Anthony T. Takazawa - Vice President-Global Investor Relations Joseph M. Tucci - Chairman, President & Chief Executive Officer Zane C. Rowe - Chief Financial Officer & Executive Vice President David I. Goulden - Chief Executive Officer-Information Infrastructure.

Andrew James Nowinski - Piper Jaffray & Co (Broker) Maynard J. Um - Wells Fargo Securities LLC Alex Kurtz - Sterne Agee CRT Steven M. Milunovich - UBS Securities LLC Louis R. Miscioscia - CLSA Americas LLC Amit Daryanani - RBC Capital Markets LLC A.M. Sacconaghi, Jr. - Sanford C. Bernstein & Co. LLC Simona K. Jankowski - Goldman Sachs & Co..

Good morning and welcome to the EMC third quarter 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 like to introduce your host, Mr.

Tony Takazawa, VP Global Investor Relations of EMC..

EMC Chairman and CEO Joe Tucci and EMC's CFO, Zane Rowe. We are also joined remotely from London by David Goulden, EMC Information Infrastructure [EMC II] CEO. After the prepared remarks, we will then open the lines to take your questions. Please note 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 EMCs filings with the U.S. Securities and Exchange Commission.

I will also point out that EMC will no longer be providing expectations for company financial results due to the pending transaction with Dell. Finally, this call does not constitute an offer to sell or a solicitation of any vote or approval. The proposed transaction will be submitted to the shareholders of EMC for their consideration.

In connection with the proposed transaction, Denali Holding, Inc. will file with the SEC a registration statement on Form S-4 that will include a proxy statement and prospectus regarding the proposed transaction.

Investors are urged to read the proxy statement and prospectus in its entirety when filed with the SEC and other filings made by Dell and EMC, as they contain important information about the proposed transaction.

Investors may obtain copies of the proxy statement and prospectus when available and other documents filed with the SEC regarding the proposed transaction at the SEC's website or from EMC's website.

Information regarding the persons who may under the rules of the SEC be deemed participants in such a solicitation will be set forth in the proxy statement and prospectus filed with the SEC. With that, it is now my pleasure to introduce Joe Tucci.

Joe?.

to potentially have a strategic partner with more heft and relevance to their digital transformations as they plan their strategies around the software-defined data center, hybrid cloud, mobile, and security.

They also like the fact that our future breadth and scale means we will no longer be the smallest of the big tech companies, and we will have a place on every customer's must-consider list as they plan and implement their IT transformation projects. Our distribution, service, and technology partners are also positive.

They see first-hand the challenge the industry is facing. With our increased offerings and scale, we will help them expand their portfolios' opportunity and reach. Our entire ecosystem appreciates that we have complementary technologies and that they would face minimal or no roadmap disruption.

And they understand that we will have the opportunity to develop new offerings that combine the best technologies of each of our companies. The integration work in front of us is significant, but it varies in focus and complexity by business. In the VMware, Pivotal, and Virtustream businesses, the combination is all about driving revenue synergies.

In the case of RSA, it is complementary with the capabilities that Dell has, and we will work together to create the most synergistic approach to the security market. The majority of the integration work takes place in EMC II, where we will combine Dell's server and storage business with our storage and converged infrastructure business.

Here we expect both revenue and cost synergies. We expect that the principal cost synergies will come from combining our supply chains and indirect expenses. But let me be clear; this combination is all about driving revenues, and the expected revenue synergies are more than three times the cost synergies.

It is also worth reinforcing the point Pat [Gelsinger], Jonathan [Chadwick], and Carl [Eschenbach] made on the VMware call yesterday. VMware revenue synergies with Dell could top $1 billion annually in the next few years.

For example, many of VMware's leading products like vSphere, vRealize, vSAN, NSX, AirWatch are a natural fit for Dell's mid-market customers. Importantly, these synergies are not at the expense of current VMware partners. Rather, they represent true incremental opportunities.

Until the transaction closes, we are continuing with our current Federation operating model. Our focus on serving our customers better together stays in place. We anticipate no major changes to our organizational structure, governance model, or management team.

David Goulden, Pat Gelsinger, Rodney Rogers, Rob Mee with Paul Maritz will continue to run their respective businesses until closing, and then will lead large segments of the combined company. We will continue our initiatives to develop Federation-wide solutions like the software-defined data center and the enterprise hybrid cloud.

We will continue to work together in the field when that is in the best interest of our customers. And we remain committed to accelerating our Federation-wide go-to-market efforts while executing on our previously announced $850 million cost reduction program.

Finally, as you saw in yesterday's announcement, we intend to combine the capabilities and assets of Virtustream and vCloud Air along with additional cloud assets from EMC into a high-growth Federation cloud business called Virtustream Cloud Services, run by Rodney Rogers.

This business will be jointly owned by EMC and VMware, and Rodney is busily putting together next year's plan.

To give you a glimpse, we expect this business to be multiple hundreds of millions of dollars in revenues in 2016, and we fully expect this business to be multibillion dollars in size within several years, as all of our Federation businesses drive revenue opportunities for this new cloud service.

Importantly, the combination of Virtustream Cloud Services with leading software-defined data center assets in VMware and EMC II gives us a unique and powerful capability to help customers manage their applications, including their most mission-critical applications in the cloud, both on-premise and off-premise.

We have received many questions from our shareholders about the transaction structure, the tracking stock, and Dell's intentions with respect to VMware. I would like to make a few comments on these topics, and Zane will offer more detail in his prepared remarks. First, a thriving VMware is vital to the strategic success of EMC's combination with Dell.

Dell is highly motivated to do what is necessary to continue VMware's extraordinary track record. The combined company has many high-priority product areas where VMware technology will play a key role. As an example, the software-defined data center is one of the areas where VMware's capabilities are critical to Dell and EMC's product success.

Continuing VMware's impressive history of innovation and product leadership is of utmost importance to everyone involved in this transaction. There should be no question about the alignment of interests between Dell and the holders of the tracking stock and the holders of the VMware common stock.

At close, Dell will be the largest economic owner of VMware by a wide margin. No one has greater incentive to drive VMware's growth and value creation than Dell.

The tracking stock created in connection with the transaction will give EMC shareholders an opportunity to participate in the upside of VMware, which includes the revenue synergies we expect to be created with the help of Dell.

I want to remind everyone that this transaction will not result in any changes to the rights of the VMware public stockholders. None of the VMware cash flows or debt capacity will be used to finance this transaction. Let me repeat to make sure everyone is clear on this point.

None of the VMware cash flows or debt capacity will be used to finance this transaction. In fact, they will be used to fuel VMware's innovation and growth. I know there are many questions about the structural provisions of the tracking stock. We will cover this aspect in more detail later.

In summary, I believe coming together with Dell creates a new company for a new age and a new era of success. I believe it's the best strategic option for our shareholders, customers and partners, and yes, employees. Over time, we will be a stronger and larger company than had we chosen a different strategic alternative.

I believe Michael will provide great leadership in bringing the companies together and creating the next chapter in our history. Of course, I will continue to update you on the status of the combination in future earnings calls, but now over to Zane to take you through the quarter and additional details on the transaction.

Zane?.

Thanks, Joe. Good morning, everyone. As Joe mentioned, we are committed to making sure our shareholders understand the terms of the transaction and the tracking stock.

We believe that the transaction with Dell, which delivers $24.05 per share in cash plus approximately 0.111 shares of the VMware tracking stock, provides a very attractive outcome to our EMC shareholders. This transaction is intended to preserve the synergistic relationship across all of our businesses in a tax-efficient manner.

The tracking stock is intended to allow shareholders to participate in synergies accruing to VMware as a result of the transaction. We believe this will be the first tracking stock whose tracked assets will include an existing publicly traded common stock. It has several beneficial features.

These include, the tracking stock will benefit from oversight by a board that includes independent members. The tracking stock will be a class of common stock of Denali, which is the parent company of Dell.

The Board of Directors of Denali will be required to have an audit committee of at least three independent members under listing rules of the NYSE or NASDAQ, which means that the Denali board will consist of at least three independent directors.

The Denali Board of Directors will have fiduciary duties to the holders of the tracking stock, just as the VMware board has fiduciary duties to the holders of the VMware common stock. The new security will initially track EMC's interest in a publicly traded company.

At the time the security is created, the VMware tracking stock will track the performance of the separate legal entity, VMware, which already has separate audited financials. The tracking stock is therefore expected to initially have greater definition and transparency than precedent tracking stocks.

Related-party transactions are subject to oversight by VMware's board. With respect to VMware's relationship to Denali, under VMware's corporate policies, related-party transactions between VMware and Denali are subject to the approval of VMware's audit committee, which is composed solely of independent directors.

The holders of the tracking stock will benefit from the VMware board's oversight. Certain actions impacting the tracking stock will require consent from the capital stock committee.

With respect to the tracking stockholders' relationship to Denali's other stockholders in connection with the transaction, the Board of Directors of Denali will create a capital stock committee, whose consent will be required for the Denali board to approve certain actions regarding the tracking stock.

The majority of the members of this committee must qualify as independent directors. At the time of issuance, the tracking stock will have a high-quality public benchmark and is expected to have more liquidity than the VMware common stock. The VMware common stock should initially provide a relevant existing valuation benchmark for the tracking stock.

With approximately 223 million shares of tracking stock to be outstanding compared to today's public float of 79 million VMware shares, we believe this larger float will provide greater liquidity to the investors interested in the VMware. Let me spend a moment discussing the topic of a VMware common stock dividend.

VMware does not pay a dividend today, so this topic is more theoretical in nature. If VMware's Board of Directors determined to pay a dividend onto the common stock, the portion of that dividend attributable to the holders of the tracking stock would be for the benefit of the tracking stockholders.

Any dividends not distributed by Denali would be allocated to the assets tracked by the tracking stock. Any determination to reallocate or use such amounts for any purpose other than to pay a dividend to the tracking stockholders would require approval of the capital stock committee.

We believe the VMware tracking stock has certain advantages versus other tracking stocks and that the VMware tracking stock represents an opportunity to obtain a liquid, economic ownership tracking and initial 53% interest in the VMware business versus the 81% indirect economic ownership that EMC shareholders have today, which cannot be traded separately from the EMC shares they own.

The tracking stock will also have an opportunity to share in the synergies that the transaction is expected to create for the VMware business. We believe this combination will create opportunities for continued success of all of the businesses that make up EMC.

Integration planning is already underway, led by two of our executives, Rory Read from Dell and Howard Elias from EMC. For additional questions and details on the transaction, please refer to the FAQ section on the website that we will continue to update.

Turning to some commentary on our Q3 results, I'd like to add my thanks to the team for all of their hard work this quarter. This morning I'll discuss our consolidated results and provide some additional detail on our major business segments, including Pivotal, VMware, and EMC Information Infrastructure.

Our Q3 consolidated revenue totaled $6.08 billion, up 1% year over year and up 5% on a constant currency basis. EPS was $0.43. Consolidated revenue growth in North America was 4% year over year. EMEA was down 3% as reported and up 7% on a constant currency basis. APJ was down 4% and up 3% in constant currency.

The region was impacted by continued softness in China. Latin America was up 1% as reported and up 14% in constant currency. As we look at our three major businesses, Pivotal had a solid quarter, with revenue up 16% year over year. Annual recurring revenue at the end of Q3 was $75 million, up 26% quarter over quarter.

Bookings were up almost 70% year over year, highlighting Pivotal's ongoing success with its customers. In the automotive sector, for example, Pivotal works with three of the top five global auto manufacturers.

At Daimler's Mercedes-Benz business unit, Pivotal is helping design and bring to life the first ever connected car app that ushers in a new era of digital transformation.

The Mercedes Me connected car app was created by leveraging Pivotal's entire portfolio, including Pivotal Labs' agile software development methodologies running on Pivotal's modern cloud platform, Pivotal Cloud Foundry, and utilizing Pivotal's analytics solutions. VMware revenue within EMC was up 10% year over year and up 14% in constant currency.

VMware also reported license revenue up 7% and up 11% on a constant currency basis. License bookings beyond standalone vSphere continue to become more meaningful and represent greater than 60% of total license bookings. The hybrid cloud and SaaS offerings also showed very good growth, with revenue up over 50% year over year.

VMware is a central player in the transformation of IT, and their influence continues to grow with their key technologies in the software-defined data center, end-user computing, and hybrid cloud. VMware's success has become an integral part of EMC's success, as demonstrated by our aligned strategies, technology integration, and financial results.

VMware represented 27% of EMC's Q3 consolidated revenue and 44% of Q3 consolidated non-GAAP operating income. We intend to form the Cloud Service business as the next step in the evolution of our joint cloud initiative, leveraging increased alignment and tighter cooperation between VMware and EMC.

We acquired Virtustream in July with the intent to operate it as a Federation business. In early October we aligned our EMC managed services business with Virtustream. The creation of the CSB will combine VMware's vCloud Air, Virtustream, and the EMC managed services assets.

This new business will enable VMware and EMC to create a formidable presence addressing the largest market potential for cloud offerings across hybrid cloud, mission-critical workloads, and managed cloud environments. This jointly-owned company will be formed in Q1 of next year.

As Joe mentioned, we expect this to be a business with several hundreds of millions dollars in recurring revenue in 2016, with the opportunity to be a multibillion dollar business over the next several years. EMC Information Infrastructure revenue was $4.3 billion, down 3% year over year and up 2% in constant currency.

The storage business within EMC II was down 2% over year and up 3% in constant currency. In addition to the FX impact, storage revenue growth in the quarter was negatively impacted by a higher than expected build in unshipped orders of approximately $100 million.

These orders came in too late in the quarter to ship and therefore added to the backlog at the end of the quarter. This impacted our non-GAAP EPS by $0.02. We were once again pleased with the emerging storage revenue, which grew 27% year over year or 32% when normalizing for FX.

David will provide you with more details on our storage business in a few minutes. Gross profit was down 1% year over year, primarily due to the impact of FX changes and lower storage product volume in the quarter versus last year. The year-over-year net impact to EPS was $0.01. Operating expense was up 7% year over year.

Within EMC II, excluding the impact of VCE accounting and the benefit from FX, operating expenses were up 3% year over year. On a reported basis, operating expense growth impacted EPS by $0.07. Other income improved year over year. The largest portion of this benefit was once again the elimination of the VCE expense from the line last year.

The net benefit to year-over-year EPS was $0.04. Lower share count helped EPS by $0.02 versus last year. We ended the quarter with $14.3 billion in total cash and investments and with $1.4 billion in EMC domestic cash. We returned $229 million to shareholders via a quarterly cash dividend. We did not purchase any shares in Q3.

Free cash flow was $1.03 billion for the quarter. We are on track with the $850 million of cost reduction and business transformation plans that we told you about on our last call.

We are currently working on many initiatives spanning our global operations in 11 major areas, including direct materials procurement, facilities and manufacturing optimization, and SKU simplification. We will continue our relentless focus on being more efficient and building upon the strength of our portfolio.

With that, I'll now turn the call over to David to discuss the EMC Information Infrastructure business.

David?.

Thanks, Zane. Good morning, everyone, and thank you for joining us today. I will start with some highlights for EMC II in the quarter. Within storage, emerging storage was up 27% year over year and up 32% in constant currency. XtremIO had another strong triple-digit growth quarter and is on track for more than $1 billion in annual bookings this year.

Overall storage was down 2% in Q3 and up 3% in constant currency. The business continues to be affected by opposing customer behaviors. On one hand, customer interest and activity in transformational projects continues to be strong. But in general, they also remain cautious about their transactional spend.

This caution continues to drive back-end heavy quarters. We also see this in our maintenance renewal bookings, which were up double digits in Q3. These counteracting forces mask some of the progress we're making in transitioning our business.

As I mentioned before, these opposing customer behaviors are linked to the broader market shift towards cloud, mobile, social, and big data.

And we continue to expect standalone traditional storage systems, which in 2015 were a little over half of the external storage market, to decline at a low teens CAGR from 2014 to 2018, while newer storage technologies like all-flash, scale-out file and objects, converged infrastructure, purpose-built backup appliances, and software-defined storage are expected to grow at high teens CAGR collectively.

I now want to apply this lens to our storage business to show you how we are progressing against this macro view of the storage markets. Historically, our storage business was almost entirely traditional standalone storage arrays.

And we've been broadening our portfolio to include new architectures and other growth opportunities, including converged infrastructure. As you know, all of the EMC strategic storage product-related revenue is in the storage categories identified as high-end unifying/backup and emerging.

If we look back to Q1 of 2013, our traditional standalone VMAX and VNX made up roughly 70% of this aggregate strategic storage business. Looking a bit deeper into the mix of these revenues today, we've reached an interesting inflection point this quarter.

Q3 was the first time that the mature standalone VMAX and VNX businesses made up less than half of the aggregate strategic storage business.

In other words, the products with the higher growth profile, including all-flash arrays, scale-out file, software-defined storage, converged infrastructure, and next-gen backup are now the bigger proportion of our strategic storage business. This is a good indicator of the progress we've made in our storage portfolio transition.

And we've reached this inflection point ahead of the broader markets, moving from almost all standalone storage to a much wider and deeper storage portfolio that fully addresses our customers' changing needs. Our evolving storage and converged infrastructure portfolio provides us with a platform to offer transformative solutions to our customers.

As our customers chart their IT transformations, we continue to see increased traction in our solutions and consulting business, where we can truly leverage the power of our Federation portfolio with VMware and Pivotal.

For example, when one of the largest defense contractors in the United States undertook an ambitious project to design, influence, and build their next-gen cloud platform, we won this engagement by leading with our consulting services and our enterprise hybrid cloud solution.

Our hybrid cloud solution provided them with a foundation to set up a production-level private cloud that scaled, was agile, and supports a self-service model.

Now with the aligned capabilities of EMC II, VMware, and Virtustream forming our new Virtustream Cloud Services business, we will also deliver an off-prem cloud experience that is a compatible extension of the EHC on-premise solution.

Now turning to our security business, while the overall business was down due to us exiting certain non-strategic product lines, excluding that, the rest of the portfolio was up for Q3. In particular, Archer had a good quarter, with revenue up strong double digits in Q3.

Our enterprise content management business continued to shift toward a subscription model and had strong license bookings in the quarter, with further improved profitability in Q3. In closing, I'd like to thank the entire EMC II team for their hard work and dedication.

As we look forward, I could not be more excited about the journey that EMC and Dell have announced.

Our proposed combined enterprise systems business, headquartered in Massachusetts with key strategic hubs around the world, has the potential to not only be on the top of every large enterprise CIO's list today, but also set us up nicely for the new era of IT. With that, I'll turn the call 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 clarifications. This will enable us to take as many questions as possible. We thank you all for your cooperation in this matter.

Nicole, can we have the first question, please?.

Thank you. The first question is coming from Mr. Andrew Nowinski from Piper Jaffray & Company. Sir, you may now ask your question..

Great, thanks for the question. I just want to ask on the broader market. Western Digital acquiring SanDisk this morning, clearly they have assets in the all-flash system market. And Seagate made an acquisition moving up the stack into the storage system business.

I'm just curious how you're thinking about the consolidation that's occurring with two of your suppliers moving more up-market..

Look, I've been saying for a long time that there is a huge secular shift going on in this industry unlike the industry has ever gone on before. And I've also been very clear that you're going to be seeing a lot of consolidation. So, Andrew, you just gave a couple of examples of consolidation happening at the component level.

Obviously, one of the big synergies we see in our view with Dell is how we deal with the supply chain, how we'll buy ahead and invest much like Apple does, and make sure we have the right kinds of supply of flash and media that we need to be successful. But obviously, we're moving up a little bit the other way – not a little bit, a lot the other way.

So nobody, I don't believe, of the traditional players is going to be able to have a successful strategy of business as usual. You're going to see a lot of movement here because this secular shift is violent. And as I said before, this violent shift has tremendous opportunity if you play it right..

Thanks, Andrew.

Next question, please?.

Thank you. The next question is coming from Maynard Um from Wells Fargo. You may now ask your question..

Hi, thank you. I think when I look at the 50:50 Virtustream venture, your converged EMC/VMware products, and the overlapping sales efforts, it would seem logical for EMC and VMware to be together rather than having these joint ownership structures.

I guess I was just wondering if you could walk through why you think these joint ownership structures are the most optimal ones, and also whether the board discussed an option of combining the two companies and why Dell was deemed the one to be the best option. Thanks..

You could check our filings, and you'll see that the board thoroughly investigated a lot of options and thought through a lot of options. Obviously, we did this one because we thought it was the best. This is a different game being played now. If you go back to the client/server era or the last era, everybody stayed neatly in their lane.

There was a storage lane. And of course, that's where EMC played. There was a networking lane. That's were Cisco played. There was a server lane. In the early days you had Sun and HP and others. And then of course, you had even a database lane, where Oracle was the big player. Now you go fast-forward; nobody is staying in their lane.

There's a tremendous amount. If you look at Oracle, not only are they in the database. They moved up to the apps; they moved over to hardware and software design together. We've moved into converged infrastructure. Cisco has moved into servers and storage, so it's a different world out here now.

And basically to play in it, you also have to do coopetition. You have to say this is when I'm going to play with my own stack and this is where we're going to play with others, and the companies that can do that best are redefined, and VMware is at the heart of that.

VMware will play very well with us in the company, but it really needs to play with others. And this is why we set up this model, and I really do believe it's the best model. And the winning companies will be able to do what I just said, and I can't think of a better word than coopetition. We'll partner here; we're going to compete here.

As long as you understand and you're honest and open, those things can work very well..

Thanks, Maynard, next question, please?.

Thank you. The next question is coming from Mr. Alex Kurtz from Sterne, Agee & Leach. Your line is now open..

Thanks, guys, for taking the question. Joe, back to this $1 billion synergy comment between Dell and VMware, I think a lot of investors are trying to figure out what's incremental.

I know this was asked on last week's call, but if you could, go into more detail about why now there's going to be all these incremental opportunities for Dell to sell VSAN and NSX versus a year ago when there was a partnership already with Dell.

I think that would be helpful to better detail where you see that moving and what the plans are in place to accelerate that to get to these synergies..

When you have something in the plan. If you look at let's say for instance, Alex, the leaders in the converged infrastructure, hyper-converged infrastructure area, probably about 70% of them are using their converged infrastructure in a VMware environment, maybe even a little higher. Obviously, Dell is playing in that area.

They partner with some of those leading players. They have their own offerings. But by being able to say okay, we'll let VMware be shared, but we're also going to have our own converged infrastructure stack. And every time we sell that converged infrastructure stack, we'll be selling, for instance, VSAN. We'll be selling vSphere.

We'll be selling vRealize. So when you look at this – now we've had two of the top consultants in the world – firms, two of the top consulting firms in the world, one Dell hired, so to speak, and one our board hired. And both came back with very similar synergy numbers, and they did it by themselves. And then, of course, we did it combined and compare.

So we really do believe these are incremental synergies. We've looked at them hard. You're not going to get them overnight, but I do think they're incremental, and I do think they're large. And I don't think we've done a good job of explaining them to you, and we will pick that up..

Alex, this is Zane. I would just add to that that Dell will own 28% of VMware, and it would obviously be highly incentivized to ensure that they achieve those synergies as well..

Thanks, guys..

Next question, please?.

Thank you. The next question is coming from Mr. Steve Milunovich with UBS. Your line is now open..

Thank you. Joe, could you update us on your thoughts on private versus public cloud? A few years ago, EMC did a fairly detailed analysis explaining where they thought public made more sense and where private made more sense. It looks like private is a big reason for the relationship with Dell.

I know for years you guys had suggested AWS has made public easier to use. You had to make private easier to use. I got that exact same message from Michael a few weeks ago. Could you talk a bit? And obviously, putting all the assets together here moves toward that as well.

What's your sense on what customers are doing, and what percentage of storage over time could move to public cloud?.

Steve, I honestly don't believe that public is the right answer or private is the right answer. I really do believe we call it hybrid. I really believe both are the right answers. I just think if you're going to win in life and business, you've got to come from your strength.

I don't care whether you're playing a sport or again playing in life of business as we do. Our strength is in data centers. So we've got to come from the private side out, but we've got to offer customers a hybrid experience. Most customers are going to keep a set of data centers, or most big customers will keep a set of data centers for sure.

But they're not going to put everything into the data centers and they're not going to continue to build data centers because they know they're going to want to use a public cloud offering too. So some of the traditional players like ourselves are coming what I'd call inside out. We're coming from a private and we're going to offer public.

Obviously, Amazon and Azure are coming exactly the opposite way. They started in public and now they're trying to make offerings on the private side. But I truly believe it's not public or private that's going to win, it's the combination that's going to win.

And that's why when you look at the assets we have through the envisioned new company, I believe they're second to none.

And that's why it makes sense to have the assets VMware has, the assets Pivotal has in their PaaS layer, the assets that we have in our hardware layer, and the assets that EMC and Dell – EMC and VMware have together layer in the software-defined layer.

So when you put it together, there's nobody that has a better stack, and that's why it makes sense to approach this market the way we approach it. So it's not one or the other; it's how do you do both well..

Thank you, Steve, next question, please?.

Thank you. The next question is coming from Lou Miscioscia from CLSA. You may now ask your question..

Sure. So both VMware and also IBM talked about customers pausing and not spending on infrastructure products, mostly on the software side but I assume also on the hardware side. Obviously, your sales were a bit below expectations.

I guess are you also seeing this given that you've talked obviously about all these massive shifts? We've written about it with our 10 Secular Shifts in Storage.

And if you are seeing it, how long do you think it will last? Is this something that will go through the end of the year, or will it also be somewhat pervasive all the way through 2016, as some of these changes are rather massive to IT infrastructures?.

Let me turn that around a little bit. What I honestly think is happening is customers have to spend on their digital transformations. Customers know they need to go to a cloud structure, and I just articulated why it's a hybrid cloud structure.

So as they do those two activities, that's taken a tremendous amount of capital and a tremendous amount of effort. And what they're doing for the traditional products, you could call it a pause because that's not a terrible word.

But what they're doing is they're basically buying with an eye of – I'm going to buy – because I'm not 100% sure what my future is going to look like, I'm going to buy just enough just in time.

And the just-enough part is causing, you called this a pause, but the just-in-time piece is causing us to be tremendously back-end loaded because they're doing a whole set of their own analytics, if you will, to decide what to buy from what vendors, and a lot of that activity ends up in the end of the quarter.

So us and everyone I talked to of my peers is lamenting about how late these quarters are coming in, so that's – I think that's more color on the shift. When will it be over? I'll see if David has got a take. But usually when these things happen, you're talking a couple years. This isn't going to go through quick.

This is the biggest secular shift I've seen in my 45-year career.

David, do you want to add anything to that?.

Yeah. Lou, hopefully you can hear me from London. What I would just add to that is that we saw that in our business this quarter. We talked about this juxtaposition between transformational spending and transactional spending. We said that we had a very late quarter.

That's why we had backlog build by about $100 million more than we planned and $100 million more than we exited Q2 at.

And then also we saw another phenomenon where not only were things late, but we had a number of projects that were awarded to us in the last days of the quarter that we would have (43:25) normally complete in the quarter, we now expect to finalize and book early in Q4. So this phenomenon of just-enough, just-in-time ripples through our business.

We also mentioned that we saw double-digit increases in maintenance renewals, which is indicative of people actually renewing rather than refreshing. So you see it reflected in a number of aspects of what we talked about this quarter..

Thanks, Lou, next question, please?.

Thank you. The next question is coming from Amit Daryanani from RBC Capital Markets. Your line is now open..

Let's just go on to the next question, please..

Hey – never mind, can you hear me?.

Now we can hear you..

Sorry, (44:23). So I'm just curious what's going on on the VMAX side and what you guys expect going forward because obviously the growth rates are down over the last couple of quarters. I'm just wondering what the expected trajectory is on a combined basis going forward..

Sure, hi. This is David, let me take that. I think we said to you earlier in the year that we expect that the VMAX will decline at roughly the same rate this year as it did last year, and we're on track for that.

And as we said, the secular change in the industry creates a situation where the more traditional parts of the business are declining at a market growth rate in the low teens and the higher growth segments of the business are climbing in the high teens.

We also explained that this quarter for the first time we actually had the inflection point where the higher-growth parts are now the biggest piece of the business. Actually 52% to 48% is the mix, so we've made that inflection in front of the marketplace. So we think our mix of business will actually be good going forward.

But back to your question on VMAX, very much on track with what we see happening in the market and in line with the expectations for the growth for the year..

Got it, and then just one quick one.

How do you think about the market share basically on a combined basis with Dell and EMC in terms of NAS and SAN and then maybe even the emerging bucket, and what percentage of share do you guys have?.

We're not really going to talk more than our own share right now. Globally, we have about a 30 point market share. As Joe said, when you actually double-click into the data center where people run mission-critical apps, our market share for us in the data center is close to 50 points, so that is our strength.

And the products from Dell are more complementary and not in the same markets as we have our major strength today..

Got it, thank you..

Next question, please?.

Thank you. The next question is coming from Toni Sacconaghi from Sanford Bernstein. You may now ask your question..

Yes, thank you. VMware stock is trading at slightly under $60 in the premarket today. I think part of that is the reaction to the joint ownership structure of the new Virtustream combination and the associated losses in incremental CapEx that VMware is going to be burdening going forward.

The consequence is that EMC stock is trading at $26.50 in the premarket as a result of VMware going down.

So I guess the question is, why was this JV structure put in place? Was this done solely – was this a condition of the deal and discussed with Dell previously? But it feels like it's shifting an incremental expense to VMware shareholders and to tracking stock owners, which is, at least now the market is saying, impacting their perception of the value of the deal.

So I was wondering if you could comment on that, please..

All right. Thanks, Toni. This is Joe. I can absolutely guarantee everybody on this call or everybody in the world, Dell had absolutely nothing to do with this transaction. This was a transaction driven primarily out of VMware with us.

It makes no sense for us to have – even though Virtustream, which is really working on the mission-critical side and vCloud Air, which is more working on the hybrid and ad hoc side, there is overlap. And there is no other company – and companies much bigger than we are with much bigger revenues and cash flows have two clouds.

So combining it I think you'd agree makes a lot of sense. I can tell you that the CapEx that was talked about has not been filtered. That was just a raw ask from the companies. We have not taken that through a process. Obviously, half of that will be paid by EMC.

And the other part of that CapEx was Virtustream uses a lease model when they buy – when they use – or get equipment and technology for their data center and their data centers, and VMware used a cash model. This flipped it to a cash model, which I'm not sure is the right thing, but that makes a significant difference.

So there's a lot of work to be done in that. But I could tell you that what I think didn't come across was that putting these together will actually save money and actually put more profit on the VMware bottom line. It will lower gross margin percentage, but it will not – it will increase not a whole lot, but slightly.

And of course, as it gets more successful over the years, it will increase gross margin dollars. So again, Dell had nothing to do with driving this. There's been a lot of conspiracy theories out there. This was driven more by VMware than anybody else. And EMC has obviously believed this was a great and good thing to do.

And again, we'll look at everybody's issues and we'll make sure that we present it in a better light in the future..

Thanks, Toni, next question, please?.

Thank you. The next question is coming from Rod Hall from JPMorgan. Your line is now open..

Hey, thank you for taking my question. This is Arky (50:03) on behalf of Rod. The SG&A expense was quite a bit higher than what we expected.

Could you comment on what's driving that, please?.

The biggest piece of that as you look year over year is the impact of the VCE accounting that we've talked about for some time.

As you adjust that out, if you were to look at, say, operating margins, if you took that out as well as the impact on FX, I think you get to a more normalized rate where at least on the operating side were up – it was up just incrementally, as I mentioned in my prepared remarks.

So I would tell you that it's the VCE accounting that impacted that probably more than anything..

Thank you, next question, please?.

Thank you. The next question is coming from Simona Jankowski from Goldman Sachs. You may now ask your question..

Hi, thanks very much. I heard your comments on the impact of the just-in-time and just-enough behavior from clients given all the disruption out there. Can you also offer your comments on the competitive environment? Clearly, we've seen a number of new offerings in the flash space specifically, both from startups and from the incumbents.

And I was just curious how you're seeing that play out in terms of pricing and competition..

Simona, hi. This is David. Let me take that for you. So first of all, obviously the competitive environment you would expect to show up in our gross margins. And the good news is that if you look at both storage and EMC II for the quarter, you exclude the impact of VCE, you exclude the impact of FX, gross margins were up.

So the mix of our business, our ability to compete and basically get the value of our products despite a slower market is actually very good. And then related to that, a lot of the things you talked about in the new area would be in our emerging storage category, which I'm pleased to tell you is still on track to grow over 30% this year.

We'll end the year in the fourth quarter being our second-largest product category. XtremIO had good triple-digit growth and is on track for more than $1 billion of bookings in 2015. So those are the areas that we focus where some of the newer players are also playing. And as you see, we're doing exceptionally well.

We're on plan, and we're actually increasing on a normalized basis our gross margins..

Thank you for the question..

Great, thank you..

We are out of time, so we're going to have a few comments from Joe to sign off the call..

A), are happening around us; and B), we're causing ourselves some needlessly, we are performing well, and that's only because customers realize the value of what we bring to market. And if we continue to do our job well and explain it better to you, I think we're going to have a great outcome, and I owe you that and you will get that.

So thank you very much for being with us today. Thank you for your patience. And again, we'll be very active with you and on our website. Thank you..

Thank you. That concludes today's conference. Thank you for participating. You may now disconnect..