Tony Takazawa - Vice President, Global Investor Relations Joe Tucci - Chairman and Chief Executive Officer David Goulden - Chief Executive Officer, EMC Information Infrastructure and Chief Financial Officer.

Aaron Rakers - Stifel Nicolaus Kulbinder Garcha - Credit Suisse Brian Marshall - ISI Group Alex Kurtz - Sterne Agee & Leach Nehal Chokshi - Technology Insights Research LLC Andy Nowinski - Piper Jaffray Keith Bachman - BMO Capital Markets Brian Alexander - Raymond James & Associates Ben Reitzes - Barclays Capital.

Good morning and welcome to the EMC Second Quarter 2014 Earnings Conference Call. All parties are in a listen-only mode until the question-and-answer portion of the call. As a reminder, this conference is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce your host for today, Mr.

Tony Takazawa, Vice President, Global Investor Relations of EMC. You may begin..

Thank you. Good morning. Welcome to EMC’s call to discuss our financial results for the second quarter of 2014. Today, we are joined by EMC Chairman and CEO, Joe Tucci, and David Goulden, EMC Information Infrastructure CEO and EMC CFO.

Joe will begin our discussion with his view of the trends happening in IT, EMC’s vision and strategy and how the EMC federation is managing the transition to the third platform. David will then make a few comments on our results and provide a bit more detail regarding the operation and success of the EMC family of companies.

He will also discuss our outlook for the remainder of 2014. After the prepared remarks, we will then open up the lines to take your questions. We are providing you with our projected financial model for 2014. This model lays out all of the key assumptions and discreet financial expectations that are the foundation of our outlook this year.

We hope that you find this model helpful in understanding our assumptions in context and in ensuring that these expectations are correctly incorporated into your models. This model is available as background in today’s slides available for download in the Investor Relations section of emc.com.

Please note that we will be referring to non-GAAP numbers in today’s presentation, unless otherwise indicated. The reconciliation of our non-GAAP comments to our GAAP results can be found in the disclosure in today’s press release, supplemental schedules and the slides that accompany our presentation.

In addition, all financial comparisons will be on a year-over-year basis, unless otherwise indicated. As always, the call this morning will contain forward-looking statements and information concerning factors that could cause actual results to differ can be found in EMC’s filings with the U.S. Securities and Exchange Commission.

With that, it’s now my pleasure to introduce Joe Tucci.

Joe?.

Thank you, Tony and a warm welcome to everyone. Thank you for joining us today. Overall, we are pleased with our execution and results in Q2 as our year-on-year revenue growth accelerated to 5%.

Across our three major businesses, VMware grew 17% year-on-year, Pivotal grew 29%, which actually understates their growth as Pivotal has moved to mostly a subscription software model. So, looking at them on a bookies demand basis, the year-on-year growth rate was closer to 60% and EMC II grew 1%. EMC II was truly a tale of two cities in Q2.

Excluding their high-end storage business which declined 14%, their growth was up 7%. And the really good news within EMC II is that our all new high-end VMAX 3 was launched on July 8 and it will begin shipping in September. This launch is very important to us, as without a doubt, the pause ahead of this product was hurting us.

I would like to publicly thank my 65,000 plus colleagues from EMC, VMware and Pivotal and our value partners around the world for their professionalism and hard work and for their total dedication to our customers’ success. Now, let’s change gears a bit and discuss the major transformation that the global IT industry/market is going through.

And to be clear, as we have said before, this IT transformation is a secular, not cyclical shift and thus business as unusual is not and will not be a viable strategic option.

The clear drivers of this secular shift from the client server PC era of IT to an era defined by always connected mobile client devices, private and public cloud computing, Big Data with true predictive analytic capabilities and new ways to interact via social networking. Collectively, this new era is being called the third great IT platform.

This shift to third platform IT is creating a real dilemma for CIOs. Namely that today, virtually all companies or enterprises run the vast majority of their businesses or governmental services on second IT platform technologies.

At the same time, CIOs are facing huge pressure from all parts of the business, from marketing, from sales, from R&D, from services, to invest large sums of money to capitalize on these Big Data, mobile and cloud trends to connect with their customers, their supply chains and their employees and partners in a more agile, highly personalized real-time way with a lot more information and knowledge.

So the CIO with a tight IT budget is trying very hard to take as much cost as possible out of his or her platform two budget to invest in game changing platform three opportunities while keeping the precious information assets and identities secure. This is where we, the EMC family of companies play.

We help CIOs optimize their second platform investments and leverage these investments as we support them in their journey to the third platform.

We do this with technologies like inverged infrastructure, our broad family of software and hardware storage products, virtualization software, the software defined datacenter delivered through hybrid, private and public cloud models, with advanced automation software, with consulting implementation support and managed services and with modern HDFS based Big Data analytics featuring innovative industry leading query capabilities.

And in the information security world, we help verify and protect identities, detect anomalies in real-time, while assuring proper governance and compliance of security policies.

The EMC federated model delivers these compelling technologies and services in a tightly integrated fashion, while also offering our customers the ability to choose individual technology components for many of our companies or business units. Giving customers this choice is and will be a hallmark of our success in the third platform era.

We are able to leverage our different offerings as points of entry into the conversations with our customers and see a critical advantage in being able to do so with a broad family of products and services. Our innovative operating model is designed to reinforce the principles I just articulated.

For example, our businesses are strategically aligned but laser focused on their individual missions. We selectively align around key partnerships and go to market opportunities to realize the benefits of scale. We are better able to recruit and retain the best and the brightest people and focus them on the most important opportunities.

The power of this model is reflected in customer survey after customer survey which highlights the facts that our strategic relevance has never been greater and is in fact rising. Interestingly, customers tell us that by offering real choice, they don’t feel locked in and they are more prone to buy our integrated technology solutions.

And very, very importantly, as part of our operating model and strategy, we have made a string of innovative game changing investments that will help customers immensely in their journey from the second to the third platform. These are investments which will give us, real sustainable competitive advantage.

Since the beginning of 2012, we have invested almost $6 billion in acquisitions and internal developments in six key strategic product/business areas. We acquired Nicira, the leader in software defined networking, now an integral part of VMware’s NSX, SDN offering.

We acquired AirWatch, the leader in mobile device and security management, an integral part of VMware’s end user computing initiative. We formed Pivotal to focus on an open PaaS layer called Cloud Foundry. HDFS based Big Data solution and a new paradigm for rapid agile application development.

We developed from scratch a new innovative software defined storage offering in EMC II named ViPR and introduced a new solution aimed at cloud scale object and HDFS storage, called Elastic Cloud Storage or ECS. We acquired XtremIO and ScaleIO for very high performance scale out flash and block storage.

And we acquired DSSD and pre-introduced a new rack scale flash storage architecture to the market. These six bold investments have three things in common. First, they will all show up as a loss on our P&L this year. Second, I am 100% convinced that they all will be high margin, $1 billion plus businesses or product lines for us over the next few years.

And third, they all have game changing capabilities.

We are confident that we will deliver in 2014 and beyond supported by the fact that we achieved the revenue and EPS targets that we set for ourselves in the first half of this year, while building significant backlog by the fact that our new third platform offerings are showing substantial double-digit growth and by the fact that we are entering the second half with great momentum, a strong technology roadmap and a new VMAX 3 high end storage platform will be generally available.

Since the beginning of this year, David and I have personally met with over 100 investors and what we heard has resonated with us. You said we understand and like EMC’s strategy and strategic position. You said we believe there is a strong leadership team across the EMC companies and they have demonstrated an ability to execute.

You said EMC knows how to acquire companies and retain talent. You noted that our growth rate has slowed, but EMC has been growing faster than its large cap tech peers and our new platform three offerings are growing rapidly and that EMC has made a large number of strategic investments which are expected to pay off in the intermediate future.

And lastly, our investors made it clear that they believe we should return more cash to them as we execute our long-term strategy. We listened closely. As a sign of our confidence in 2014 and beyond, we are accelerating $1 billion of our buyback from 2015 into 2014.

In other words, on top of the $1 billion of stock we already bought back in the first half of 2014, we will buy back an additional $2 billion in the second half of this year. Together with our dividend, we expect to return almost $4 billion of cash to our shareholders this year. Let me close by addressing this week’s media attention on EMC.

We have not heard from Elliott Management other than our call to us staying that they are, or intend to be one of EMC’s larger investors. They also requested a meeting with me and I agreed to meet with them as I periodically do with all of our large investors.

For the record and I deeply believe in this principle, we, and we as management and our Board of Directors, are always open and welcome a dialogue with all of our shareholders and we respectfully listen to their ideas and beliefs as we form our strategic direction and policies. Thank you again for being with us.

And now let me turn it over to David Goulden.

David?.

software defined datacenter, hybrid cloud, and mobile. A key indicator of traction in software defined data center is the success of NSX and the paying customer account for NSX is over 150 representing all geos and verticals.

Another is the growth of the non-standalone vSphere bookings and these were up as well accounting for more than half of VMware’s total license bookings in the quarter compared with over 35% in Q2 last year. Our hybrid cloud business, which includes our vCloud service provider partner program and vCHS grew nearly 80% year-on-year.

And the end user computing, including AirWatch, new license bookings grew over 60% year-on-year, while our end user computing desktop business grew at double-digits. Now, turning to the foundational layer of the stack, EMC’s Information Infrastructure business and starting with the largest part, storage.

Overall, storage revenue was up 1%, compared to last year’s Q2. It is also interesting to note that excluding the high end, which is in a product transition, storage revenue grew 7%, which is faster than the industry overall and a good indicator that we gained share in Q2 in these markets.

We continue to see customers prioritize third platform technologies with their tight budget dollars and minimize spend on existing infrastructures. This dynamic was evidenced in our own results as we saw continued excellent growth from our emerging storage business, which grew 52% compared to Q2 a year ago.

Emerging storage includes several of the technologies that are in high demand in the shift to third platform, including all flash arrays and software defined storage, supporting both Big Data analytics and cloud workloads.

XtremIO, our purpose built all flash array is exceeding our expectations with demand ramping steeply in Q2 and momentum continuing into this quarter. XtremIO surpassed a $300 million annualized run rate for demand in Q2 and only the second full quarter of availability, establishing itself as the clear leader in the all flash array markets.

All XtremIO metrics were up. New customer wins, including new to EMC accounts, sales of multi-controller scale-out configurations, sales of our large 20 terabyte, repeat customers and customers purchasing more than $1 million of XtremIO.

XtremIO saw a significant uptake in new used cases, with databases in virtual services augmenting on already robust business in VDI. With the recently announced enhancements to XtremIO, including compression, encryption, writable snapshots, performance improvements and expansion configuration options, we expect our momentum with XtremIO to continue.

Software defined storage is a strategic growth area for us. The investments we made at VMware with VSAN on an EMC II with ViPR and ScaleIO are beginning to bear fruit. VSAN exceeded its plan in its first quarter of availability. Our software defined storage platform ViPR also exceeded its plan and more than doubled its customer count in Q2 from Q1.

At EMC World in May, we announced ViPR 2.0, which included the addition of ViPR block services via ScaleIO and new geo capabilities for ViPR objects and ViPR HDFS.

Our new Elastic Cloud Storage appliance which is powered by ViPR got off to a great start, shipping multiple terabytes of capacity in the quarter despite the fact that it started shipping with just a few days left in June.

Built with commodity components and optimize to scale and density, ECS is cloud storage infrastructure for objects, HDFS and block workloads that customers would rather not run on a public cloud.

ECS offers public cloud features such as multi-tenancy, metering and a self-service portal and billing integration to make it easy for customers to deliver storage as a service within their own environments and do it more cost effectively than in the public cloud. We were proud to announce that the Vatican was the first ECS customer.

Big Data has driven the developments of technologies like ViPR HDFS and ECS and it continues to power the success of Isilon. As customers direct attached storage environments begin to approach 100 terabytes, it makes sense from a TCO and management standpoint to use Isilon instead, especially for Hadoop.

Isilon offers native HDFS access to NAS files which means terabytes of data can be analyzed in place without any data movements. We just made Isilon even better with its NextGen systems which are on order of magnitude more scalable than other approaches for data consolidation on to a single file system.

Moreover, the deployments of Isilon is easier with new Vblock systems with Isilon for scale-out VDI and for Hadoop analytics. And with the new data like Hadoop bundle with Pivotal.

These new form factors augment Isilon’s already strong growth and scale-out NAS and make it a natural fit for Federation data like plays with Pivotal of which there were several in Q2. In the world of HDFS, we do not see one size fitting all. Both Isilon and ViPR provide best of breed HDFS capabilities, but their design points are very different.

We see Isilon being deployed primarily in datacenter scale use cases, while ViPR is targeted at cloud scale, globally distributed deployments. Our unified and backup recovery revenue grew 6% in Q2, with growth coming from both areas, and EMC clearly taking share in both.

VNX continues to benefit from the launch of VNX2 and the transition here is essentially complete. VNX is also benefiting from its place in converged infrastructure both at VCE and in our VSPEX program.

Our backup recovery portfolio continues to do well as Data Domain had another strong quarter, and our data protection suites showed very strong double-digit growth both sequentially and year-on-year. Our high end business improved from Q1, but was once again hampered by a tough prior compare and customer pause related to its pending refresh.

The good news here is that the new VMAX-3 has been announced and with a GA date late this quarter, we expect the new VMAX will ramp more meaningfully in Q4.

VMAX-3 is a complete new family with a new Dynamic Virtual Matrix architecture and new Hypermax operating system enabling the running of infrastructure applications directly inside of VMAX for the first time, protect points and ability to drive backup copies directly from a storage array, eliminating the need for dedicated backup service.

Three times the performance of the previous generation of VMAX and industry leading density versus our competition. All together, these give VMAX powerful new capabilities to drive consolidation and cost efficiencies in the datacenter and change the TCO conversation we can have with customers.

The breadth and the depth of our best of breed storage portfolio has a number of benefits. It allows us to cover all the bases with customers. We can innovate and integrate across platforms for unique architectural costs and TCO advantages. And we are able to deliver more consistent results due to the benefits of the portfolio diversification.

We continue to outperform the storage market because of our relentless focus on getting customers to hybrid cloud, which began five years ago. Since then, we’ve evolved our product portfolio to operate effectively in hybrid cloud environments.

The latest example being the public cloud gateway technology we are embedding from TwinStrata and we’ve steadily developed and acquired next generation technology such as ViPR, Elastic Cloud Storage and DSSD’s innovative new rack scale flash storage architecture we expect to launch next year.

While having the best technology is critical, equally important to success in hybrid cloud is the go-to-market model for these technologies and our strong partner ecosystem is a key factor in our ongoing success. Converged infrastructure delivered through VCE and through our VSPEX program has been a very popular consumption model for VMAX and VNX.

The demand for Vblocks grew a well over 50% again in Q2, and demand for VSPEX grew at just under 50% year-on-year. Our service provider partner program has been our fastest growing vertical since we started the program in 2011 and its rapid growth continues with demand up over 50% year-on-year in first half. Other partnerships are important as well.

Just last week, we announced the collaboration of EMC, Microsoft and Equinix, which gives EMC customers the ability to host EMC storage solutions in Equinix datacenters and connect to Microsoft as safely, reliably, and securely.

And long time partner, Capgemini attests the power of the full EMC family in winning a key multi-year transformational project with European clients to build a truly scalable and flexible IT infrastructure. Patrick Nicolet, Capgemini’s CEO of infrastructure services says that this is one of their first wins using the power of the federation.

EMC for storage transformation based upon pre-configure building blocks, VMware for the multi-sourcing service integration with IT business managements and the cloud journey with vCloud automation from VMware.

Finally, as we continue to win deals spanning all of the operating units, it’s increasingly important, we own these solutions and make them more repeatable to both sell and implement in our customer’s environments.

Through a recently established federation lab at VMware, we’ve proven a number of solutions leveraging EMC, plus VMware plus Pivotal technologies, we call them EVP solutions internally. We are building solutions in key areas including software defined data center, data legs, security analytics, VDI and platform as a service.

The first of these solutions, software defined data center is now complete and the EMC sales team is rolling it out globally. EMC consulting is now a valuable asset here and was instrumental in some of the federation win examples I mentioned earlier.

Turning now to security and content management, RSA is an important part of the federation play as security is a priority as organizations build out hybrid clouds. RSA grew 6% over Q2 of last year. Security analytics in Archer continue to drive growth here with each up over 20% year-on-year in Q2.

Our information intelligence group revenue returned to growth in Q2, up 4% from last year. EMC II demonstrated solid financial performance in Q2 and we also hosted a very successful EMC world in May, a mega launch earlier this month.

I would like to thank the entire team who worked hard to make all this happen, as always, our partners and customers for your continued support. As we look to the second half, we still expect IT spend growth and storage industry growth to be broadly similar to what they were in 2013.

However, our strategy is paying off and we believe we will continue to grow and gain share in this tough environment and achieve our targets of revenue of $24.6 billion, up 6% year-on-year, non-GAAP operating margins between 24% and 24.5%, non-GAAP EPS of $1.91, up 6% year-on-year, and free cash flow of $5.8 billion.

Achieving these full year results requires second half growth similar to the first half for VMware, and an acceleration of growth in the second half for EMC II. This acceleration is due to the changes we made to our quarter end process in the first half, which will result in less buildup of unshipped orders in the second half.

Additionally, we expect to benefit from a stronger Q3 in federal than last year and some improvement in Symmetrix in the second half driven by the new VMAX3. Importantly, EMC continues to outperform the markets and we’re very well-positioned to benefit from any upside should the IT spending environment pickup.

EMC is at the threshold of expansive opportunity, and we are very confident we are on the right track with our unique and powerful business model.

We are facing an opportunity right now that comes along only once every two or three decades and the investments we are making in leading edge technologies today will determine our success over the long run.

Our market leadership, healthy partner ecosystem, go-to-market strength, cutting-edge technologies and the winning team of three talent-rich organizations all support a strategy that deeply resonates with customers.

Our ability to continually gain profitable share as we did this quarter is directly tied to the soundness of our strategy, the flexibility of our business model, the growing synergies across our businesses and the ability of our team to execute. With that, I’ll turn it over to Tony to moderate Q&A.

Tony?.

Thanks, David. Before we open up the lines for your questions, as usual, we ask you to try to limit yourselves to one question, including clarifications. We thank you all for our cooperation in this matter. Rebecca, can we have the first question, please..

Thank you. We will begin the question-and-answer session. (Operator Instructions) Our first question comes from Aaron Rakers (Stifel Nicolaus). Aaron your line is open..

Thank you. Thank you for taking the question.

So just looking at the guidance, David, I can understand the variables on the revenue side but one of the comment that you had made was that after – it seems to imply after six quarters of year-over-year declines in EMC II gross margin that you are assuming a fairly healthy uptick and even year-over-year increase in gross margin possibly into the 58% range into the second half of the calendar year again just speaking to EMC II.

Can you just talk a little bit about the drivers of that? How do I parse through be it product mix relative to the change in unfilled orders and what that impact is through the second half of the year? Thank you..

Aaron, sure. Thanks for the quarter. So, I’m glad you understand the revenue explanation. I won’t go through that again unless we get a second question on it.

Relative to gross margins, yes, we do expect them to increase in the second half of the year over last year and we believe that we are on track to still have relatively flat gross margins ii for the full year. The biggest driver of that is actually volume.

The increase in volume of the second half is driven by the factors we talked about, including the change in business practices which push a percentage more of the full year into the second half. And it’s actually a pretty big driver.

Also, we’re expecting a little improvement in the high end business with the new Symmetrix, which we saw some pricing pressure in Q2.

A lot of people knew that it was coming along and obviously to entice customers to continue to invest in the second quarter, it cost us a couple of margin points on the high end, and now we have the new high end product out there.

We feel we are in a better position to be able to compete with both platforms in the market at the same time, but the biggest single driver will in fact be the increase in volume because the increase in volume has a big impact on the fixed costs and that’s what drives the increased margins we expect in the second half..

Thanks, Aaron. Next question please..

Our next question comes from Kulbinder Garcha (Credit Suisse). Your line is open..

Thanks. Question for I guess Joe and for David. You both can addressed this up this front but just on the speculation and the proposals can I ask the question a different way. Suppose EMC and VMware were separate companies.

Can you speak about the negative implications or the positive implications that that might have for EMC II? You can answer that any way which way you want.

I’m curious as to how you think about the federation and very clearly here why you think it’s the right structure?.

Well, first, Kulbinder, I want to make it clear, other than speculation that I have read in the press. I have not met with anybody from Elliott, as a matter of fact, in my whole life, I don’t think I ever met with anybody from Elliott.

So I really do want to hear what their – what their proposals are and I’m sure they would like to hear some of our plans as we presented to our other shareholders. The point here is I think you can capitalize – you can put this under one heading, if you think of what’s happening in platform three.

I mean the whole gain here is how do you support customers in platform two so they feel comfortable and then how do you transition them and how do you make their journey as seamless as possible to platform three. So without a doubt, we have some great assets for platform.

David told you how much the new storage products are growing up 52%, the Pivotal bookings, booking basis are up almost 60%. VMware was up 17% and VC was up north of 50%. So we have tremendous assets and I went through those six new streams, which have yet to play in the market, which are going to be massive opportunities for us.

So, we have a great collective set. To me, splitting them up, selling one of your most – spinning out one of your most strategic assets, I don’t know another tech company that’s done that and been successful. So again, I am interested to hear ideas.

We do have one basic total agreement coming into the meeting is that I think we both agree that EMC is undervalued and the rest of the question is how do we capture that value and make sure shareholders get it..

I guess, Joe just to be clear, that’s what your argument really is, there is quantifiable real, multiple examples of significant synergy across those two organizations which you can continue sharing with us.

That’s the point, right?.

That's right. We operate under the principle of strategic alignment, right. And then basically where competitors get in is when you leave seams. So, we actually plan – when we play in our strategic alignment, we do plan some overlaps.

And then we get some flurry in the field and other places when we do have that overlap of a bit of overlap emissions, sure, but I think that’s healthy. And of course, like in anything, bad news travels multiple times as fast as good news, but the multitude as David went through it, were the – this works fine.

The way customers are looking for more cooperation, not less cooperation, our strategic relevance. The opportunities we are getting, the opportunities at bat that we are getting are just fantastic. So, again, we are absolutely going to listen and -- but, again, I am answering your question to the best I can..

Thank you very much..

Thank you, Kulbinder. Next question, please..

Next question comes from Brian Marshall (ISI Group). Your line is open..

Great, thanks, guys.

As enterprise workloads migrate to the third platform, it seems like yarns specifically Hadoop 2.0 is going to be an interesting sort of data platform that emerges and obviously David talked a little bit about how Isilon plays into that as well as Pivotal, but at the end of the day, can you help us think how this transition will be somewhat cannibalistic to some of the core array business at the company and how you look to offset that? Thank you..

Brian, I think you have to look at these in two distinct buckets. The fundamental architecture of a platform two application that’s built around final block is just different from a platform three architecture that’s built around Hadoop and objects. So you are not seeing a migration of workloads away from platform two to platform three.

You are seeing new workloads emerge in platform three. You are not going to run your platform three workloads on your platform two infrastructure or vice-versa. So, think of them as two swim lanes, one of which is platform three, Hadoop, growing a lot faster than platform two. So, they are really additive in terms of the opportunity.

Now, we think that Hadoop and HDFS is going to be a killer technology in the third platform. We are focused on it with Isilon. We are focused on it with ViPR, with Elastic Cloud Storage and DSSD. So, we are going to have a lot of assets to pickup that growth as it develops.

A lot of those applications are still being developed and some of the existing ones are batch based and a lot of the new ones are going to be in memory and there will be a combination of both. So, there is going to be, if you like, a new set of technologies and architectures built around Hadoop.

And one of the key things is how you get the data out of your existing platform two apps into platform three and that’s obviously what we are working on with some of our bridging technologies, but think of them as two very different environments, each of which are going to have different dynamics in terms of their overall growth rate, but it really is additive..

Helpful, thank you..

Thank you, Brian. Next question, please..

Our next question comes from Alex Kurtz (Sterne Agee & Leach). Your line is open..

Yes, thanks guys for taking the question. David, can you just get into a little more detail about when you think about synergies in the federation around revenue and how it drives through the model.

What are the – the real key indicators for you about execution on that strategy? Is there anything kind of you can share from the model about what you expect how that drives through the model through VMware, Pivotal, EMC, and some of these new Hadoop products? How does that all filter into better margins and higher growth?.

Sure. Alex, I can give you a couple of examples. Again, let me try and separate the conversation between platform two and platform three.

So, if you look at kind of where the installed base is today predominantly in platform two, if you look at for example, EMC storage in VMware environments, much higher than it is in the rest of the marketplace and of course, VMware is a big driver of overall application workloads in the second platform. So, there are clear examples there.

If you go to the third platform, a lot of the examples I have talked about in my script, the kind of three large examples are all platform three wins where the customer really wants the Federation to come closer together to bring complete solutions.

If you look at what we are doing around these EVP solutions, things like SDDC, data like platform as a service, VDI, security analytics, those are all third platform apps that kind of leverage the power of the Federation. So we see it showing up in wins. We see it showing up in our install base.

And we think the synergies are going to be bigger in the third platform than they were in the second platform..

Thanks..

Thank you, Alex. Next question, please..

Your next question comes from Nehal Chokshi (Technology Insights Research LLC). Your line is open..

Yes. Thanks for taking my question. Couple of questions around emerging storage, first of all, it’s flat Q-over-Q, the past three years it has been up at least 10% Q-over-Q, can you talk about why it was always flat.

And then on the XtremIO compressions coming out, do you expect that to drive elasticity of demand in gigabytes with the significant savings there and how do you expect that to play out.

And finally, can you address variable box size operating system, why that’s not needed on XtremIO?.

Sorry, I missed the third part of the question, can you just repeat the third part?.

Yes.

Your primary competitor on XtremIO claims variable block size operating system as a significant advantage, can you discuss why you believe that’s not a disadvantage for the XtremIO operating system?.

Okay, sure. Let’s talk about – clearly that’s a three part question. XtremIO compression is a huge additional feature for us. Essentially it broadens the aperture of the use cases enormously. Now, I mentioned that XtremIO has already got to a $300 million demand run rate in the second quarter without having compression.

So it is orders of magnitude bigger than anybody else in the marketplace and the expansion of compression now means it can play in general purpose workloads on a broader basis. The variable block size argument is basically crazy.

Block sizes don’t really matter particularly to how these systems work, just look at the revenue growth we have been able to achieve and the booking growth we have been able to achieve so far.

So what’s different about XtremIO which is key, people try to focus on the wrong issue, what’s different about XtremIO is it’s a fundamentally different architecture. It’s truly scale-out, a lot of our XtremIO customers are actually buying the system in multiple scale-out blocks.

It has always on data services which means that you never slow the system down because you have to go back and do things after you have written to flash. The flash lasts longer because of that. So architecturally it’s completely different from other systems and that’s what makes it important and that’s why it’s growing so strongly.

As we mentioned that growth rate is going to continue into Q3. And then in terms of being quarter-on-quarter, with any emerging business, you have got some kind of lumpy things going on. So we saw great growth sequentially across all of – most of the lines in there.

Some of our larger object oriented systems have lumpy growth based upon individual orders, so that’s why you saw a little bit of flatness quarter-on-quarter, but the underlying growth rate for the sector is still very strong..

Great. Thank you very much..

Next question, please..

Our next question comes from Andy Nowinski (Piper Jaffray). Your line is open..

Well. Thanks for the question.

So VMware noted that vSAN has more than 300 customers now in its first full quarter and they are adding more functionality to it down the road with VVOLs, so can you give us your thoughts on whether it’s competitive to ViPR in the ScaleIO block services that you have added or any of the other platforms that serve in that sector?.

Sure. Andrew, this is David, let me take that. Thank you for the question. So absolutely, let’s talk upon the area where there may be a little bit more confusion out there specifically when it comes to vSAN versus ScaleIO. The ViPR is a much broader software defined storage platform, but ScaleIO and vSAN are two software defined block storage products.

But let me explain they are very different. They are from very different design points. One is naturally part of EMC and one is actually naturally part of VMware. Let’s talk about vSAN, vSAN essentially is an extension of vSphere. It lets vSphere manage the storage that it is sitting on top of and it’s great for things like a remote branch office.

If you look at the examples that Carl gave yesterday on a couple of ELAs they spoke about, one was for remote branch office application. The other one was for internal storage inside a caching service where the customer wanted to basically have the ability to upgrade those environments very rapidly. So we purpose built for that world.

ScaleIO is also a software defined block storage product, but it is designed to be a separate layer that sits outside of VMware. Think of it as the block storage part of ViPR is designed for massive scalability across thousands of servers.

It’s also designed to run in a completely heterogeneous environment, physical, bare metal, all forms of hypervisor. So one is basically storage within vSphere, the other is software defined storage that is designed to work as a separate pool of storage outside the server operating environment.

We think there is a lot of market potential for both and we are, making sure that we have our sales forces aligned so they can position the products properly. There’s really isn’t much overlap even between ScaleIO and vSAN and there’s almost no overlap at all between what we’re doing with ViPR and vSAN..

Great, thanks a lot..

Thanks Andrew. Next question please..

The next question comes from Keith Bachman (BMO Capital Markets). Your line is open..

Hi. I wanted to ask a question, Joe, of you if I could in terms aggregate demand. As you think about NetApp commented that they thought the demand profile for storage had been increasing and I was wondering if you could characterize that, but particularly drilling down on the fact of workload distributions.

In other words, if you look at the aggregate growth rate of storage over the next couple of quarters, when you have products such as XtremIO all-flash storage or Nimble, are you seeing dollars transfer from what you’d characterize as at the high end in your category is SIM or VNX, or more broadly legacy products.

Are you seeing the migration of those dollars into emerging categories or indeed these new workloads? If you could just talk a little bit about A, has there been an inflection point, any kind of inflection point change in storage? And then B, how are you thinking about the aggregate growth rate of storage as you think about legacy products versus emerging technologies.

Thank you..

Keith, this is David, let me start with that and then hand it over to Joe. So picking a question up from the bottom forward, in terms of XtremIO, obviously we can talk about what we see in the marketplace.

We see about 20% of our XtremIO sales going into environments where people are moving applications from high-end or mid-tier storage systems, but bear in mind that moving individual apps they are not replacing a complete storage system, they find one app that really benefits from the always on value proposition of all flash storage arrays and obviously what those storage arrays don’t have is the multi-tiering and all the other things and all the multisite capabilities etcetera of a high end storage system.

So about 20% of the situations we find people are moving apps off a SIM or a VNX is about 80% is going into new environments. So if you think of VDI being our biggest use case, for example with XtremIO that’s the net new application area, people are not running VDI systems on the Symmetrix and now they are going to move them off to an XtremIO.

They are moving – they are starting off with net new deployments of VDI on XtremIO. By the way, another good area of synergy across the federation, obviously the desktop business inside, the end user business inside of VMware is growing very rapidly and as is all flash array in the same marketplace, so a good example of a synergy.

In terms of workload distribution and aggregate demand, we see continued caution out there, as I mentioned in my comments, we see a lot of our customers grappling with the platform two, platform three debate and how much the investment dollars they spend on one versus the other. And as I said before, they are very different environments.

So we see that and just a macro IT caution being a bigger factor than anything at the micro level going on with storage other than the continued impact of that upon people just continuing to use more efficiency technologies, extend the life of their installed base factor we talked about for several quarters..

So no real change in the demand profile that you guys have witnessed?.

Nothing more than we’ve – we basically, I think we were fairly consistent with what we said at the start of the year, in terms of we expected IT spending and storage growth reportedly similar to what they were in 2013. That’s the assumption that we set our plans against and we still see that as being the right assumption..

Okay. Thank you..

It’s Joe. Just to add a little bit of color. As you look at what our position, we have this tremendous broad spectrum of – excuse me, of storage solutions, all the way from what we are doing in converged infrastructure, back into the newer products like XtremIO, ScaleIO, vSAN.

So, we can kind of listen – we go to the customer, understand where they are, where they need to go and we have a great selection, and there’s nobody else. There is nobody else in that category.

There’s point – we have point competitors, so we have talk about our storage competitors, we have to have a synthetic consolidation of about five different companies to say this is where we compete. So it’s a tremendous strategic advantage we have.

And second, I will say something, a lot of these new flash companies are making a lot of noise, but I will make a little bit of noise right now. They got the wrong architecture, because if you are going to play in the future and you don’t have scale out, you are going to lose.

And if you look at what we are doing in the future, whether it’s ScaleIO, vSAN or XtremIO, all scale out. If you look at what we are doing with the system we kind of just tipped our hat to a little bit and kind of lifted up the kimono a little bit, and gave you a peek at the SSD, all scale out.

So, when I look at the rack scales, when you look at what’s going to happen on the Hadoop market. Obviously, I think you’re going to be looking at on the bottom layer when you are storing this huge persistent data at slightly lower margin percentage. But if you look at margin dollars, it’s way bigger.

So, when I look at the future, I’m actually excited about our position, and then if you look at the layers and how we play with Pivotal and how we play with VMware and put that all together, it’s extremely compelling..

Alright, thanks, guys. Good luck.

Thank you, Keith. Next question, please..

Next question is from Brian Alexander (Raymond James & Associates). Your line is open..

Okay. Thanks. Just a question on the federation. You highlighted some key wins with global accounts that leverage the federation. So maybe go into more detail about how you are motivating that behavior. How maybe you are altering go-to-market strategies, sales structures etcetera to facilitate that.

And then related to that, is this something you intend to push harder with your channel or is this more of a direct sales effort at this point? Thanks..

Brian, thank you. Let me start. So as to your last question, yes, with the channel because a lot of our channel partners actually have relationships with all parts of federation. We just announced a new partner program at EMC World this year to make that actually even easier for them to transact with the different parts of the company.

So this applies to both. So from a go-to-market point of view, we are doing a couple of things. We are coordinating more closely now across our top global accounts to make sure we have a coordinated sale situation.

We are also, as I mentioned, investing in this these EMC VMware Pivotal solutions, which are design points and proof points for how the federation comes together in the third platform. So there are a number of initiatives that we are taking, the channel, the global accounts and the EVP.

So we would be just three examples of making sure we can make it more seamless.

As I mentioned particularly in the third platform, that’s where we can get a lot of demand from our customers to really come together and offer a stack or a suite which brings the companies together, because obviously, the market there is less mature and people are looking for complete solutions..

Thanks, Brian..

Thanks..

We have time for one more question and then a few closing comments from Joe..

Our final question comes from Ben Reitzes (Barclays Capital). Your line is open..

Well, good morning. It’s safe to say that the last three guys probably asked what I wanted.

But a little more on the VMware front, are you guys, is there – without maybe giving things away, there’s been some reports in the press about you guys getting even closer to VMware as well in your go-to-market strategies and perhaps a hedge to some of the competition that’s emerging out there, with current partners as well as something on the offensive.

Is there anything you want to say about that and how could you move closer together and how excited you are or not about joint products that you could put out together, that could give us a better indication of synergy as well?.

Well, I don’t want to preannounce any products, Ben. But if you look at the marketplace, and you look at, say the big players. Clearly if you look at IBM, they are in security, they are in Big Data and consulting services, cloud services and doing a lot with software and their own SDDC and Cisco very similar and Oracle very similar.

So basically, we are going to follow our roadmap and we are going to continue to provide that choice, but together, we are going to make sure we are better than ever strategically align. We will continue, again, and this is where the choice will come in, that each of these – each of the companies will focus on their mission.

And then I think David alluded to it and I mentioned it before, we are operationally aligning where it makes sense, and around specific opportunities and David gave you three of them, around some bigger global accounts, around some big partners, around our EVP solutions. And there will be other areas where we operationally align.

Some of them will be around actual announcements of products, but I don’t want to go there yet. So, that’s the playbook that we are following. And I think when you look at what our competition and then in some cases and I think co-opitation – companies that can co-opitate are going to be more successful.

So, how we basically, I think I made up a word, but companies that understand how to do that I think are going to win, because customers – I am totally convinced that if you don’t give customers some choice, you are not going to be in as good a stead in this transition to platform three and I think that’s where we will shine..

Okay, thanks a lot..

Well, first of all, thank you for being with us. And in closing, I want you to all to understand we really believe we have a terrific set of assets and a very strong strategic position. And I could tell you it’s a position that is the envy of many of our IT peers out there.

We are laser focused on the platform three opportunity, but as we have said before, we are also focused on supporting our customers in their platform two environments, where most of the applications and most of their businesses run on today. And we see fantastic opportunity and help them transition to this new mobile cloud Big Data era.

And this is where the full power of federation will shine. We are balancing, trying hard and we are open to all your suggestions of balancing our investments in the business and our return of cash to shareholders. As David has indicated, across the companies we have a strong product roadmap ahead of us.

And most importantly, we have momentum and our people believe in our future. So, thank you for being with us today and we will be talking with you..

Thank you. Thank you all for attending today’s conference. You may now disconnect..