Tony Takazawa - VP, Global IR Joe Tucci - Chairman and CEO David Goulden - EMC Information Infrastructure CEO Zane Rowe - CFO.

Amit Daryanani - RBC Capital Markets Ittai Kidron - Oppenheimer Kulbinder Garcha - Credit Suisse Steve Milunovich - UBS Alex Kurtz - Sterne Agee Maynard Um - Wells Fargo Aaron Rakers - Stifel Keith Bachman - Bank of Montreal Katy Huberty - Morgan Stanley.

Good morning, and welcome to the EMC Q2 Earnings Conference Call. All participants 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 now like to introduce your host, Mr.

Tony Takazawa, VP, Global Investor Relations of EMC. Thank you. You may begin..

Thank you. Good morning. Welcome to EMC’s call to discuss our financial results for the second quarter of 2015. Today, we are joined by EMC’s Chairman and CEO, Joe Tucci; David Goulden, EMC Information Infrastructure CEO; and Zane Rowe, EMC’s CFO. Joe will begin our discussion with his view of the market environment and EMC’s strategy, and execution.

Zane will then discuss the consolidated EMC results, some additional details regarding our performance and our outlook. David will comment on the EMC Information Infrastructure business, what he has seen in the market, and the Q2 performance. 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 2015. 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. A 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 is now my pleasure to introduce Joe Tucci.

Joe?.

Thank you, Tony. I’d like to begin by welcoming everyone to our Q2 earnings call. From my perspective, our results in Q2 were mixed. I am pleased to report that we met our EPS target. However, we did fall a bit short of our revenue expectations. For the record, revenue was $6.1 billion and EPS was $0.43.

And once again, we faced a very backend loaded quarter. I am very pleased that in the quarter the six growth initiatives, which we reviewed with you at our recent strategic forum, continue to grow at accelerated rates. XtremIO, ViPR-ECS-ScaleIO, NSX and AirWatch all experienced very strong growth.

Pivotal had an outstanding quarter with product bookings up triple digits. And DSSD is receiving as much customer interest as any product we have ever introduced. In fact demand beta E systems was off the charts.

That said, we continue to see declines in our traditional storage products as customers are becoming more conservative around refreshing their traditional infrastructures as they plan our IT transformation and roll out there digital agenda. The good news here is that we are holding our technology footprint in these accounts.

We also experienced continued pressure on our businesses in China and Russia, largely due to geopolitical issues. All these factors impacted our top line results. I will leave at it to Zane and David to take you through the details of Q2 or I would like to give my perspective on what’s happening in our markets and its impact on EMC.

Our customers are now focused on and investing in digital transformation and their journey to the hybrid cloud. As a result, we see them changing their traditional operating models and buying patterns. To fund these new initiatives, customers are reducing costs on their platform to applications and infrastructures.

This is creating a just in time just enough buying process. This effect is continuing to manifest itself in very backend loaded quarters. We expect these buying patterns to continue in the near-term and despite our new businesses ramping very nicely, we believe it is prudent to reduce our full year forecast by $400 million.

We now expect 2015 revenue to be $25.3 billion and we expect non-GAAP EPS to be $1.87 for the year. Now while we are disappointed that we are reducing our expectations for the year, we remain confident in our strategy we believe we can and will do better.

To help ensure we improve our performance, we are going to execute on our growth strategy, reduce our cost base and take additional steps to manage the trends in our traditional storage business.

We are implementing significant actions in each company and across the Federation to drive greater operating leverage, additional synergies and increased customer relevance. On the cost front, we have launched a program to reduce our existing cost base by $850 million annually with run rates savings achieved by the end of 2016.

As these cost efficiencies materialize, we will reinvest some portion of these savings to further strengthen our growth agenda. On a strategic front, we the EMC Federation of companies have a tremendous opportunity in front of us.

They need to become the most trusted partner to our current and perspective customers as they embark on their transformation and hybrid cloud journeys. Our customers consistently tell us that they believe in our vision that they drive significant value from collective Federation offerings.

We are helping them deliver outstanding results through our broad and deep products, services and solutions portfolios. IT market opportunity to assist customers with their digital transformation and their move to hybrid cloud computing is massive.

Market research firms estimate that the third-party managed and hosting cloud market will grow at more than 30% per year and reach $124 billion by 2020. And these estimates do not include the rapid growth of customers managing their own private clouds.

While estimates for digital transformation vary greatly, they all point to a multi-hundred billion dollar market by 2020 which will have an even faster growth rate than a hybrid cloud market. These are the high growth markets we are squarely focused on and will continue to invest in heavily.

To capture these opportunities, we are aligning our businesses even more tightly, especially EMC II, VMware. Together we have developed a market/growth strategy that has four main pillars. Pillar one is anchored in our best in class products and solutions that are and/or will be offered as a service.

For instance, EMC II provides the broadest range of storage, data protection and converged infrastructure capabilities for the hybrid cloud covering all classes of data and price points. VMware provides modern software-defined infrastructure capabilities with the hybrid cloud and management of mobile devices.

Pivotal has an increasing number of deep digital transformation engaged with major companies to enable and to do modern agile digital product development and do so on a modern open cloud apps and data platform.

RSA’s increasingly focused on their rapidly growing security analytics and next generation identity solutions as well as extending their market leadership and governance risk and compliance. Pillar two is our expanded focus on cloud services for both and on and off premise implementations.

As part of this pillar, we are pleased the Virtustream acquisition is now closed and are thrilled to have Rodney, Kevin and the entire Virtustream team as an integral and important part of the family. They are key elements of our growth agenda. As we indicated when we announced this acquisition, Virtustream will be a Federation asset.

It brings us unique capabilities in area of mission critical workloads such as SAP. One of our most important partnerships is with SAP. And I am pleased to say that Virtustream has just signed an agreement with SAP to become a premier global provider of SAP HANA Enterprise Cloud services.

We’ll provide you a comprehensive update on our cloud services strategy later this quarter. Pillar three is a better coordinated go-to-market approach including information of the Federation level of go-to-market organization. We have consistently heard from many of our largest customers that they desire a more aligned offering across our sales force.

They want fewer, but highly trusted partners to take them on their journey to the digital cloud future. Beyond our largest customers, we are accelerating account level planning and bringing the coordinated message and offerings to the market.

Pillar four, our most important pillar is all about our solid leadership team and the extremely talented people we have across the globe, which I have the distinct pleasure to work with everyday. They are smart, dedicated and are now working even closer together with a laser focus on a success of our customers.

Importantly we know that when EMC and VMware work closely together and both have a significant presence and accounts, the business volume for VMware and EMC respectively almost doubles compared with accounts where only one company has a strong presence.

Collectively, these four pillars of our market agenda will allow us to better serve our customers, improve competitiveness, increase satisfaction and drive our overall revenue and growth rate. And finally and very importantly, the board is working closer with management to help ensure our market leadership and the next generation of technology.

The board is also deeply engaged in a smart navigation of the CEO succession process. And we are very focused on opportunities that will enhance the shareholder value. Now I will turn the call over to Zane to take you through the numbers and then David to walk you through EMC II results for the quarter. Zane, it’s all yours..

EMC consolidated cash and investments in Q2, was $14.8 billion, $2.5 billion of which is EMC ex-VMware domestic cash. Short-term debt totaled $1.9 billion, as we’ve been accessing the commercial paper markets during the quarter.

We expect to complete our $3 billion share repurchase plan for the year and have repurchased $2 billion through the first-half of this year. Free cash flow in the quarter was $647 million; this was impacted by VMware’s GSA payment in the quarter.

For 2015, we expect free cash flow to be $4 billion, a $100 million reduction from prior expectation, as a result of the change in our outlook. In summary, the Federation approach is working well as EMC is becoming an increasingly strategic partner with customers as they contemplate their digital agenda.

Our focus on solutions, converged infrastructure and best in breed products is strengthening our position and delivering portfolio growth. We’ve initiated a program to reduce our existing expense base by $850 million.

And while this will necessitate the need to make some tough decisions, it will strengthen the company, allow us to continue to invest in and grow the business, enhance our position as a technology leader, and generate shareholder value.

We are focused on the right opportunities; we have the best people; the strongest portfolio; and an improving operational structure to support the business. With that, I’ll turn the call over to David.

David?.

Thanks Zane. Good morning everyone and thank you for joining us today. I’d like to start by thanking the entire EMC II team for continuing to execute well in an IT market that is changing rapidly.

We have a verystrong growing portfolio and we continue to leverage very effectively to create new and differentiated outcomes and strong ROI for our customers. This morning, I’ll focus my comments on the storage and the converged infrastructure elements of the EMC II portfolio.

Overall storage revenue grew 1% this quarter and was up 6% in constant currency. Within this, emerging storage grew 49% led by XtremIO, Isilon and Software-Defined Storage.

XtremIO had its biggest bookings quarter ever and on track to achieve well over $1 billion in bookings this year, while Isilon continued a strong traction in big data analytics running Hadoop workloads. BRS improved in Q2 helped by the launch of the new high-end data domain system.

Our high-end and unified businesses continue to see pressure as Joe and Zane mentioned earlier. So, let me give you some more color on what we see is happening within the storage markets.

As enterprises continue their secular shift to the new digital age defined by cloud, mobile, social and big data, we now expect the overall external storage market to grow at a 2% to 3% CAGR from 2014 to 2018.

Within this, we expect new storage technologies like flash, converged infrastructure and Software-Defined Storage to grow at a high teens CAGR from 2014 to 2018, while standalone traditional storage systems are expected to decline at low teens CAGR.

We also believe that most enterprises and organizations will adopt the hybrid cloud approach to drive their IT transformation incorporating, both traditional and newer storage architectures.

A hybrid cloud combines the benefits of both private and public clouds to allow not only a smoother, self-paced transformation for existing applications, but also a platform for building and running new applications. And as you would expect, enterprises are in various stages of their IT transformation.

Customers who have not yet embarked on transformational initiatives are very cautious about their transactional spending. While those who have made transformational decisions are spending aggressively on these new initiatives, they’re also remaining very disciplined about their transactional spending.

Transformational initiatives are not just about hybrid cloud, the new digital applications, they can also include infrastructure transformation via converged infrastructure and storage transformations via flash, storage sharing, software-defined and software-managed architectures.

As transactional spending remains cautious, we now believe that the additional storage market will not improve this year. Therefore, while our expectations for growth in overall mix in the storage market for long-term have not changed materially, the overall storage market will grow less than the 2014 to 2018 CAGR this year.

Beyond 2015, we expect overall storage growth to improve due to favorable mix shifts towards new applications and IT transformations. Given our revised expectations for the storage market, we do not expect the pressure on our traditional storage business, primarily VMAX and VNXe this year.

As a result, we now expect our storage business to grow at 1% this year. Excluding both health and consolidating VCE and third from FX, storage growth is also expected to be 1%.

As the storage market continues to transition, we’ve been working actively to evolve our storage portfolio towards flash, Software-Defined Storage, big data and cloud to remain ahead of market.

We align our internal operations and go-to-market to adopt the changing market by forming our core technology division and emerging technology division last year and by consolidating VCE into EMC II. And to optimize our cost structure within EMC II by continuing to rebalance our resources to self fund our growth initiatives.

As Zane mentioned, we initiated a new cost reduction program to accelerate our efforts to optimize our business. As a large part of the Federation, the majority of this program will be focused upon EMC II.

This new cost translation program consists of traditional cost reduction initiatives with focus on areas like indirect procurement, facilities, continued labor, standard control and margining product lifecycle investments in traditional storage and business transformation initiatives focus on areas including product design to operation enhancements, direct and cost of goods sold, spending reductions, simplification, CSAT [ph] optimization and quote to order to cash digitization.

We have already have teams working on each of these and expect approximately equal savings from both the traditional cost savings initiatives and the business transformation initiatives.

As our customers become even more focused on outcomes and work with fewer more strategic vendors, the traction we’re getting with our larger customers is very encouraging.

Today, I will share just a few of those customer wins with you, the focus of a multimillion dollar transformational deals using our Federation solutions like Enterprise Hybrid Cloud and the recently announced, Business Data Lake solution.

One of Europe’s largest financial institutions wants to build out a private cloud platform and move existing mobile applications from two of the largest public clouds to their own platform. They chose to build out their private platform using the Federation EHC solution and running on Vblocks.

EMC won this deal, above one of the largest global competitors not only because we have the best technical solution but also because EMC was the only vendor who could meet this customer’s business critical timeline.

When a large salvation bank needs to migrate their cloud base data center and improve their IT agility and process managements, they turn to EMC with some of the world’s largest IT providers due to the completeness of our Federation offerings.

The customers embrace EMC Federation’s vision of enterprise hybrid cloud for infrastructure, Pivotal PaaS for application management and EMC ViPR for automated storage management. A large U.S. based nonprofit healthcare provider chose to deploy the Federation Business Data Lake solution to build out a foundation for population health analytics.

After attending our Big Data Vision Workshop, the organization decided to partner with EMCs instead of using a do-it-yourself approach. EMC won that business by helping them plan their execution model for the integration of Data Lake and supporting technologies.

As you know, converged infrastructure continues to be not only the major building block of our federation solutions but also increasingly a primary way that customers are deploying infrastructure to support the existing and new workloads.

Since we consolidated VCE within EMC II at the start of the year, we’ve been broadening out our offerings in the CI space to better address the variety of customer needs. For the more traditional business critical workloads, we continue to expand our CI block portfolio with introduction of VxBlocks.

For the newer workloads that are more suited for hybrid converged and software-defined infrastructures, we’re rapidly building out our RACK and appliance [ph] CI portfolio with the launch of VxRack and VSPEX Blue respectively.

The launch of VxRack EMC World was very well received and we look forward to starting shipments of this new class of CI system later this quarter.

The ability to leverage our capabilities across the federation including VMware and Pivotal is an important competitive advantage, enables EMC not only to offer market leading converged infrastructure but also to provide the solutions based upon CI that our customers increasingly value.

Now turning to storage product highlights, we are very pleased with the emerging storage growth this quarter, where Isilon, XtremIO and our Software-Defined Storage portfolio that includes ViPR, ECS and ScaleIO continue to do very well and expand our total addressable market by adding both net new customers and net new workloads.

Emerging storage is now at nearly $3 billion revenue run rate and we expect this bucket to grow more than 30% for this year. And our market share in most emerging storage categories continues to be much higher than our market share in traditional external storage.

At the same time, both high-end and unified continue to be the leading products in their respective markets where the bulk of storage spending occurs today. And we are very focused on maintaining our lead here. The install base for both products remains a positive with a stable VMAX space and VNX winning almost 1500 new to EMC customers this quarter.

VMAX and VNX continue to expand installed flash capacity very nicely and both improved their net promoter scores significantly this quarter. As Joe mentioned, we are taking additional steps to manage trends in our traditional storage business.

These include go-to-market activities such as enhanced refresh programs in our own install base as well as competitive displacement programs and simplifying our traditional portfolio with fewer components and fewer SKUs.

As we look forward to rest of the year, we’re excited about the new products that we have already announced such as VxRack, new high-end Data Domain, XtremIO 4.0, ECS 2.0 and FAST.X for VMAX.

I expect them to start contributing more meaningfully moving forward and we have a great set of announcements lined up for the second half such as new Isilon systems and DSSD to name only two. In summary, we still expect our storage business to grow in 2015, both reported and ex-FX and VCE.

The new businesses are performing exceptionally well and we’re getting more aggressive with programs, refreshes and costs in our traditional businesses. Going forward, the favorable mix towards new applications and transformational spend will help us do better beyond 2015. With that I will turn it over to Tony for Q&A.

Tony?.

Thanks, David. Before we open up the lines for your questions, as usual, we ask you to try and limit yourself to one question including clarification. This will enable us to take as many questions as possible. We thank you all for your cooperation in this matter.

Caroline, can we open up the lines for questions, please?.

[Operator Instructions] Our first question or comment comes from Amit Daryanani from RBC Capital Markets. Your line is open..

Thanks a lot. Good morning guys. Joe, you talked at the end of your comments about the board being deeply engaged about the succession process and looking to enhance shareholder value.

Could you just talk about what’s the timeline you think for the board to reach a conclusion for both these things? And what are the ways of options you guys are possibly looking at enhanced shareholder value beyond the restructuring initiative you talked about?.

I really don’t want to comment on time. I use the word smartly actively navigating the process. And I have said point-blank. I am very committed, love this company and we give the board the time they need to properly make sure that navigation and succession process works terrifically.

So, I don’t want to put a deadline on the board but they are actively engaged, let me put it that way. On your second point, I’m not going to tell exactly everything but let me do it this way, right? The board and management, we understand that the IT industry is in the midst of a sea change, huge sea change.

We understand that business as usual is rarely a good strategy when an industry is going through this kind of turbulence. The companies that will be successful are the ones that are able to truly transform themselves.

The board and management, we are focused on assuring that and we are deeply engaged in making sure we have a very successful transformation. We have a number of options really good options and we have important next generation winning technologies, great assets and we have great people. So, we are on it.

And I think you’re seeing that in addition to smartly navigating the IT landscape. Now we are also really seriously addressing our costs here to make sure that we as we go through this transformation. And you look at the rates that our new assets are growing, it is an incredibly impressive.

And we have great assets around digital transformation, hybrid cloud, security analytics, next generation PaaS, mobile device management, security, and I can go on. So basically, we’re in a good position.

We’re one of the few companies that of our age and born when we were born, mostly in the client severe era that is producing quarter after quarter of top line growth, be it not as fast it was; this quarter was 3% year on year. When you compare us to our peers, I think we’re going through this inflection point.

And as David said, I do believe that 2015 is the trough and you’ll see improvement as we go through. So, those are all the things; it’s kind of stream of consciousness I just went through. I know what is specifically exactly what you want.

You don’t want to know the when, the what but I just wanted to give you some of the vast opportunities we have and the result that we have to not only continue to drive our top line but basically our bottom line and go through this transformation and produce -- very importantly, produce shareholders value..

Our next question is from Ittai Kidron from Oppenheimer. Your line is open..

I guess, it’s good to hear that finally you’re taking a little bit more aggressive cost cutting initiatives. But going back to the commentary, Joe, on what you’ve started to see as far as enterprise is trying to slow down spending and some of the geopolitical factors.

I mean the one element that’s missing out of this whole discussion is the competitive front.

Could you give us a little bit more color and what you’re seeing on that competitive side, maybe David you can comment on that as well? We’re seeing a lot of new flash based vendors out there growing quite strongly; we’re seeing new hyper-converged vendors being extremely successful into marketplace and in some cases displacing you from real big competitors -- customers.

I am just trying to gauge how much of their competitive element is a part of an issue here and I was just a little bit surprised not to hear almost anything about that during the discussion..

It’s really interesting, Ittai. If you looked at what we’re doing at each one of those categories, we’re clearly a leader. If you look there and David should do this, not me, but if you look at XtremIO versus all the other flash players, significantly bigger; significantly faster growth.

If you look -- we didn’t even release DSSD yet, but I could tell you, I have never seen a product has that -- for the demand for betas and the excitement around DSSD. So, when you look at the all flash space, we’re in phenomenal shape.

If you look at hyper-converged and what we’re doing in VCE, what we’re doing with the VSPEX Blue, VSPEX Blue is early days, most of these hyper-converged work on VMware infrastructures. And again we have a great opportunity there. And I could go on and on. So it’s just that they make a lot of noise; they make a lot of hype. We have great, great answers.

And basically this is a world event. When I work with customers, they got a lot of traditional apps which they love the services on products like VMAX. So, it’s have you sold VMAX and and/or, so we got great options for customers where they work -- most of those little competitors make a lot of noise, but it’s basically one-size fits all.

David, you want to add to that?.

I mean just add a couple of data points around it. As Joe said, we are the market leader in all the growth areas of the industry as well as the traditional areas. The emerging storage bucket which we talk about is a $3 billion run rate which is pretty big and the stuff is put together plus some last quarter growing close to 50%.

So, we’re winning in these areas. And relative to footprints in our traditional business, in the markets that we are in, we believe our footprint is holding very, very nicely.

Now obviously, we’re in some markets that are more susceptible to spending pressures in others markets and of course as always, a trophy win or trophy that so we can talk about, but when we look at the overall footprint including what goes in and what comes out, our footprint is very solid in our enterprise customers and our global accounts.

So, I mentioned a large number of net new to EMC customers last quarter alone with the VNX family. So, obviously as the industry has slowed, there is more competitive dynamic, but we feel very strong about how we’re doing in the new markets. And we’ve given you some good data points to feel comfortable.

So we’re maintaining our share, maintaining our footprint on aggregate basis in our existing markets..

Our next question coming is from Kulbinder Garcha from Credit Suisse. Your line is open..

I just want to clarify one thing from maybe Zane.

The comment on the cost reduction, the 125 million to 175 million by the fourth quarter ‘16, are you saying whatever the run rate is today, we should just think that level of reduction by the end of next year that what you’ve trying to communicate or is there further investment, so it offsets that dropping to that line? And then just one question for Joe is that so far this year my interpretation of events is that you seem to be much more vocal about the need for the Federation to stay together.

And if that is the case, so it sounds like you mentioned those points about the extra revenue that comes to VMware and EMC staying together, why not buying VMware and rationalize the entire cost base given you are doing this cost reduction now anyhow; is that something you’ve considered or the arguments against doing that? So any thoughts there would be helpful.

Thanks..

I’ll start and then I’ll let Joe answer the question you directed towards him. What we wanted to do is give you an articulation of what you can expect and the trend as we contemplate the cost cutting over the next period of time through next year.

So, starting with an estimated $50 million in savings which would be net savings, those are savings net of the investment. So, as you grow the 50 to the 125 to 175 over the course of the next year, we wanted to at least give you an approximation for that run rate on our existing expense base.

Beyond that, as Joe mentioned, as we recognize and realize some of those savings, we’re always looking for growth and for opportunities and obviously would expect to invest some of that back into growth opportunities. Joe, I’ll let you take this..

Undoubtedly everybody on this call has -- believes deeply that one of the biggest transitions every company has to do is move to the cloud. We talked about digital transformation which I think is even a bigger market that’s where the Internet of things and all of that falls in. But just take where we live in data centers.

And data centers are moving to cloud technologies, both private and managed. So obviously, if you were doing that, would you rather do that as just VMware, as just EMC, as just Pivotal with their past or are you a lot stronger in front of a customer’s doing together. So, do I think we’re much stronger? The answer is absolutely.

So I think splitting this federation or spinning off VMware is not a good idea. I firmly believe that we are better together, a lot better together.

I mean just to give you some statistic, I gave you one statistics where in an account, large global account we’re both EMC and VMware major presence; each one of us gets double, each one of us companies gets double the amount of revenue, double; it’s pretty impressive. We know there’s over $1 billion in revenue synergies when you count through that.

And we think there is opportunity for well over another $1 billion if we do some of the things that I talked to you about and getting tighter aligned. We know, we have shared more than 4,000 people have moved across the companies. This helps retract and attain talent. We know our win rates are higher when we win together.

So, basically you want what options are going to do. I referred to options; you’d like me to lay them all out now. I don’t want to get in front of the management team and working with the board.

But we understand that when you’re going through this kind of a sea change and board recognizes it’s a huge sea change in IT business as usual, it’s really rarely a good strategy. And we’re all about good strategies, transformation and doing things right..

Our next question or comment is from Steve Milunovich from UBS. Your line is open..

Just to follow-up on that Joe. On the cost side, you and I have both lived through these transformations and the traditional stuff tends to go down faster than you think.

Have you guys been a bit of little late in recognizing the need to reduce cost and are you convinced you’re doing enough? And then on the other side in terms of the federation, will there be cultural issues? It sounds like you’ve started to work this but VMware historically has been a pretty separate company.

Can you get the two companies really working together?.

I will start backwards, the answer is yes. VMware realizes what I just told you that when we both are big and when both size of the company are in an account, both David side, the EMCI side, the VMware side and now we’re seeing more and more Pivotal side, each get not only more revenue but double the amount of revenue. And this is resonating well.

Also, they see some of their former partners that are now standing up clouds and if you believe cloud is the future of the data centers as I do, you look inside their clouds; they are basically using more of their own technology. So, this does make sense to VMware. Pat, Carl and Jonathan and the VMware leadership team are solidly behind this.

That doesn’t mean they’re going to -- we don’t want to make let them and encourage them to still partner with others because I think having an open ecosystem is the future. But yes, they are brought in. Are we late? Steve, in my whole life, anything I did, I never said, well, I should -- I’m glad I waited.

I mean I usually say about a great idea, we shouldn’t done it earlier, but I don’t want to say, we’re late, but I wish we’ve done it a little bit earlier, probably, but we are here now and we are doing the right thing..

Thank you. Our next question is from Alex Kurtz from Sterne Agee. Your line is open. .

David, you talked about double-digit kind of declines for the legacy products. Well, it’s in the market in general.

As we look to reset our models here on VMAX and more importantly VNX that you really haven’t spoken about last couple of quarters at least, should we be thinking about double-digit declines for both of those products for the next couple of years as you guys transition to XtremIO and VxRack and some of these new platforms?.

Yes, Alex, without getting into specificity beyond this year, to give you couple of things to think about, I think we started out the year thinking that the VMAX growth rates to be a little bit stronger than they were, rate decline to be more particularly, it would be little bit less than last year.

I think now we think they will be in the same zip code to last year. Bear in mind there is a four to five point currency headwind, so really from constant currency actually doing a little better.

And we do think that the VNX again because of move to cloud and some of the mid tier and some of the competitive pressures, we’ll also be in a market declining growth rate.

But they will get pick up as we move from a transactional oriented spend to a transformational oriented spend because as people move towards the hybrid clouds, it is a power of and.

And moving existing application and new applications into the hybrid cloud, so we stand the chance in -- beyond 2015, when the translational spend picks up to actually see an uplift in those platforms as the new applications and in particular the hybrid cloud spend becomes a bigger part of the overall budget.

So, I think we do expect market type decline this year with a chance of some improvement beyond that as these systems also get sucked into hybrid cloud deployments..

Next question is from Maynard Um from Wells Fargo. Your line is open. .

Can you just talk a little bit about the structure of the federation level go-to-market organization? Are you effectively building a sales organization on top of the EMC and VMware sales teams? I guess, how are the various teams work together through this organization, and are the people sitting in the organization, are they sitting within EMC, within VMware? Maybe if you can just go through a little bit about how they work together, where they sit, and how this is different from the structure before?.

I would not view it as a sales organization that we’re building, that’s furthest thing I want to do. We have great sales people. What we’re doing is -- viewed as we’re building a set of client directors which can help coordinate which customers are demanding; they’re not asking from us anymore; they’re demanding.

So we’re building a set of higher level -- hardly call them sales people, client directors to help customers understand what they need to do to go when they as companies and if you’re not doing this, you’re going fail any company outside of IT.

They have digital agendas; how are we going help them with their digital agenda? They have to take their traditional data set they’re moving to clouds, private; public; hybrid. So basically, these client directors are going to be like kind of a level -- it’s a different job than a sales job.

It’s basically how you help understand and become part of our customer’s fabric and then underneath that how do we coordinate all the great technology we have. And we think if we do that we will get much bigger wallet share from our customers and much customer satisfaction levels; view it as that..

But is VMware also having these client directors or this an EMC driven type?.

Problem we have -- one of the problems we have and of the problem I talk about is two EMCs, right? There is kind of my EMC and there is David EMC. We are try to say EMC squared that’s myself and the Federation and we have the EMC II. I understand the branding is parable. And it’s one of the things we got to take a look at.

But if you take a look at, these would be not with David, not with Pat; they’d be in effect with that the Federation level with me. And of course, they would be kind of owned by both; they should look like an asset for EMC II, should look like an asset for Pivotal.

So, an extra layer and it’s not in either EMC, VMware or Pivotal, right, or RSA, it’s that an extra level.

Does that make sense to you?.

It does. Thanks.

And then Zane, can you just talk about the incremental cost associated with that then is that sort of all embedded in?.

Yes, it will be all embedded in. I mean ultimately we feel confident that we’re going gain a lot more revenue share using this model. If you think about the marginal cost, obviously in some cases, it’s the teams actually working closer together.

So, while there is a small incremental cost, as you combined it, I actually think it will be far more efficient as we progress..

We’re being kind of smart and only talking about cost synergies. I happen to be for one to believe there’s more revenue synergies than our core synergies. But I know how everybody thinks. You think we’re pretty good operators, you’ll take the revenue, cost synergies to the bank. Thank you.

And it’s up to us to prove and that’s fine with me that we can produce the revenue synergies. But I believe there is a huge opportunity for revenue synergies. So, I wanted to add that little color..

Our next question is from Aaron Rakers from Stifel. Your line is open..

I wanted to go and look at the gross margin trend in the storage business. I think it was reported at 53.3% for the information infrastructure. I know that there is a VCE negative effect on that, but that’s down from 56.1% a year ago.

What exactly is the drag from VCE, and more importantly, how do we think about that trend going forward as your business model mixes, particularly around the commodity-based hyper-converged solutions?.

I’ll start and then let David touch on as we think about the future VCE. Obviously I think we’ve talked about a fair amount as we consolidated that there is a fair amount of third party products that are rolled in with the converged infrastructure that now impacts the gross margin obviously as well is the operating margin.

David’s talked about that being flat if you would exclude both FX and the impact of VCE on those gross margins. And again, we’re obviously encouraged by the run rate, the growth rate of VCE and recognize the opportunity that is. So that’s what initially driving through the gross margin changes you look at that year-over-year. .

Yes, just to pick up….

I was going to say on a forward basis how do we think about the trend going..

Just to reiterate what Zane just said really VCE accounts for the entirety of VCE plus the impacts of FX on gross margin accounts for the entirety of the year on margin changes. Going forward, as I’ve said, the gross margin in the three primary storage buckets are in the same zip code.

So, there is not a massive impact of movement towards the emerging markets bucket which does of course have more commodity but it’s also got some software only products, those kind of each of them are out.

And you’ve seen a big mix shift over the last couple of years with the emerging set to becoming a much bigger piece of business not having any real impacts upon gross margins. So, we’re kind of balancing through that. The good news is that there is not a huge difference between those two. So as the mix shifts, we have good opportunity..

Next question is from Keith Bachman from Bank of Montreal. Your line is open. .

I wanted to follow up on Amit’s question. The stock is down 16% for the year, with the S&P up 3%, so it’s continuing another year of meaningful relative underperformance. And for context, I would argue that EMC seems to be both trying to buy and invest for growth.

I think shareholders would like more capital back rather than EMC going out and buying more assets such as Virtustream. And as part of that, when I specifically look at RSA, it’s only 4% of revenues, but with revenues declining in a very buoyant security market, it points to EMC perhaps is not operationally optimized right now.

So, the questions I have, is the board having conversations without management? And could you confirm that all options are on the table here as the board considers the strategic alternatives?.

I can confirm for sure that the board is having many sessions without management and they are considering smart options. You mentioned Virtustream, but let me just give you couple of specifics. EMC has about 30% share in the storage array market, the external storage market, rough and tough.

If you look at mission critical that share probably goes over 50%. So, EMC is living in these mission critical environments. And so you believe that many storage services, storage as of services is going to the cloud or EMC not to play there with mission critical cloud is -- wasn’t same and that’s exactly where Virtustream is addressing.

You just saw it today, the partnership they announced and the relationship they announced with SAP. These are the kind of mission critical applications where EMC’s storage lead is really strong. So, I can’t agree with what you said at all, neither does the board or they wouldn’t have approved Virtustream.

So, it’s not -- you can’t live in -- and you got to live in and world, not an or world. This industry is going through an unbelievable transformation and as call the sea change and it’s undeniable.

And if you don’t invest and you can’t only do it organically, if you don’t invest until where the IT puck is going, you’re going to really be sad as investors. I feel incredibly bad as does the board and I believe we can address it and will address it of the undervalue that you just pointed to Keith.

But again you got to think this whole thing through in a broad segment. And I’ll close where I started. The Board is having sessions both with management and without management..

We have time for one more question and then we’ll have few concluding comments from Joe..

Our final question comes from Katy Huberty from Morgan Stanley. Your line is open..

Zane, you mentioned portfolio streamlining as part of the $850 million restructuring.

Is there any consideration of exiting some products or even entire segments such that you could be focused on growth areas and also generate some cash that could be returned either in buybacks or M&A?.

We’re really looking at assets that aren’t as strategic and to really focus -- give more clarity on our mission for where we’re going to grow. And again not to repeat myself 100 times, but it is around digital transformation, it is around security analytics, it is around hybrid cloud.

Those are three very core and of course with AirWatch and mobile device management and security. So, if you look at those broad areas, we’re going to invest more there. And again things that are not strategic and helping us with that, we will look at how we can monetize to get and better return and utilization.

Zane, do you want to add some?.

I agree with Joe. Clearly Katy, we’ve been looking at all parts of the portfolio very carefully and I was going to tie it into what Joe had said earlier which he already said which is it’s important that it works together. We believe in growth in the future.

And obviously we think there us a lot of opportunity between streamlining as well as investing in our growth initiatives..

In closing, first of all, I want to thank everyone for here. We are really focused on our transformation and our mission that is critical. The industry is transforming, we must transform. We’ve seen this coming for a while. We built the unique set of technologies, assets, focused businesses and talent.

And it’s now time to how do we produce true value for our shareholders out of that sort of assets and be a winner in the next generation of IT technology. We think we’re really investing well where the IT puck is going. And again board and management and I are confident in our future and in our ability to drive shareholder value.

So thank you for being with us today and we’ll get to see all of you. Thank you. Bye, bye..

That concludes today’s conference call. Thank you for your participation. You may disconnect at this time..