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

Shebleef Sharafi - FBN Rajesh Ghai - Macquarie Steve Milunovich - UBS Lou Miscioscia - CLSA Keith Bachman - Bank of Montreal Maynard Um - Wells Fargo Wamsi Mohan - Bank of America Nehal Chokshi - Maxim Katy Huberty - Morgan Stanley

Good morning, and welcome to the EMC Q1 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. Thank you. You may proceed.

Thank you. Good morning. Welcome to EMC's call to discuss our financial results for the first 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 vision, strategy, and execution. Zane will then discuss the consolidated EMC results and some additional details regarding our performance. David will provide some commentary on the EMC Information Infrastructure business, what he has seen in the market, and the Q1 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. The reconciliation of our non-GAAP comments to our GAAP results can be found in the disclosure in today's press release, supplemental schedules, and the slides that accompany our presentation. In addition, all financial comparisons will be on a year-over-year basis, unless otherwise indicated. As always, the call this morning will contain forward-looking statements, and information concerning factors that could cause actual results to differ can be found in EMC's filings with the U.S. Securities and Exchange Commission. With that, it is now my pleasure to introduce Joe Tucci. Joe?

Thank you, Tony. I'd like to begin by welcoming everyone to our Q1 earnings call. Thank you for joining us. Our take on Q1 was mixed. We were pleased that we slightly beat our Q1 non-GAAP EPS Board plan, as we achieved $0.31 per share. On the other hand, we were disappointed that we fell a bit short of our Q1 revenue plan, approximately $75 million short. This $75 million revenue shortfall occurred in our storage business. That said, our storage product backlog did increase by $100 million year-on-year, right on plan. David will give you a lot more color our storage business in a little while, but I want to make it clear that we could have and should have made this revenue plan, and we offer you no excuses. About two-thirds of this miss was due to the fact that we didn't execute as crisply as we normally do. The other third was due to negative geopolitical effects in Russia and China that slowed down bookings. China and Russia aside, we understand what we need to do better, we have taken corrective actions, and David and the team are confident they will meet their FX adjusted board plan for the year. Let me now turn and comment on the IT market, and customer spending trends. Overall, the IT market is pretty much playing out like we thought it would. Customers are very focused on building their new digital agendas, and in effect become true digital enterprises. This digitalization is changing the way enterprises are building their products, the way they service their products, the way they sell, and the way they interface with their customers, partners, and supply chains. As such, more IT spend is being pushed towards this priority. And it goes without saying that in this digital era every enterprise is increasing their focus on cyber security as the surface area for attacks will expand geometrically. To help fund these two areas, CIOs are searching for ways to reduce cost and increase efficiencies in their current infrastructures and legacy applications, while maintaining and even enhancing overall quality and performance. Collectively, these top three IT priority mandates helping build the digital agenda, and increase focus on cyber security, and relentlessly driving lower costs and improved efficiency in legacy applications and data center operations are causing the biggest secular shift in the history of IT. And we have been equally as clear that while this shift is very disruptive, it is also extremely opportunity rich. To better prepare ourselves to capitalize on the vast opportunity side of this secular shift, we have moved to our Federation model to increase focus and effectiveness, and made a number of medium and long-term strategic investments on behalf of you, our shareholders. Investments we believe will pay off handsomely; investments in a new modern open cloud developers platform and a new data fabrics and data platforms, investments in the advanced identity protection and verification technology, in security analytics, and in technology that helps assure proper governance and compliance around cyber security, investments in mobile device management and security, investments in hybrid cloud solutions that include software defined compute, software defined networking, software defined storage, and advanced management orchestration and automation technologies, investments in converged infrastructure, in new flash and scale-out x86 [ph] appliances, and investments in sales, support, and service that assure we meet and beat our customer expectations. In short, these investment areas have given us a compelling technology advantage, which is well recognized and regarded by our customers throughout the world. At our recent strategic forum, on March 10, we highlighted six new strategic products and their businesses that further strengthen our ability to help customers meet their top IT priorities, namely AirWatch, NSX, Pivotal, ViPR ScaleIO, Elastic Cloud Storage, DSSD, and XtremIO. And we promise to regularly update you on their progress. To refresh your memory, we said that collectively these six areas would generate $2 billion in revenue for us in 2015, which represents a 100% year-over-year growth. I am pleased to report that in Q1, these six businesses together grew well over 100% year-over-year, and they are on target to meet their $2 billion goal. The key metrics I continue to look at to determine our Federation traction are the number of large multinational companies and the diverse set of industries that are relying on Pivotal, VM, or in EMC II as they build out the next generation digital agendas and applications. And similarly, I examined the list of large companies that have engaged us that compete for and/or implement their private/hybrid cloud infrastructures and IT transformation. And I can tell you without hesitation or sales puffery that these lists are dozens of companies long and growing. For sure, our impressive set of Federation-wide technology assets, service, and support capabilities, our partner eco system, and our strong leadership and talent bench is being recognized by an ever-growing list of large companies that are placing huge mobile cloud, Big Data, and security bets with us. And even more impressive is the fact that our win rate is very good, and it's getting even better. Before turning the call over to Zane to drill down on our Q1 performance and 2015 outlook, I would like to comment on two areas that have been talked and written about quite a bit lately, namely, our M&A philosophy, and CEO succession. On the M&A front, we will continue with our string of pearls approach. Our highest priority is to assure that we augment our strong product portfolio and roadmap with additional compelling technology assets that will help make us a winner in this mobile cloud Big Data era, assets that will differentiate us from the competition, and help us win, assets that will produce a solid return on investment. Additionally, as the violent secular shifts in the IT landscape play out, I believe there will be consolidation opportunities that could be quite accretive, and if so, as you would expect, we will certainly investigate those opportunities. And I assure you we will always bounce all M&A and investment opportunities with return of cash to shareholders. As to CEO succession, the first and most important thing that I want you to know is that I love this company. I believe in its mission and bright future, and I am fully engaged and enjoying coming to work every day. I am traveling to see customers more than ever, and I am spending time on strategy, Federation alignment, and on assuring we create long-term shareholder value. I also assure you that our Board is very active, is in full alignment with our strategy, has a robust succession process in place, and is squarely focused on creating value for you, our shareholders. Thank you again for joining us today. I will now turn it over to Zane. Zane?

Thanks, Joe. Good morning, everyone. In Q1, EMC consolidated revenue was $5.6 billion, up 2% year-over-year, and up 6% on a constant currency basis. EPS was $0.31. These results were broadly in line with our expectations for the quarter, and earlier outlook for the year. EPS was slightly ahead of our expectations due to favorable gross margin, operational efficiencies, and good cost controls. As expected, and previewed on the last earnings call, EPS was impacted by lower Q1 revenue growth relative to the full year as a result of our fulfillment process changes, as well as the impact of the consolidation of VCE. Revenue was slightly softer than expected due to geographic weakness in China and Russia, a product transition-related pause, and organizational changes to realign our storage business. I want to thank everyone across the broader EMC family for their efforts in delivering these results, and positioning us well for the remainder of the year. On a geographic basis, we grew in all theaters in constant currency. North America grew 5% year-over-year, EMEA was down 2%, and up 5% in constant currency, APJ was up 1%, and Latin America was up 8%; they were up 6% and 14% respectively on a constant currency basis. The incremental FX changes during the quarter did not have a material impact on our quarterly results due to the effectiveness of our hedging program. However, current FX rates are expected to further reduce our 2015 revenue by approximately $400 million. Pivotal Q1 revenue was up 8% year-over-year. As you know, the reported revenue results do not tell the real story, as Pivotal continues to make its transition to a software subscription business model. While subscription revenue was up several hundred percent year-over-year, it was on a very small base. It is indicative of the customer interest in both Pivotal Cloud Foundry, and the Big Data suite, where Pivotal added a number of significant new customers this quarter. We're also seeing good progress in other metrics, such as subscription ARR and backlog. Customer interest is high. The trajectory is good and bodes well for the continued success of Pivotal's evolution to a subscription-based revenue model. Pivotal Cloud Foundry continues to gain strong momentum in the marketplace as customers experience the value of easily managing their full application life cycle in both private and public clouds, while leveraging strong DevOps functionality. Pivotal CF enables customers to build a new generation of cloud native applications that are transforming their businesses and dramatically lowering their operating costs. The broad industry acceptance of the Cloud Foundry foundation and Cloud Foundry as the leading cloud native application platform is providing great dividends to Pivotal. During the quarter, Pivotal, in combination with 16 other companies including Hortonworks, IBM, Teradata, and SaaS announced the formation of the Open Data Platform initiative, which has shared industry effort to help promote and advance the state of Apache Hadoop and Big Data technologies for the enterprise. Pivotal also announced the strategic partnership with Hortonworks that enables Pivotal's Big Data suite, including HAWQ product to run on Hortonworks Hadoop distribution, and other ODP-compliant distributions. This significantly expands Pivotal's addressable market. This announcement has really excited the industry, and is opening up many opportunities for Pivotal. Pivotal's agile development services had continued success in the first quarter, highlighted by the transformational deal with a top fitness brand that created a new application to engage users and to simplify personal health data and fitness activity tracking tools. Early success with the Pivotal-developed mobile application has led to follow-on purchases of both Pivotal Cloud Foundry and the Big Data suite. This combination of software and a new engagement application continues to differentiate the company in the highly competitive fitness space. VMWare's first quarter was a solid start to 2015. Q1 revenue within EMC grew 12% year-over-year, and was up 14% in constant currency. There were a number of highlights in the quarter, including license bookings beyond standalone vSphere, which grew over 30% year-over-year in constant currency. This business continues its successful transition in enabling the software defined enterprise. VMWare's success in hybrid cloud and SaaS offerings continued in Q1, with bookings growing a 100% versus last year. VMWare also continued the positive momentum in end-user computing, with bookings in this business, including AirWatch, up 50% on a constant currency basis. They continue to be a leader in enterprise mobility management, and in March at Mobile World Congress, AirWatch was awarded the best mobile cloud service or app for EMM at the event. VMWare is seeing a significant increase in the adoption of newer products and solutions like NSX, and seeing a significant increase in the percentage of customers adopting the full SDDC portfolio, and solutions like enterprise hybrid cloud from our Federation of companies. We're also seeing good traction with cross Federation solutions, including capabilities from both VMWare and EMC Information Infrastructure. For example, we're working with a large U.S. media and entertainment company who is looking to implement a private cloud, provide a self-service portal for app developers and enable provisioning for compute and storage. We showed our combined strength through standing up an enterprise hybrid cloud proof-of-concept based on VCE Vblock infrastructure that enabled the provisioning of Linux and Windows VMs via the EHC portal; all in three weeks. The unique combination and tight integration of capabilities from VMWare and EMC Information Infrastructure enabled us to win this deal. This is just one example. We are encouraged by the size of the pipeline of these types of opportunities. The Information Infrastructure revenue totaled $4 billion, down 1% year-over-year, and up 3% in constant currency. Emerging storage revenue was up 14% year-over-year, and normalized for a large Atmos deal last year, it was up close to 40% year-over-year. Isilon and XtremIO both had very good growth in the quarter as well. We continue to expect emerging storage portfolio to grow more than 30% for 2015. Within II, high-end storage outperformed our expectations while unified BRS was weaker than expected. David will give you additional color on the information infrastructure business in a few minutes. As the IT market is transforming, customers are becoming increasingly focused on successful outcomes versus buying individual products. We've anticipated this, and have transformed our business to better address changing customer needs. Pivotal, VMWare and EMC information infrastructure are each leaders in their respective markets. Individually, they're very successful. But together, we were able to offer customers truly unique capabilities. EMC converged infrastructure and cross Federation solutions are delivering their requirements that customers' needs to succeed in the digital age, and positioning EMC to be a more strategic partner. An important factor in the success of our strategy is the progress we're making with these integrated solutions and in our six key growth opportunities. We once again saw significant growth in these six in the quarter, and as a group, they're tracking well towards our expectations of $2 billion in revenue this year. As these products are integrated into our unique solutions, they grow quickly and become an increasingly significant portion of the overall business. Transformational opportunities are both large and long-term in nature, and are at a level of strategic engagement that is new for EMC, and would not be possible without the strength and the capabilities of the Federation. As a sign of growing interest, our consulting services group is seeing tremendous success in our IT transformation workshops with requests for these engagements almost doubling quarter-over-quarter. An example of our growing strategic relevance is at one of the world's largest heavy equipment companies; this customer is undergoing a multiyear transformation of their IT and was not originally an EMC customer. Our consulting group engaged with the customer on an IT transformation assessment, roadmap, and business case. Given the success of this work, the roadmap is now their go-forward plan to implement over the next few years. We follow the consulting engagement with a sizable data domain, and Avamar deal, and currently we're working with the customer on an enterprise hybrid cloud solution as the next phase. Our transformation vision, approach, and credibility has enabled us to go from no business with this customer to being a strategic partner working with them to achieve their long-term IT transformation goals. The cross Federation capabilities make our solutions unique in the market and position us well as a strategic partner with our customers for years to come. We continue to innovate and produce industry-leading integrated capabilities and solutions, including most recently, the VxBlock vScale architecture and the Business Data Lake Solution. Stay tuned for more as we will make a number of additional announcements in two weeks at EMC World. Now, looking at the factors that drove our EPS for the quarter, I would point out that while we were slightly better than our expectations, we're examining all areas of the business to control expenses on both the COGS and operating expense lines. Gross profit for the quarter totaled $3.4 billion. Gross margin was 61.3%, down a 150 basis points year-over-year. Adjusting for the consolidation of VCE, gross margin was relatively flat year-over-year. Operating expense was 2.5 billion, growing 9% year-over-year. Without the impact of the VCE expenses, OpEx grew 4% year-over-year. Incremental costs incurred through various acquisitions over the course of the year also contributed to our OpEx growth. Overall, growth in the operating expenses impacted Q1 EPS by $0.07. Excluding the impact of VCE consolidation, Q1 EMC II operating expenses were flat year-over-year, as this business has been very diligent in managing expenses throughout the quarter. Their performance in this quarter was helped by our continued efforts to balance investment spend with return potential for each part of our portfolio products and services. We've also been re aligning our organizational structure to better match with our more attractive investment opportunities. For example, in EMC information infrastructure, over the last two years, we've shifted a considerable portion of R&D spend from our traditional storage products to new and higher growth areas. We expect this portion to continue to increase as we seek to achieve additional efficiencies in our matured products. The year-over-year change in non-operating expenses added $0.02 due to the shift of the VCE expenses to their respective operating lines. Our accelerated share repurchase program continues to benefit EPS. It helped improve our EPS $0.01 versus Q1 2014. As a result, we finished Q1 with non-GAAP earnings per share of $0.31. We generated $755 million in free cash flow in Q1. The year-over-year comparison was impacted by a larger cash tax payment this year. Our consolidated total cash and investments at the end of Q1 was $13.5 billion, $3 billion of which is in the U.S. During the quarter, we returned almost $1.7 billion to shareholders via combination of share buybacks and dividends. We repurchased almost $1.5 billion worth of VMC shares and distributed approximately $230 million to shareholders via a quarterly dividend. Updating our 2015 outlook using March 31 currency rates, we expect consolidated revenue to be $25.7 billion, non-GAAP EPS to be $1.91, and we expect free cash flow of $4.1 billion. This change from our prior outlook is solely due to the impact of FX rates since the beginning of the year. There is nothing more important to this management team then growing shareholder value. We are confident that our focus on gaining share, growing earnings, and making thoughtful investments will enable our continued success. We are well positioned this year with unparalleled portfolio; thanks to the strength and hard work of the EMC team. We are gaining in strategic relevance with our customers. We are seeing results from closer integration across the Federation. We are winning in CI and EHC. We continue to see success and tremendous potential in our investment areas. As the environment continues to be challenging, we are optimizing our operational performance and capital allocation through share buybacks and dividends. We will aggressively look for opportunities to grow the revenue line, become more efficient, and increase shareholder value. Now, I will turn the call over to David to discuss a few highlights of the information infrastructure business. David?

Thanks, Zane. Good morning everyone, and thank you joining us today. Overall storage revenue was flat this quarter, up 3% in constant currency, and grew in constant currency in all theatres. Within this, our level of unshipped orders was on-track with our new fulfilment process, which meant that, as expected, the amounts of unshipped storage product orders grew by $100 million versus Q1 2014. Many key areas of our portfolio continue to show great traction growth, but storage product revenue was approximately $75 million below our expectations due to three factors with roughly equal weighting. The first was weakness in Russia due to the economy and currency headwinds, and also in China due to increased scrutiny of U.S. technology purchases in the government and financial services sectors. The second was due to some customers waiting for an anticipated major product announcement in the high-end of our backup and recovery portfolio. And the third was due to a slower start than we would have liked on the go-to-market side of our business due to the impact of the approximately 1500 positions we eliminated across EMC II in Q1. As we look forward to the rest of the year, we believe our ability to deliver world-class products, services, and solutions will drive storage return to expected growth on a constant currency basis for the year. EMC Information Infrastructure strategy to win in this digital age is to follow a progression that expands from best-of-breed products to a broad storage product portfolio to converge infrastructure and also to solutions. This strategy is designed to help our customers transform the existing application environments and also to capitalize on the third platform of information technology. Within EMC II, our focus has been to evolve our storage portfolio by excelling at newer technologies such as scale-out, file [ph] and objects, flash and software defined storage. As these technologies continue to grow much faster than traditional storage and assume a larger share of the storage market they help the overall market growth. And as our market share in most of these new areas significantly exceeds our market segment share in traditional external storage it positions us well going forward. At the same time, we continue to expand our lead in the traditional storage markets by bridging the gap between current and newer storage technologies with best-of-breed converged infrastructure and solutions that are focused upon helping our customers adapt to the digital age. Within storage our emerging products grew 14% in Q1. This category is still on track to be our second largest storage bucket by the end of the year. As Zane mentioned, normalizing for one very large deal that would've reduce Q1 '14 growth to 50% year-on-year, the emerging products portfolio grew close to 40% this quarter. The success of our emerging products is a validation of our strategy and these investments. Within emerging storage Isilon continues to lead the scale-out file and HDFS market with its unique scale-out file systems technology and native Hadoop support. In Q1, Isilon won one of the world's largest web scale companies as they chose to consolidate their mission critical work flow data on to the new Isilon HD series platform. Isilon continued to shine in the enterprise big data analytics space with its native Hadoop capabilities, especially combined with the Pivotal Big Data suites. For example, when one of the largest telecom providers in Latin America wants to transform their go-to-market processes by leveraging big data they chose Isilon and the Pivotal Big Data to implement their big data analytics platform. We're also encouraged to see use cases of Isilon expanding beyond Hadoop into other next generation workloads such as Splunk analytics. XtremIO had very strong triple-digit growth this quarter and maintained its leading position in the all-flash array market. As XtremIO continues to grow, via success in winning net new work loads and customers the overlap between XtremIO and our traditional hybrid storage arrays has not materially changed from what we shared with you last quarter. Combined with our software-defined portfolio, XtremIO offers unique capabilities that are very hard to match by any point or traditional competitor. When a major eastern European city's IT department wanted to modernize their data center with a software-defined approach, they turned to XtremIO and ViPR to help address their changing business requirements. The EMC won this deal against some of our major global competitors and flash startups because of the completeness of our vision and best-of-breed storage portfolio. Expect to hear a lot more about XtremIO as well as EMC II software defined storage at EMC world. On software-defied storage portfolio has been very popular with early adopters such as service providers, content repositories and web scale customers, and we continue to enhance our go-to-market strategy to position our portfolio across a broader customer base. We've aligned our go-to-market teams to address three software defined storage use cases. For customers who want to modernize their existing storage infrastructures, using a software-defined platform we have ViPR Controller and ViPR SRM. The hyper converged scale-out high performance block storage needs ScaleIO is a perfect fit. And for Cloud scale objects and Hadoop workloads on commodity hardware, ECS really differentiates itself with its unique global consistency architecture. This quarter a major international service provider embraced our software-defined storage portfolio by choosing to deploy the next generation block and object services on ScaleIO and ECS. We won this engagement due to the unique capabilities of ECS and its ability to deliver object storage at a significantly lower TCO than the largest public cloud, and the fact that ScaleIO on commodity hardware can deliver block storage at scale is very cost effective. Our high-end storage performance was slightly better than expected with new VMAX III representing more than 50% of the new systems sold during the quarter. The overall install base of high-end systems continues to be stable, customers appreciate the unique capabilities of the new platform, and we still expect VMAX to gain share for the full year. Our unified and backup recovery business was down 11% in Q1. This category was affected by currency headwinds of business practice changes and the slower go-to-market start to the year. Backup recovery was also affected by the customer pulls ahead of our coming high-end data domain product refresh. Since the underlying fundamentals of this business as well the market demand remains solid, we expect this business will improve through the rest of the year. I expect some announcements around backup and data protection at EMC World. We continue to enjoy strong success with our converged infrastructure PORTFOLIO that includes Vblocks, VSPEX and VSPEX BLUE. And we're pleased with the group's performance this quarter. Within our converged infrastructure business, Vblock-related revenue was up more than 30% compared to Q1 last year. As converged infrastructure plays a vital role in our customers' broader IT transformations, we aim new products or portfolio like the recently announced VxBlocks and the vScale Architecture, which also support our Federation level solutions like EHC, and Business Data Lakes, where CI is a critical building block. We'll have some exciting news around converged infrastructure portfolio at EMC World. Within RSA, Security Analytics and Archer grew over 20% this quarter. The RSA Annual Conference started this week, and continues to be the world's premier event focused upon next-generation information security with record industry attendance of more than 30,000. Now, turning to solutions; our Enterprise Hybrid Cloud Solution that launched late last year continues to enjoy solid success as customers embrace the value proposition of broader IT transformation. For Q1, some of the key customer wins include one of Europe largest publishers, the U.S. State IT department, and an international government agency. Our momentum with EHC is a validation of our belief that hybrid clouds will be dominant in the future. And for us, EHC is a key strategic solution that will lead to more transformational deals for the Federation with our largest customers. Last month we announced our Federation Business Data Lake solution, which dramatically accelerates time to value for customers deploying Hadoop for Big Data Analytics. This solution is built on the EMC Federation best-of-breed products for Big Data, including Isilon and ECS, VMWare vSphere running on Vblocks, the Pivotal Big Data Suite, and Pivotal Cloud Foundry. We're also working hard on nurturing an ecosystem around the solution by supporting third-party analytics packages like tableau and SaaS, and other Big Data solutions such as Cloudera and Hortonworks. We're encouraged by the high initial customer interest in our Federation Business Data Lake Solution. We continue to work on new end-to-end Federation Solutions that will drive real value and differentiation for our customers and lead them into the new digital age. As we look forward to the rest of the year and beyond, our opportunities to grow are increasing, because most of the factors that negative affected Q1 are behind us. We have successfully positioned ourselves to win in the evolving storage landscape with our Broad portfolio. Our industry-leading converged infrastructure portfolio and our solutions that are focused on delivering business outcomes for our customers continue to gain traction in the market, and our strategic importance with our largest customers is growing as we engage even more closely with our Federation partners, VMWare and Pivotal, to leverage our best-of-breed portfolio and collective influence in the overall IT market. While this quarter was not without its challenges, we also made lots of progress. I'd like to thank our team for their hard work, and as always, our partners and customers for your continued support. With that, I'll turn it over to Tony for Q&A.

Thanks, David. Before we open up the lines for your questions, as usual we'll 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 for your cooperation in this matter. Caroline, can we open up the lines for questions, please?

Thank you. [Operator Instructions] And our first question comes from Shebleef Sharafi from FBN. Your line is open.

Yes, thank you. You said that about two-thirds of the miss was execution related. Can you elaborate on what were the largest execution missteps last quarter and what you have done to resolve them? Thank you.

Hey, Shebly. Yes, good morning. This is David. Let me explain exactly, first of all, make sure we understand kind of what did and didn't happen in the storage. So to make it very clear, the vast majority of our storage business was on track for the quarter, services operating margin, gross margin, most of the product areas, but there are three specific things that caused the $75 million miss shortfall compared to our expectation on storage products. One of them was external. We mentioned the geopolitical factors in China and Russia that was about a third of that. Those of course, we do expect to continue during the year. ': ': ': ': ': ': ': ': ': ': ': ':

Thank you.

Next question please.

Thank you. Our next question comes from Brian Alexander from Raymond James. Your line is open.

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Thank you, Brian. Next question, please.

Thank you. Our next question comes from Amit Daryanani from RBC. Your line is open.

Thanks a lot. David, I was hoping you could just talk a little bit about the core EMC gross margins. They were down pretty substantially, I think year-over-year, 260 basis points. Was this a reflection of the execution issues? And then secondly, are you seeing some impact of gross margins from the total of the XIO installations that are legacy VMAX accounts?

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Thanks.

Just to…

You had one more thing, Amit?

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Actually the XtremeIO gross margin profile is actually quite attractive for a couple of reasons. First of all, it sold as an appliance and hardware/software combined. Secondarily, because it's an appliance model, we start charging maintenance on basically day one for that product. So we don't have to accrue for a multiyear warranty. So over the life cycle of an XtremIO system, the gross margin profile is actually quite good and very comparable to our traditional VMAX, VNX blended margins.

Thank you.

Thanks. Next question please.

Our next question or comment is from Rajesh Ghai from Macquarie. Your line is open.

Hi. Yes, thanks. I had a question on the high-end storage side. Historically, an IBM Refresh has -- Mainframe Refresh has helped you in your high-end business. Why would it be any different this year? And is the high-end still being impacted more by the virtual migration of Hadoop and other workloads to [indiscernible] hardware, or is it more encroachment by all flash [ph] such as your own XtremIO? Thank you.

Thank you. Multipart question; let me break it down. So first of all, the Mainframe is a very small part of the total high-end systems business. So yes, we would expect to get some impact, typically lags by a quarter or so from an IBM refresh, so not a material factor. You wouldn't see it show up in the overall numbers very much. In terms of the dynamics, it's not workload migration, that's an important thing to understand, workloads don't migrate to Hadoop. Hadoop workloads and Big Data workloads are a new class of workloads, and what we are saying is that most of those workloads are being deployed on new systems like an Isilon or an ECS and that is driving growth in that side of the business to the extend there is any migration of workloads in the high-end, some of those migration to all Flash price because I spend a couple of minutes just before explaining only a third of our XtremIO systems are going into replaced workload sitting on either high-end or VNX class system. So don't think of it as all high-end. So, essentially the high-end is more dynamic of a fairly steady install-base, and as we mentioned, actually a number of installed high-end systems has remained relatively constant over the last year or so, and the bigger dynamic is in fact new workloads getting build on new classes of systems that drive things out of our emerging technologies division.

Thanks, Rajesh. Next question please.

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

Thank you. Just to be clear, your guidance reduction from $1.98 to $1.91, you view as all currency. But it does assume an improvement in execution and for example you said China and Russia probably were not going to come back. So I am wondering how much risk is in that? And I also had to ask $0.31 was ahead of the Board's plan but the consensus on the Street was $0.36 so I guess earnings management or why the big difference? Maybe VCE was quite a bit larger than we expected?

So Steve, I'll start with that and I think David will probably want to add to that. At least for the quarter it was in line with our internal expectations, and I think David touched on some of the issues we found at least on the revenue side for the quarter. And as we've touched on before, these are backend loaded quarter. So I think there is a fair amount of volatility. And also the performance was a fairly significant part of that. As we look for the remainder of the year, the adjustment we are making is solely due to the difference in currencies. We originally had the Euro at 191, which was the beginning of the year rate, and we've updated our currency rates for March 31, which is -- sorry, $7, so 121 was Euro [ph], and then a $7 which is where we are right now. And we feel quite confident with the plan. I think we've talked about the areas of the execution that we are confident that we can overcome for the remainder of the year.

And Steve, just to add to that, to be clear I mentioned this before, China and Russia we do expect that headwind. Obviously it was about third of the delta in our expectations in the first quarter. We do expect that headwind to continue, and we do expect as I mentioned in answer to the first call, the execution issues are behind us, and we believe there is enough opportunity out there to make that up as go through the rest of the year. So the only difference in the outlook for the year as I mentioned is in fact for the changes to foreign exchange.

Thanks.

Thank you, Steve. Next question please.

Thank you. Our next question or comment comes from Lou Miscioscia from CLSA. Your line is open.

Okay, thank you. Maybe if we could get an update Joe's plans as we think about the whole year and into next. And also at the analyst meeting and also obviously on this call, you talked about possible consolidation. Could you maybe just add a little bit of color to that? Would it possibly be more likely to stay in your core areas of storage or is it possibly going to expand out into new areas where really you don't do as much something maybe in the case of networking or another area of hardware/software? Thank you.

Lou, in your second part of your question there's nothing specific that we want to talk about now. I'm just making a general statement having been around a few years. I do believe on a back of these violent secular shifts there will be opportunities. And I don't want to talk about where we think they might be. And again, we will be very -- only if they're very accretive, only if they would really add value to our shareholders would we even entertain it. Our first and foremost strategy is to continue our string of pearls, which has worked quite well or will work quite well in the case with the new six bets we placed. As far as my personal plans, I'm here. I'm engaged. I'm working hard. The board has got a -- as I said, a robust process in place, and my job is to do my job until the board comes with a new CEO. Then I would agree to help as a chairman for a while, and then watch this company flourish after I leave.

Thank you, good luck.

Thank you.

Next question please.

Thank you. Our next question is from Keith Bachman from Bank of Montreal. Your line is open.

Hi, guys. Thanks. I wanted to ask about the free cash flow generation capability. You are guiding free cash flow to be down year-over-year in '15, more than 18%. Is there any one-time items in there? If you could describe how investors should be thinking about the ongoing ability of EMC to generate free cash flow because the magnitude of decline is pretty significant. It is hard to reconcile the statements that EMC is trying to create shareholder value with free cash flow being down so meaningfully, but if you could describe [ph] any one-time items and how investor should be thinking about the ongoing ability to grow or to not grow free cash flow from this number. Thank you.

Sure, Keith. This is Zane. I'll address it. There is in fact a, call it a one-time or a big shift, in free cash flow that we talked about at the strategic forum and that's with the inclusion of VCE moving the impact of the VCE acquisition into operating cash flow line has roughly a $500 million impact on free cash flow, the way we define free cash flow. We were still very comfortable with the ability for us to generate free cash flow. If you were to look at the shift from the year end to where we are today, we're still confident in our expectation. We're currently expecting $4.1 billion. And the only change has been due to currency. We've also included the VMWare update into our free cash flow line, if you recall David mentioned some tax payments, incremental tax payments on a year-over-year basis. So we still feel very confident in the business and in its ability to generate free cash flow.

All right, thank you.

Next question please.

Thank you, our next question is from Maynard Um from Wells Fargo. Your line is open.

Hi, thank you. I just wanted to touch again on exceeding your expectations or coming in line with the Board expectations. I guess, Zane, can you walk us through the shape of the year in terms of the linearity to the EPS guide? And you talked about looking for cost efficiencies but I am wondering whether you are baking in something meaningful here, offsetting some of the China -- the geopolitical issues or do you think there is upside to your outlook as you find some of these cost opportunities? Thanks.

Maynard, you know again I -- and we tried to highlight this just over a month ago as you think about the impact that the fulfillment -- the change in fulfillment process had in our quarterly seasonality. And while we don't guide to the quarter we mentioned that it would be approximately 22%. If you looked at that percent versus our updated guidance you'll see it's roughly 21.8%. And David talked about some of the execution opportunities that we feel we were convinced that we can overcome as it relates to the storage part of the business. The rest of it if you were to look at revenue seasonality through the remainder of the year, we do have a buildup if you looked at the VMWare results and our expectations through the course of the year; you do see some of the incremental growth through the course of the year. We're focused on the business. We feel confident in the pipeline as well as the investments. If you look at the emerging parts of the business we're confident in the growth of those emerging pieces obviously having a larger portion of our EPS growth towards the remainder of the year.

Thanks, Maynard. Next question please.

Our next question comes from Wamsi Mohan from Bank of America. Your line is open.

Yes, thanks, good morning. Zane, the VCE consolidation seems like it drove an incremental $115 million in expenses versus last year just in Q1 alone. So as look for the full year number that is almost $0.04 and I believe on your last call you said that the full-year impact would be roughly that magnitude. So should we think that from here on that there is not an incremental headwind or is there still incremental headwind from VCE?

No, I think you may have slightly overextended the impact on the first quarter. What I did mention is that it was going to be far more, so that you should really think of the $0.04 being our first half impact. So you're close, we would be happy to go through the math, but the impact was more pronounced in the first half, not as significant as $0.04 in the first quarter. So you're close, but it is essentially a first half phenomenon as you incorporate the VCE impact.

And this is David. Just to help clarify the mechanics, so yes, there was always an incremental impact to operating expense from VCE moving into operating expense. But then there's a corresponding reduction to other expense, so obviously we use to consolidate 67-ish percent of the VCE expenses into other income. Now we consolidate 100 into operating expense. So it's the delta between those two that is driving the impact. I think you're just looking at just the gross amount that is sitting inside of operating expenses.

Thanks, David.

Thank you, Wamsi. Next question please.

Thank you. Our next question or comment comes from Nehal Chokshi from Maxim. Your line is open.

Yes, thank you. For Pivotal, I am increasingly inclined to believe this can indeed be your next VMWare i.e., generating $2 billion to $3 billion of free cash flow per year 10 years down the road. I know that is really long-term thinking but it seems like a significant portion of the value proposition for Pivotal is enabling -- utilizing any platform. Is this the right way to think about the long-term picture here and pending the answer, I will have a follow-up question.

I didn't quite understand the question, Nehal, can you do that again?

Sure. Looking at Pivotal being your next VMWare, the key pillar of that is enablement of Big Data consumption on any platform. Is that the right way to think about that? And I will have a follow-up question pending the answer here.

Yes. At the base level of Pivotal is Cloud Foundry, and the -- which is developers platform, and the -- I think what Cloud Foundry is trying to do more than anything else is basically say you develop your app once and then you have portability across the popular Cloud platforms out there whether it would be VMWare based platform or an OpenStack based platform, Amazon based platform, an Azure platform or the next one on this list would be Google platform. So yes, the answer is yes.

Okay. So the follow-up question is what is the risk that provided that this does indeed work out that you are ending up cannibalizing your existing strong free cash flow streams from information infrastructure as well as virtual infrastructure?

Well, if you take the VMWare side, you see the moves that the last set of announcements they're making around VIO, VMWare Integrated OpenStack around what they are announcing with how they are -- have this really slick implementation of containers. You look what David is doing in EMC II around Elastic Cloud Storage, around ViPR, around ScaleIO, around Isilon, these all are aimed at that new world, that the same world that Pivotal has aimed at. So we see -- this is again why I'm so excited about the set of assets we built across this Federation because when you add layer one plus layer two plus layer three, and you go to a customer, you're much, much more relevant, have a much better chance of winning, and that's why we went through that, not by name, but that very robust list of customers who are working with where they've entrusted us to help them as they build their digital agenda, and then of course that digital agenda ends up being on a cloud, and we have an equally robust list of customers there that rely on us for IT transformation to a hybrid cloud. So that's the secret sauce that I've been trying to get across to everybody.

Okay, great. Thank you.

Thanks. We have time for one more question, and then we'll have a few concluding comments from Joe.

Thank you. And our final question comes from Katy Huberty from Morgan Stanley. Your line is open.

Yes, thanks. Given the strength of the all flash array market, can you just remind us the timing of DSSD product coming to market and how you plan to position that relative to XtremIO? Thank you.

Okay. Yes, this is David. Let me take that. First of all, DSSD coming to market later this year, we couldn't be more excited about that. I did mention though I expect to see some exciting news around XtremIO at EMC World as well. So the flash agenda is alive, well and strong, and they're positioned quite differently. Basically XtremIO is a SAN attached Block Storage Device designed to make existing applications run much, much faster. DSSD is aimed more at the NextGen in-memory third platform applications. It's well-handled. Protocols like Hadoop as well as the native protocols designed to be basically an extension of memory and the applications that we're using the assistance for are actually quite different. So they're both based upon flash technology, but the applications they are aimed for are different and quite complementary. So couldn't be more excited about the flash agenda. You'll hear a lot more about XtremIO in two weeks time, a little bit more about DSSD as well.

Again, let me thank everybody for joining us. The point we tried to make, get across is there is a huge inextricably linked business and IT transformation taking place right now. A transformation like this will have winners and losers, as this transformation plays out. We have and are making the right investments, and we have the strategy, the technology, the people, and the customer permission to be a winner. And I assure you as we play hard to win, we will keep a sharp eye on costs. David and his team are looking forward to EMC World, the week after next, and there will be a good number of anticipated and important product announcements made there. This conference will also have an investor track. So hopefully we'll see many of you there. And again, the management team and I are very confident of our future, and our ability to create shareholder value. So once again, thank you for being with us, and I hopefully see you in two weeks.

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