Good morning, and welcome to the EMC Third Quarter 2011 Earnings Conference Call. [Operator Instructions] 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. Sir, you may begin.

Thank you. Good morning. Welcome to EMC's call to discuss our financial results for the third quarter of 2011. Today, we are joined by EMC Chairman and CEO, Joe Tucci; and David Goulden, EMC Executive Vice President and CFO. David will provide a few comments about the results that we released this morning. He will highlight some of EMC's activities this quarter and discuss our outlook for the rest of 2011. Joe will then spend some time discussing his view of what is happening in the market, EMC's execution of the strategy, and how EMC is positioned to help customers on the journey to the cloud and in their efforts to handle the growth of Big Data. After the prepared remarks, we will then open up the lines to take your questions. I would like to point out 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 today, in our press release, supplemental schedules and the slides that accompany our presentation. All these are available for download within the Investor Relations section of emc.com. As always, we have provided detailed financial tables in our news release and on our corporate website. These schedules are quite important in understanding our results, so we do encourage you to take a look at them. 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. And lastly, I will note that an archive of today's presentation will be available following the call. With that, it is now my pleasure to introduce David Goulden. David?

Thanks, Tony. Good morning, and thank you for joining us today. I'm pleased to report another quarter of excellent results. We achieved third quarter revenue growth of 18% and grew non-GAAP EPS by 23%. We again improved both non-GAAP gross margin and non-GAAP operating margin both sequentially and year-on-year, and we grew free cash flow by more than 25% on a trailing 12-month basis. Our strong Q3 results underscore that our strategy continues to serve us well. Our sharp focus on key areas of opportunity within cloud and Big Data is propelling ongoing momentum. Our broad portfolio of differentiated solutions within these secular trends is resonating with customers, and our disciplined operational execution and control are driving our success. The combination of all 3 of these has driven our results over the past several quarters, but I'd like to take a moment to focus upon the power of our portfolio. We achieved $4.98 billion of revenue this quarter, a record amount for any quarter in our history because the combination of our storage, virtualization and security offerings is compelling. Our results stem from having market-leading products and services in each of these high-priority areas of IT spend and also by leveraging capabilities across our lines of business. For example, we developed our storage solutions with an eye towards security and virtualization, and customers rely upon our expertise in these areas as they decide where to deploy their IT dollars. In any business environment, customers want to make their IT operations more efficient and more agile. Having a partner who can get them there from start to finish is critical, and this is why we win. This advantage was clearly demonstrated by our Information Storage results in Q3 where revenue grew 16% year-on-year to $3.7 billion, driven by product revenue growth…

Thanks, David. I would like to begin by welcoming everyone to today's earnings call. Thank you very much for joining us. Overall, I am very pleased with our Q3 results. They were hallmarked by impressive top line growth, which undoubtedly produced share gains for us, and leveraged on both the bottom line and in free cash flow. The key ingredient to our success was balanced growth, double-digit year-on-year growth across the vast majority of our product and business units; namely, in VMware with its leading virtualization and cloud-aware software; in our Information Storage business; in our Information Protection business; in our Information Security business; and in our information analytics business. Additionally, we exhibited this balanced double-digit, year-on-year growth in our global services business and across our major geographies, in the Americas, in EMEA and in APJ. These impressive results are clear indicators that our hybrid cloud computing and Big Data strategies are resonating extremely well with customers. They see our products and services as relevant, and they are entrusting us to help them accelerate their journey to the cloud and its significant advantages. I would like to recognize the more than 52,000 people around the world who are members of the EMC and VMware Family and thank them for their innovation, their hard work and for their dedication to our customers' success. I would now like to add a little more color as to what we saw and experienced in regard to customer spending trends in information technology in Q3 and then comment on what we expect to see in Q4 and a little bit beyond. For sure, in Q3, we saw that customers were examining their IT purchases with more scrutiny. Customers are looking for, in fact, demanding that their IT -- that their investments in IT yield real…

Thanks, Joe. 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. Julie, can we open up the lines for the questions, please?

[Operator Instructions] Your first question, Aaron Rakers, Stifel, Nicolaus. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: I guess my question would be centered on the midrange product cycles, specifically the VNX. Can you talk a little bit about where we're at in that cycle? How we should think about the trajectory of that cycle over the next couple of quarters? And any color on how much of that momentum that you've seen is basically leveraging the installed base versus really greenfield new competitive wins?

Yes, let me start. So first of all, as I mentioned in my comments, if you look at what we call unified which is basically the old 2 Cs plus VNX, now 80% of the systems revenue from that category is now in the VNX Family, so the transition to VNX has happened. As I mentioned again in my comments, obviously, we are seeing a lot of upgrade potential and upgrade happening from the installed base, but we're also winning a number of new accounts as I mentioned. The third point I'd make is, that the channel play with VNX is also very strong, with VNXe close to 1,500 new to EMC customers this year, and as I mentioned, again, the non-Dell channel revenues for the mid-tier in total, the biggest piece is unified, is up 40% year-on-year. So we feel good about the take-up, the adoption, the momentum and also the ability to expand the market into not just the VNX space, but also VNXe.

Yes, we're basically 2 quarters into the VNXe cycle, and obviously, there's more to go in this cycle. And we have a very robust roadmap, and there'll be refreshers and kickers coming to this product family in the not too distant future.

Brian Marshall, ISI Group.

A question for Joe. I think, Joe, you've been talking about IT industry growing at kind of the high end of 5% to 7% range for calendar '11 and your commentary with respect to calendar '12 being below those rates. To put some numbers behind it, I mean, do you think we're talking about 3% to 5% outlook for the industry next year?

Brian, I still am convinced that when all the smoke clears and we look backwards at 2011, you will see 5% to 7% growth this year, probably maybe 6% to 7% in the higher end. So next year is all we're planning for right now from everything we see is that will slow down somewhat. We're still collecting a lot of data, and you read the same analysts and reports that I do, both industry and Wall Street analysts, financial analysts. So there's a lot of work out there. So right now, we're -- our belief is we want to share the best with you, yes, they will be somewhat slower, but we do expect positive growth. I don't want to go with any numbers yet. I promise you we will give you a number when we -- our best guess at a number, not guess, but hard work estimate of a number when we get to Q1 January call.

Ittai Kidron, Oppenheimer. Ittai Kidron - Oppenheimer & Co. Inc., Research Division: I wanted to focus on your fourth quarter commentary where you mentioned, correct me if I'm wrong, that you expect the third quarter trends just to continue but to be slightly below normal. Maybe incrementally, can you talk about what vertical are you seeing -- in what verticals you're seeing that slight incremental weakness that now leads you to believe you're not going to see the fourth quarter as you hope you would see?

Well, just to use a little prose, I do expect that we will see a budget flush, but what I try to be -- give you is -- I'm seeing, I think that our budget flush is likely to be real and meaningful, but perhaps slightly below what we've seen in other years, Q3 to Q4 growth. So I still think it will be fairly good. Within that, I mentioned areas to watch where public sector, what was happening in southern Europe, what was happening with commodity pricing. You go down that list, interestingly enough, in public sector, knock on wood, I know others are seeing it, but so far, we're not seeing this public-sector growth slow in the U.S. or in federal government. But we did see some public sector -- a little bit of public-sector slowdown in Europe. I had talked about southern Europe, certainly, that's something we continue to watch and how that impacts on the Eurozone. On the commodity front, you read what I read, again, that oil prices are down and most commodity prices are down also. So that doesn't seem to be too potential -- too big of a potential risk right at this point. The banking sector, everybody worries about, it's really interesting. We saw in the U.S. kind of a slow first half, but a resurgence in the second half of this year. In Europe, in some of the Eurozone banks, there was a little bit of softness in Q3, so we'll continue to watch that. So that's a pretty broad brush of what we're seeing. But overall, again, this slip back into prose, I do expect that we will see a budget flush that ends up being a little bit slower than normal.

Amit Daryanani, RBC Capital Markets.

Just one maybe follow-up on the December quarter expectations. Maybe if I look at $19.8 billion as a full year run rate, it would imply December is up about 8%. I think historical seasonality tends to be up 15%. Given the fact that you aren't really seeing a lot of issues in public financials, could you help us understand why the big delta versus historical trends which you guys are guiding for December?

Well, first of all, understand that our guidance is to exceed $19.8 billion and exceed $1.48. So you can't plug those numbers in. We said that we're going to do better than those numbers. So that perhaps is the most important data point to start off with here. As Joe said, we're expecting to see a strong Q4, a meaningful increase in revenues from Q3, and a slightly lower-than-normal budget flush, but still a decent budget flush, so we're looking for a strong Q4.

And I mean, I guess maybe the part I was trying to get on was, do you think FX can have some sort of impact in the December quarter on a sequential basis?

On a year-on-year basis, which is perhaps the way to kind of look at it, quarter-end FX rates would give us a neutral impact in Q4. Obviously, they were a help on a year-on-year basis in Q3, so FX would make basically a couple of points of difference. We had about 170 basis points of help from FX in Q3. And currently, we expect no FX help in Q4.

Scott Craig, Bank of America.

David, can you maybe go through the gross margin side a little bit more both on a quarter-over-quarter basis and on a year-over-year basis just sort of how much did mix and, say, the efficiencies and sort of the product and services cost reductions that you're seeing contribute to the gross margin improvement just in a little more detail?

Sure, Scott. Year-on-year, the big driver is our product margins. Basically, VMware product margins improved and storage product margin improved, and the storage product margins are from 2 things. One is from a continued mix shift towards our higher margin products, which is our software products and our appliances, and we've kind of promoted that theme for the last kind of couple of years. That helps us. But we also got some margin rate improvements in almost all the major products on a year-on-year basis as well. Quarter-on-quarter, we saw a little bit of improvements in product gross margins, but the bigger improvement quarter-on-quarter was in services gross margin where a couple of things happened. We saw a mixed shift towards our maintenance services which are more profitable than our professional services. But also within our professional services, we also saw a few points of margin improvement there, and those are the biggest drivers.

Deepak Sitaraman, Crédit Suisse. Deepak Sitaraman - Crédit Suisse AG, Research Division: Joe and David, on VNX, relative to the 1,300 new customers that you've noted for VNXe, what were the comparable number be if you were to just look at VNX? And in terms of share gains in the midrange, specifically for VNX and Isilon, can you share some thoughts on where you think the share gains for each of these product families is coming from?

Let me do it this way. I don't want to break out -- break apart VNX and VNXe. But the risk of David throwing something at me, I'll evoke executive privilege here, and I'll give you a number you would -- but it's like I don't -- we're going to basically -- we're focused on mid-tier and that's the number we're going to give you, but I'll delve back. Year-on-year, our VNX products grew over 20% year-on-year. And so in other words, if you took Celerra, CLARiiON last year and you took those same product families this year with VNX, VNXe, we grew over 20%. So the family is doing fine. We're having applicability across a wide, probably all verticals and in several big cloud topology. So we're very pleased with the way the VNX Family is progressing.

And Deepak, let me just add to that. Obviously, VNX is a huge part of the mid-tier. But also in mid-tier, you got Isilon, which we said basically doubled on a year-on-year basis, and you've got Backup Recovery and the systems that are also kind of in the 20% plus growth range as well. So you'll look at all and it's a really strong portfolio, and I think we're definitely gaining share in the mid-tier.

Maynard Um, UBS.

I just want to delve a little deeper into your comments on the financials and the federal verticals, which doesn't sound like you had issues that others have been seeing. Does your commentary about the linearity of the business also apply to these verticals? And in particular to federal, was the budget flush in the U.S. as you expected or was that more attributed to share gains there?

I believe in the federal. Obviously, it was the quarter end for federal, so there are always some budget flush in the federal and we saw some of that. And I do believe we took some share, specifically, in the mid-tier product family. When you look at the power of the VNX, the VNXe, the unified, the Data Domain and Avamar products, we have tremendous portfolio there. And there's no doubt in my mind we took some share.

Richard Gardner, Citigroup.

I was hoping you could flush out the Isilon comments a little bit. Dave, you mentioned that Isilon, as you said, making life more difficult for the competition in general-purpose, file-based workloads. Could you add a little bit more color there on where Isilon is gaining share and why?

Yes, sure. I mean, we wanted to make it very clear that Isilon, whilst it may have grown up in a kind of more vertically oriented marketplace, is really doing exceptionally well in the horizontal markets, particularly people who just have kind of large scale-out file requirements. And the key is simplicity. What you do with Isilon is you start small and you basically add to the systems and it scales linearly. It has a very high utilization rate as well. So it really is displacing systems well often. Other vendors will have multiple filesystems that will try and do a single job, and there's a lot of load-balancing going on between those filesystems. We can just put one in there that replaces the entire amounts. And all the example I mentioned on the call were examples where we've actually displaced incumbent NAS vendors. And then in the vertical markets, obviously, places like oil and gas, media, where it's becoming a household name, et cetera, still going very, very well. I think the message here is that what we've got with Isilon and with VNX and with Data Domain is in each cases we've got a best-of-breed platform, and the best-of-breed platform is providing better utilization, better returns and is not providing a compromise compared to a one-size-fits-all, and that seems to be the solution that's winning in the market right now.

Alex Kurtz, Sterne Agee. Alex Kurtz - Sterne Agee & Leach Inc., Research Division: David, can you just remind us the bomb cost improvements in VNX versus CX4? How that helps you in your pricing strategy with VNX in the midrange and sort of what that leverage allows you to do in the market?

Yes, Alex, what we said when we introduced VNX and VNXe, and it's actually holding out pretty well, is that with VNX, we expect to get slightly higher average gross margins than the predecessor products. And with VNXe, we expect to get slightly lower than average gross margins in the prior products, so that is -- because we're aiming that at a price penetration point. But in total, the gross margins are pretty comparable in terms of the new family to the old family, and that's pretty much how it's being playing out. That's the strategy we talked about in January. And as you've gone through the year, that's what we've seen happening. Obviously, we've got a much more opportunity to sell software and upsell software packages on the VNX. We basically repackaged a lot of our standalone software products into 3 or 4 bundles on the VNX, and that's also being successful. So we're getting higher software attached rates which is also helping gross margins. So we think we're very well positioned competitively on VNX and also VNXe, and the margin profile is as we expected. A couple of other things I'd point out as well is that on the VNX, with the higher range models that kind of high end and mid-tier, we're getting over 50% penetration rates on both Flash and FAST, which is really driving the tier storage agenda which is, again, is relatively unique in the market place and is also helping with margins. So the strategy as we played it out in terms of bringing the tiering, bringing the differentiation and having the price point differences is working for us in the margins and holding it well.

Katy Huberty, Morgan Stanley.

David, over the last week, the hard disk drive vendors have announced that production will be impacted by the flooding in Thailand in the fourth quarter. So just curious if you have a view yet as to whether you have enough inventory to manage through the quarter or if there's any risk of price increases to get your hands on drive?

Katy, we've been very working closely with our suppliers since the initial problems and, of course, we're not sure exactly how that they're going to be because water levels are still rising over there. But based upon our current information and where our current suppliers are actually based physically, we are not expecting supply chain constraints in Q4 and we're not expecting the pricing environment for our supply chain to change in Q4 either. Bear in mind, we tend to be our supplier's largest customer and get pretty good treatment when it comes to situations like this.

Toni Sacconaghi, Sanford Bernstein. A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division: Joe, I think you had commented that the quarter was a bit more back-end loaded than usual. I would say given the prevailing economic uncertainty in Europe, that actually sounds a little counterintuitive to me. I would have thought that uncertainty would have heightened over the course of the quarter. So perhaps you can explain what you think happened in September that led to that statement. Is there any risk of pull forward from Q4 into Q3 perhaps you can allude to backlog? And then finally, related to that, if normal seasonality is kind of 12% to 15%, other than spending levels being a tick below normal, what other considerations should we be thinking about in building our models for Q4?

Yes, Tony, you got a lot in there as your questions usually do. Let me see if I can parse it up a bit. You talked about the order flow, and what I was -- the forecasts were very consistent. As a matter of fact, as we got near the very end, forecasts were actually going up a tick which usually doesn't happen. But -- so if we didn't have the forecast for the quarter, I'd say, maybe we pulled in but we didn't. I mean, and we don't give backlog numbers, but they're not material in the analysis here. So it really was that we had our sites, we had the fearless forecast and we knew where the orders were forecasted, we follow them, and those were the orders we got. So they just came later and we saw our customers having additional levels of scrutiny or levels looking at -- levels within the organization looking at and purchasing departments getting maybe a little more involved, things you do when customers really want to kind of -- signs that they're watching their budgets tightly. But also, it's clear to us that customers are going to spend on priority items, and they're not freezing. So you always get this question, how do you -- how does this look to you compared to 2008? And I think it looks vastly different. And again, we're in considerably different shape because if you look at our product portfolio in 2008, since then, we didn't have VMAX, we didn't have VPLEX, we didn't have VNX, we didn't have VNXe, we didn't have Isilon, we didn't have Greenplum, we didn't have Data Domain -- or we just got Data Domain in the end of that year. We're on vSphere 3 going to vSphere 4 not…

Well, it's all we want to say, Tony, is we're planning for a tick below. You can look what we normally do at Q3 and Q4 gain, and we believe it will be a tick or a bit below that.

Glenn Hanus, Needham & Company. Glenn Hanus - Needham & Company, LLC, Research Division: Just a follow-up on some previous questions. As we think about seasonality for modeling next year and give -- so can you comment on whether there's supply issues might really hit more sort of the first quarter and the overall seasonality next year, should we think about a normal year or perhaps a little more back-end loaded?

Glenn, again, we're -- my answer on the supply really relates to Q4, which is what we're most keen on locking in. We're still kind of working with our suppliers relative to whether there's any impact on Q1 and we can't really give you an answer, positive or negative, right now to that effect. We're not seeing any alarm bells. We just haven't finished all our analysis with our suppliers on Q1 yet for supply. And then, again, as Joe said, 2012, we want to give you a little bit of color today because there's been a lot of questions just in terms of which direction we think IT spending is going to go. We've given you a view of a direction. And then, really, apart from that, we really want to keep our comments on everything else to do with 2012 until we get together again in January when we'll give you a lot more color on what we're seeing out there.

Louis Miscioscia, Collins Stewart.

Maybe to change the topic a little bit, if you could talk about storage virtualization, what you're seeing out there in the sense of this is starting to pick up from your standpoint and how do you view the competition versus the product that you have out there?

Well, let me say this. What we think as the most important aspect of storage is how you auto tier. And you can -- customers can store a string of information bits, bytes. You can do it in memory. You can do it in Flash technology. There's several different kinds of Flash technology. There's SLC. There's MLC. There's consumer MLC. You can do it on 15K Fibre Channel drives. You got 10K Flash drives. You got huge 3-terabyte going to 4-terabyte SATA drives. So depending on where you store the data, you got tremendous cost differentials, hundreds to one when you go from memory down to some of the other tiers that are 1001 in cost parameters and speed and everything else. So the real most important thing we see with customers is how we used all those technologies. And then based on hitting their service levels and their policies, we'll automatically tier that storage for them and give them a lower total cost of ownership and again, actually produce drives -- arrays that are smaller, more green, and far, far more performing. So if you're going to ask me what is the most thing -- what moves the needle most in storage, I would tell you it's that. The storage virtualization is basically used today for how do you move data across different arrays. And we have -- with VPLEX and other things we're doing, we have very strong offerings, and we believe our offerings are best-of-breed. And you're going to see a lot more of -- some of that technology even be put into the virtualization engines, namely VMware. So we're very, very pleased with our position, and actually setting the tone and the path to where this market will go.

Ben Reitzes, Barclays.

Can you just talk a little bit about the geographies? Joe, what did you see in Europe? It looks like pre-currency growth was probably like up around 10%. That's still actually pretty good for that environment. And APJ, why was it so good?

Ben, let me just give you a couple of the flavors on currencies. Actually, constant currency was near 12% in Europe, so, again, strong. Well, I just want to give you that data point. Joe, you want to comment on the -- did you have colors?

No, APJ is just really hot for us, as our other parts of the world. If we broken out our business in the Middle East and other parts of the world, countries in the world where we're quite robust, and it's the big investment we've been doing in these rapidly growing economies and new developing economies, which is paying off. And of course the way those economies are just natively growing. If you look at EMC as a lot -- a younger, much younger company, despite being formed in 1979, we really didn't get up on storage until 1991-ish. So our revenues are still -- and, of course, Q3 is probably more U.S. skewed which is 54% of revenues, but kind of in a -- most of the other quarters you'll see our -- we still have 52-ish percent of our revenues in the U.S. So obviously, we have a lot more potential outside the U.S. for our products and services, and we've been focusing on that percentage -- on that potential while still growing the U.S. at very good percentages. So we're very -- so part of it is focused, part of it is the, I think, just the attractiveness of our product line. Part of it is the fact that we have younger and have a lot more growth opportunity relative to our potential outside the U.S., and I think that's why Asia. In Europe, as you said, as David said, in constant currency, we grew 12% which we think is pretty good. Clearly, taking share in Europe. And I think in the U.S., without a doubt, we took share. So we had some pretty good balance and good products, good strategy, good go-to-market and a lot of good people on them, very fortunate.

Well, thanks, everybody. It's great that you are with us today. In summary, we believe that we are well positioned with our cloud and Big Data. [Audio Gap]

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