when the horses were around, but they're kind of annoying for the car, right? So, kind of made me think a little bit about this. I mean, we're just going to totally obsolete a lot of stuff, right? And so this really is a time where you need to reimagine what's possible. And I think the people and companies that figure out how to do that will be ready for the future and probably do very well. But the future doesn't have feelings, doesn't really care whether you're ready or not. I mean, at the end of the day, when we talk about AI, it sounds like this sort of thing that is some creature or some super... it's really just software and algorithms and calculus and quantum computing, integer algebra, you know, and it's going to be pervasive everywhere. And I'm a lot more excited than scared. But certainly there are big questions that are not easily resolved and that will evolve over time. I mean, just the same way as it has from other technologies.

Well, it was kind of something that I grew up with in our family, and Susan did as well. And so we kind of started from the beginning. Obviously, didn't have quite as much to work with, but it's been something we've been doing for a long time. In the late 90s, we formally set up a foundation structure. Now the foundation, any given time, has over 800 active projects around the world in a variety of domains, really focused on children in urban poverty and figuring out how to improve the opportunities for young people, particularly the disadvantaged, in education, in healthcare, in family economic stability. Scholarships are a big part of what we do. Also improving the education systems. We do certainly a lot with charter schools here in the United States. We've built systems to sort of measure the outcomes at schools and so making those available so that schools can sort of link action and reaction. And in Austin, Austin's our home, we have a special connection with Austin, and we've done quite a bit in healthcare there with a children's hospital that has become world-recognized and famous, a medical school. There'll be another significant announcement next month. Not going to tell you what it is, but it'll be exciting.

Every one of these 800 projects, we view it like an investment and we want returns. We want outcomes. If we're not getting those, then we stop.

Well, we know that when a child has an account like this, and there have been some small versions of this in various states and other places, when a child has an account like this, they're way more likely to graduate from high school, way more likely to go on to higher education, way more likely to buy a home, start a business, not be incarcerated. I mean, the life outcomes dramatically change even with a relatively small amount of money. We also know that it improves the mental health of the child and the parent to know that there's an account for them for these purposes in their future. And when I first heard about this idea from Brad Gerstner, our friend, in 2021, there were discussions with the previous administration about this, and nothing happened. And I kind of have to emphasize, I mean, this isn't a red idea or a blue idea. It's a red, white, and blue idea, right? And it transcends all that. And there was sort of the window of opportunity to make this federal legislation, and that occurred, right? And it's a miracle that it occurred because the US government is going to put $1,000 in the account of every baby born, you know, starting in '25 through '28. We think it'll keep going. Now we have thousands of companies that are matching, which we're doing too.

But people love it. Thousands of great companies. And so, of course, we saw it as a platform for adding to these accounts, right? A parent, a grandparent, an aunt, an uncle, a friend can, you know, with a QR code, put $25 in the kid's account. And we originally thought, Susan and I thought about Texas. You know, we love Texas. We're both from Texas. We said, 'Well, why don't we do something big in Texas?' And then we kind of thought about it some more. And things have been going pretty well so far. And so we decided to go much bigger, and we also believe that it would be catalytic, and it's proving to be. I think we have not a moment, I think we have kind of a movement going on. We have more philanthropists joining us. And so, yeah, we came up with this idea of $250 to start the savings investment accounts for 25 million children who live in zip codes where the median income is $150,000 or less. So, your kids, Leon, probably not going to apply.

Now, one important thing is the parents actually have to claim the account.

It is a bit of a hurdle now. And there are about 33 million children that qualify for our 25 million gifts of $250. So our gift will go to the first 25 million whose parents claim the account. By the way, every child 18 and under has an account.

No, they don't have to contribute. You just have to claim it.

Yeah, it takes about two minutes. I know this is a big ask, right, online to fill out this form. It takes two minutes. But I think we'll get there. We're getting like 100,000 or so a day, you know, parents that are signing up. And now it's part of when you file your taxes online, you claim your child tax credit. It's right there. You just say, 'Yeah, I want that.' And so we're trying to make it as easy as possible.

And you know, TurboTax, all the folks that do the online tax filing. So, and then as a platform, let's say that Leon decides he wants to give to 100 kids in his neighborhood, right, he can do that very easily. You can pick a zip code, you can pick a city, you can pick a town, pick any geographic area that you know by zip code. And you can also decide the age of the kids. You know, I only want to give to kids that are five and under or over 10. You pick whatever you want and then you can pick the amount. And so, we have somebody, for example, that wants to support the kids of veterans. Oh, that's a nice idea, right? So, there'll be a lot of varieties of these. So, if you fast forward five years or so, you'll have roughly 73 million children in America that will have an investment account that is broadly invested in the S&P 500. And that's kind of an amazing thing.

You know, you don't really need to know about capitalism or capital if you don't have any. And now we will have it.

I'm proud of my kids. You know, all four of our kids are married. I'm proud of all the knock-on effects, right, that occur when you start a company. All sorts of incredible things happen with the thousands of suppliers and all the things that we enable. I think about our technology being used for good in lots of places around the world. Yeah, that makes me incredibly proud. I mean, I think our company played a big role in democratizing the access to technology, making it more affordable, making it more accessible, and enabling all sorts of things. So, you know, if you look at some of the most important and exciting things that happen in the world today, they're like our best customers, right? They're fueled by our technology, and not just us, but a lot of companies are involved in making this happen. And yeah, I get incredibly proud when I see the impact that it has downstream.

Yeah, I mean, I think you need optimism. You need to be somewhat fearless, you know, not afraid to make mistakes, fail, experiment. And you got to come up with something that's valuable and interesting and important and solve some problem that nobody else has solved. And yeah, I mean, there's no shortage of opportunities. I mean, there's tons of new companies being created. I mean, if you happen to live in America, you're very lucky, right? I mean, there's a lot of capital, you know, people accept new companies being started all the time. We have this cultural thing in the United States which is very different from a lot of places. And you have a lot of capital that flows to new ideas. So, yeah, I mean, I think it's a super exciting time to be starting a new company. But you know, I would have never actually thought to go work at a company. It just never occurred to me. I would always want to go create.

Yeah, it's a great question. They actually did. They did try to buy us at one point. And most of you are too young to remember this, but IBM introduced something called the Personal System 2, the IBM PS2. And it was an attempt to sort of put the toothpaste back in the tube, if you will, to go back to a proprietary system of interfaces so that they could recapture their share in the PC business. And so they also created a new operating system called OS/2 with Microsoft, and they had this micro channel bus, and they sort of made it super complicated to try to get all that back. So they were definitely fighting back. And yeah, at one point they came to us with a crazy proposal, but we didn't bite at that.

The biggest challenge for us with respect to AI is we have a lot more demand than we have supply. And so the demand for AI infrastructure is growing super fast, and it takes about four years to build a semiconductor fabrication facility. And if you go back four years ago, nobody was thinking about all the things that are happening now, and so the investments in capacity were not made. So honestly, the biggest problem right now is just keeping up with demand.

Right.

I think you must know how to aggressively use all these tools to make yourself more successful and productive. And I still believe that a grounding in the hard sciences is incredibly important. I mean, I think the fundamental threshold question sort of at the middle of this is, you know, as we get new tools, are we going to do the same things with a few fewer number of people, or are we going to do more things? Right? I think we know the answer to this question. We're going to do more things. Now, there's certain things we'll do less of because they'll require fewer people, but ultimately I think this is going to lead to a much broader economic expansion because we haven't run out of things to do. You know, humans are innately curious and we have a lot of problems to solve and ideas to explore and things to invent, and all that is going to be accelerated with this technology, which is ultimately about enabling human potential.

Yeah, I would say, again, this is really a moment to reimagine Citibank. And I think the way you want to do that is you want to think about the trajectory of the tools that we have. They're amazing right now, but they're also the worst they'll ever be. And next year, and you're after sort of where are these tools going in 2030 and beyond. And you're going to have digital agents running all over Citibank doing things...

...going to make you more successful, more secure, more productive. And that's again a sort of reconceptualization. So every organization is a function of the tools and technology that were available at the time it was created. Right? And the bigger the organization, the harder it is to sort of get past the old stuff, right? And now we have just incredible new tools. I mean, we know that new companies are growing much faster than old ones because they're starting fresh. So that's the challenge that all companies face is to take their incredible assets, customer relationships, balance sheets, brands, etc., and quickly reimagine their capability given all this capability. So that's what we would love to help Citibank continue to do, to modernize. And that's how I think you get ready for the 2030s.

Thank you.