Dell Technologies Inc. (DELL) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the EMC Q1 2012 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.

Thank you. Good morning, welcome to EMC's Call to discuss our financial results for the first quarter of 2012. Today, we are joined by EMC Chairman and CEO, Joe Tucci; and David Goulden, EMC Executive Vice President and CFO. To kick things off, David will comment on our results and how these tie with the execution of our strategy. He will also discuss our outlook for the rest of 2012. Joe will then spend some time discussing his view of what is happening in the economy and IT, EMC's vision and strategy and how EMC is helping customers navigate the massive transformation happening in IT regarding cloud, Big Data and trust. After their prepared remarks, we will then open up the lines to take your questions. 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 today, in our press release, supplemental schedules and the slides that accompany our presentation. All of these are available for download within the Investor Relations section of emc.com. 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. Finally, I would like to point out that we are providing you with an update to our projected financial model for 2012. This model lays out all of the key assumptions and discrete financial expectations that are the foundation of our 2012 outlook. We hope that you find this model helpful in understanding our assumptions in context and in ensuring that these expectations are currently incorporated into your models. This model is included in today's webcast, and it is also available for download in the IR section of emc.com. With that, it is now my pleasure to introduce Dave Goulden. David?

Thanks, Tony. Good morning, everyone, and thank you for joining us today. I'm very pleased to report that EMC had a strong start to 2012. As you know, there's a major transformation happening in IT today, and the challenge for all of us is to make sure we correctly align our businesses to best take advantage of the opportunity the change provides. EMC's ability to correctly identify and invest in these changes has been a major reason for our success and enabled us to grow revenue 11% year-over-year this quarter with non-GAAP EPS up 19% and free cash flow up 67%. We are in a truly unprecedented time of transformation. IT is transforming with the shift to cloud computing. Businesses are transforming as they better leverage Big Data to deliver greater insight and uncover new opportunities. And the new threat environments is transforming the way customers think about trust. We at EMC are transforming our portfolio and operations to best take advantage of these major shifts. We believe that we have positioned EMC well, and our solid results are ongoing proof that we're executing on our strategy to address the major trends in cloud, Big Data and trust. Based on our strong start to the year and how we feel about our opportunity, we are now more confident about what we can achieve in 2012. Looking across our businesses, it's clear that EMC is very well equipped to help customers navigate the waves of change they are facing today. As a foundation for customers cloud and Big Data initiatives, information storage continues to thrive. With varied use cases and data types, EMC's broad and deep portfolio continues to prove to be best-of-breed. As a case in point, information storage continues the trend on solid growth with revenues up 7% in Q1. High-end storage product revenue was down 10% year-on-year versus a very strong Q1 last year. As you may recall, we had an unusually strong first quarter in 2011 due to the introduction of FAST VP in conjunction with VMAX. In that quarter, high-end product was up 25% year-on-year and a very strong and unusual 12% sequentially. Whilst the significant variance in these year-on-year growth rates had a meaningful impact on the year-on-year growth and inflation storage revenue, we're comfortable with how our storage business is trending. After 2 years of above trend line growth, we expect the high-end storage market to return to the long-term single-digit growth profile we projected for the segment. Customers at the high-end seek the very best in performance, scalability and reliability, and VMAX is the best position to meet these needs as it offers unmatched combination of innovative features. Fully automated storage tiering or FAST software, along with Flash, fiber and SATA drives allows customers to consolidate different tiers of data onto a single array and reduce their data center footprint. While the scale-out architecture of VMAX, coupled with Flash, improves transactional performance dramatically while accommodating explosive data growth. And we continuously improve our Symmetrix product line as technology and customer needs evolve. We recently became the first enterprise storage vendor to achieve validation of 140 encryption for all drive types including Flash with our Symmetrix data arrest encryption module. This module, which protects the information from unauthorized access at the individual drive level, can be integrated with RSA key management. The unmatched combination of leading-edge capabilities at the high-end is why Amaron, a power company with 3.4 million electric and gas customers, selected VMAX for their mission-critical Oracle database and custom application environments. With 100 terabytes of data being added to its infrastructure each year, Amaron was struggling to keep up with its data growth and increasing IT management costs while advancing their VMware virtualization and cloud computing strategy. With VMAX using FAST and a combination of Flash fiber channel and SATA drives, they were able to reduce their annual capital expenses by 50%, increase transactional performance by 30% and achieve power and cooling savings of 28%. In its second full quarter of availability, VMAXe revenue continues to ramp as it meets the requirements between a low-end VMAX and a high-end VNX and extends the reach of the VMAX family to new customers, usages and price points. Such was the case with a fast-growing community college system in Texas. By consolidating its infrastructure onto a VMAXe, the school system dramatically improved its ability to provide students with the latest educational technology and tools, respond more quickly to the needs of local employers and increase the overall efficiency and reliability of their operational systems. The VMAXe was part of a larger win with a customer who also implemented EMC Avamar, Networker, RecoverPoint, vSphere and Vcenter Site Recovery Manager for their 97% virtualized infrastructure. VPLEX continues to be an integral part of our portfolio, as a unique product that dissolves distance and enables data centers to be truly active/active for the first time. This was illustrated by a draw and a larger win in Q1, this one is healthcare. This transaction include a number of complementary EMC products including VMAX within a vBlock, Data Domain and Avamar. To complete its life-critical continuous computing platform, the hospital needed active/active data center configuration that VPLEX Metro made possible. VPLEX's ability to move vSphere applications between data centers several towns apart without interruption will enable them to fully leverage their virtualized infrastructure and lower the total cost of ownership. Our mid-tier products continue to perform very well, with product revenue growth up 26% year-on-year. And by the way, this is 100% organic growth. So no growth bump from acquisitions. Our portfolio of mid-tier storage capabilities is a great match with customers expanding requirements in this area. Our VNX Family, which we introduced in Q1 of last year, is living up to our high expectations. Customers and partners alike like its functionality, simplicity, efficiency and lower cost of ownership. With its unified architecture, unparalleled VMware integration, incorporation of Flash for both cache and storage and ability to automatically tier data with FAST, the VNX continues to win us a bigger footprint with customers. And the VNXe, which offers affordable simplicity and efficiency to smaller customers and remote offices, has firmly established EMC as a player in the low-end of the market. Since it's introduction, the VNX Family has brought just under 6,000 brand new customers to EMC, many of whom have been acquired via the more than 2,000 new channel partners who started selling EMC over the same period of time. Together, the VNX and VNXe allow us to meet a broad set of need to customers, seeking the flexibility of unified storage. One such customer was a global aluminum company that is consolidating its IT infrastructure worldwide to 3 primary data centers plus a DR site and approximately 30 remote offices. The primary data centers will use VNXs with VMware to consolidate applications and significantly reduce costs. While the 30 remote offices will use VNXe 3100 arrays for primary storage. This example illustrates how valuable it is to have a broad array of products in today's rapidly changing IT environments. This same customer, by the way, also purchased our full suite of backup products to address the various backup needs across their next-gen infrastructure. Isilon continues to flourish, with total revenue almost doubling from Q1 year ago. Isilon technology plays an important role among our mid-tier products as it meets customer's cloud and Big Data requirements across industries and use cases. Our scale at NAS architecture is exceptionally well suited for extremely large-scale Big Data needs. And in Q1, we completed what we believe was the largest capacity single-order in the history of storage, 28 petabytes with a web company. To put this into perspective, this amount of storage could hold 6 million movies. And while 28 petabytes is impressive, you need 37 million petabytes to accommodate the genetic sequence of the entire population of the United States. As you can see, we have a lot more room to grow in some of these emerging Big Data areas. Isilon is being used in more traditional enterprise implementations as well. File-based data, that might be managed -- or 10 years ago, has been growing unchecked, reaching petabyte scale in some cases. And this is where Isilon scale architecture is ideal. A case in point was the choice of Isilon by a large multi-national insurance company recently. EMC has been part of its data center for some time and used the value proposition of Isilon to consolidate their file environment in Q1. As our sales force and partners have become much better at identifying the best opportunities for Isilon, we expect to see Isilon increasingly penetrating our existing customer base. Putting the EMC name, reputation, sales force and service levels behind great new technology is a powerful combination. The result is what we call that EMC effect. We have seen the EMC effect at work for the past couple of years in our backup recovery systems business, which continues to thrive. Our market-leading backup products, which include the powerful combination of Avamar and Data Domain also lead the way into new accounts and have brought hundreds of new logos to EMC over the past several quarters. One of these in Q1 was a large financial services organization that was running out of data center floor space and running into power and cooling challenges with its large tape silos. By demonstrating that Data Domain's next gen backup architecture provides efficiency, reliability and business value, it was impossible with their tape based systems. Our BRS team was able to establish brand-new footprint in all 3 of the organizations data centers. We continue to broaden our storage portfolio in Q1 with the very exciting addition of VFCache, which extends our lead in Enterprise Flash. In 2008, we were the first to bring Flash technology to enterprise storage and its value proposition to customers is clear as evidenced by the growing demand it has enjoyed ever since. We are leveraging our expertise in Enterprise Flash with VFCache, which extends the benefit of Flash into the server for dramatic performance improvements. What distinguishes VFCache is its ability to deliver extremely fast response times whilst preserving all the back end capabilities around data protection, reliability, scalability and manageability. This is a value proposition with broad appeal, as illustrated by our early customer wins including a bank in China, a financial services company in Boston, a retailer in the Middle East, a government in Asia, and a research lab in U.K., a hospital in New England and a U.S.-based telecommunications company to name but a few. Their feedback so far is very positive as they're seeing how fast some of their mission-critical applications, like Oracle and SQL, are able to run. We're also excited to be in discussions with several new generation web application companies, and you'll see us continue to enhance VFCache later this year. Later this quarter, at EMC World, you'll hear more about our next step with Flash, codenamed Project Thunder. Optimized for high-frequency, low-latency, rewrite work loads, Thunder will build upon the advanced PCIe technology delivered in VFCache to leverage the power of Flash through a dedicated server-networked flash-based appliance. Building Flash into many places in the IT infrastructure, while fully leveraging it with intelligent automated software that operates across this stack, is the real secret sauce to delivering value. What the customer cares about is having the right data at the right time in the right place at the right cost. And making this happen involves servers leveraging Flash at one end of the spectrum, the high-capacity SATA drives and storage arrays at the other. We have the end-to-end expertise with Enterprise Flash and data storage unmatched in the industry, and we'll continue to build on our opposition as the innovative leaders in Enterprise Flash. When we look back at the storage products we've just discussed, VMAX, VPLEX, VNX, Isilon, Data Domain, Avamar, VFCache, you can see this is a very different portfolio than what we had just 3 years ago. One that's been purposely assembled to address new requirements brought about by the rapidly changing IT environments. Our recent win at a global humanitarian organization is an excellent example of the power of EMC's portfolio in this new world. Rotary International implemented VNXe, Isilon, Avamar and vSphere to better manage its growing digital assets, deploy a Vblock for its mission critical applications and primary storage and leverages VNXe at a second facility to replicate data. Rotary was able to build a solid foundation for its virtualization environment on EMC's suite of complementary products which have been optimized for these environments. The result is simplified management, strengthened data protection, predictable performance and improved efficiency. This is our strategy at work. Increasingly, businesses are being transformed by their ability to unlock the value of data stored within their organization and in the outside world. We identified this trend early and began making investments to capture the opportunity Big Data presents, starting with the acquisition of Greenplum in 2010. Greenplum has since made great strides in the space with several achievements in Q1 alone, including the industry's first and only enterprise-proven Hadoop solution on the scale out NAS architecture with Isilon, enabling end-to-end data protection for Hadoop Big Data. The designation, as a leader, enterprise Hadoop solution by Forrester research as the first to integrate its Hadoop ETW and data integration in a single rack. The launch of the industry's first social tool kit for Big Data, Greenplum Chorus, enabling data science teams to collaborate on data sets. The acquisition of Pivotal Labs to accelerate the development of Big Data applications in the enterprise, not to mention continue very strong year-on-year growth in revenue. Greenplum is increasingly benefiting from the EMC effects. While it's early days, and the Big Data trend has quite a way to go before it reaches full potential, customers see the transformation in analytics and want to build the best technology stack with the right partners as they start on their journey to leverage Big Data. As a result, we're now seeing multimillion dollar transactions as more and more enterprises select Greenplum technology as the foundation for their next gen analytics architectures. In Q1, these wins included a large financial services company in New York, a leading supplier of industrial automation solutions in India and a multinational telecommunications company in Europe. Taking a step back, it is clear that we've anticipated how customers needs would change in this space, and we've transformed our portfolio of storage offerings to address those needs. As a result, we now have a broad portfolio of best-of-breed products, which enable customers to pick the right tool for the job they have. The offerings we have far exceed the capabilities of both the more narrowly focused storage vendors and the less focused server companies. EMC is truly unique in the storage infrastructure market. Our diverse and best-of-breed portfolio enable us to serve virtually any information storage need in just about any customer in any industry. The results has been strong and steady growth of our storage infrastructure business driven by the strong secular trends of cloud and Big Data. The successful transition to a model that leverages cloud and Big Data is dependent upon both the right infrastructure and also building trust into that infrastructure. Having a holistic and data center approach to security dangers, such as advanced persistent threats, is key to building trust and RSA has been at the forefront of this security trend. RSA's focus and execution are paying off as the business grew a strong 19% over last year's Q1. Attendance at this year's RSA security conference, the marquee conference in the industry, grew to a record 21,000 people, underscoring the growing importance of information security in today's digital world. RSA solutions are built for the modern threat environment, and customers are responding, as revenue from both our identity management and protection and our security management and compliance offerings both showed good growth over last year's Q1. RSA continues to earn accolades as our NetWitness technology received gold level honors in Security Products Magazine's Government Security Awards, was named Best Computer Forensic Tool in Secure Computing Magazine 2012 Reader's Trust and was named Best Security Solution in Government Technology Research Alliance GOVTek Awards program. NetWitness, in conjunction with Archer, enVision and DLP, worked together to provide controls and visibility features that are based on agile, predictive analysis and continuous monitoring of mass amounts of data. We'll continue to build on our data-centric approach to security to enable our customers, in turn, to take full advantage of benefits afforded by cloud and Big Data. Revenue from our Information Intelligence Group was down 4% year-on-year. In Q1, IIG released documents and mobile app for the iPhone, expanding users ability to access, share and collaborate on their preferred device and enable them to act upon information faster than ever before. IIG continues to win new customers as it did with the largest public banking organization in Turkey. With an aggressive strategy to grow its service network of more than 22,000 employees and 1,400 branch offices, Ziraat Bank chose EMC Documentum. As a result, the bank can now manage internal correspondence and regulation processes to ensure global compliance and operational efficiency, automate application processing to accelerate transactions and increase productivity across various internal departments. We are pleased with the operational and strategic progress our new leadership team is making at IIG. VMware continues to perform very well as we execute on our strategy to be the standard for virtualization in enterprise data centers, enabling businesses to thrive in the cloud era. VMware revenue was up 25% year-on-year as customers continue to look to VMware's proven technology for virtualizing their mission-critical applications, and increasingly, rely upon VMware's management and automation tools to manage their rapidly expanding virtual environments. We continue to enhance EMC's product integration with VMware in ways that solve real-world problems and in areas that are clearly making a difference, including VPLEX for active/active data centers, ProSphere for integrated management and the inclusion of VMware as the founding partner in the VSPEX reference architecture program. Site integration with VMware is important as customers expand their virtual environments and were the key reason for several wins in Q1 alone, including a U.S.-based manufacturer, a hospital in Shanghai, a stock exchange in Asia and a mining company in Latin America. Expect to hear more about EMC and VMware working together at EMC World. EMC's initiatives to transform and expand our go-to-market model continue to pay dividends. Over the past couple of years, we've augmented our already formidable sales efforts with additional targeted service capabilities, expanded alliance partnerships, a vastly expanded resale channel and the unique joint venture in VCE. All these initiatives broaden our reach, with the result being better scale and more leverage. EMC Services business continues to thrive, as customers seek guidance on the transformation of their own IT architectures. In addition to our existing design and implementation services for cloud infrastructures, in Q1, we added offerings specific to the delivery of IT-as-a-service. These new services which are aligned around cloud infrastructure, cloud optimized applications and end-user computing, helped clients accelerate the adoption, optimization and consumption of cloud technologies. Our alliance partnerships, with service providers continue to expand, and these partners are steadily increasing their capabilities. With well over 100 public cloud services now being offered by service provider partners based upon underlying EMC technology, our entire product portfolio stands to benefit. The transformative changes we've made to our channel program in 2011 continues to be successful. Channel revenue from our S75 program which is primarily VNXe, continues to ramp steadily. As unified storage revenue throughout our top 5 partners increased 45% year-on-year in Q1. We continue to make improvements to further develop our relationships with our partners and help ensure their success. The VSPEX reference architectures we announced last week help our partners accelerate their customers transition to cloud with solutions that make the move to the cloud faster and less complex. EMC has proven several architectures for partners to package into it's storable VSPEX solutions, which are available only EMC partners. VSPEX enables customers to select the technologies that best fit their existing IT environments from a broad selection of leading vendors. For customers and partners who want to make their implementation even easier, vBlocks continues to be the answer, and demand for vBlocks in the quarter more than doubled from Q1 a year ago. As a single converged product, with components from EMC, Cisco and VMware with a single pane of glass and managements, a clear upgrade path and one point of contact for customer support, vBlocks are a compelling option for customers looking to accelerate their journey to the cloud. We're seeing significant interest in vBlocks on a global basis. Not only are many new customers starting to test out these converged products, but we see early adopters coming back to purchase multiple vBlocks to run their production applications. In fact, a growing percentage of VCE business is coming from customers who are beginning to adopt multiple vBlocks for their production environments after liking what they saw in their initial purchase. A prime example of this was a Fortune 50 customer who had an initial transaction in Q3 of last year, followed by a multimillion dollar deal in Q4, followed by a $25 million order in Q1. This deal is representative of the penetration we're seeing in competitive stronghold accounts. It is important to understand the difference between vBlocks and our newly announced VSPEX offerings as both are important to our strategy to help customers to get the cloud to most suitable way for them. For customers wanting pretested converged product, there are vBlocks, which have been available for 2 years. For customers wanting a tested and proven reference architecture with different options for network, server and hypervisor, now as VSPEX. For customers wanting to assemble solutions themselves, we have our broad portfolio of information infrastructure and virtualization products they can choose from. So in short, we offer the full continuum of options for customers to get to cloud in whatever way is best suited to them, whether it's the prebaked cake, a set of tested recipes to make the cake or just the ingredients. For some time now, our vision has been to become the undisputed leader in hybrid cloud computing, and as our results attest, we're making this happen. We've developed a strategy to help customers have the right data in the right place at the right time, where it's secure every step of the way, and where they can make the best use of cloud technology and Big Data assets in a trust environment. Our products and services portfolio and go-to-market model are evolving as we continue our own transition to help customers improve business agility, lower cost and enhance their competitive edge. This unwavering focus and steady execution supported by the strong secular trends of cloud, Big Data and trust are what have enabled us to deliver consistently solid financial results. Consolidated revenues were up a solid 11% year-on-year. Within this, North America was up 11%, EMEA was up 6% overall but was somewhat of a mixed story across the various countries, with strength in some and caution in others, Latin America and APJ were both up a strong 20%. Now taking a look at the gross margins. Obviously, we've shown significant improvements in gross margins over the last year or so. There are lots of puts and takes built into these results, so I thought it would make sense to take a few moments to discuss these factors with you so you'll have a better understanding of the dynamics. From Q1 '11 through Q4 '11, gross margin improved by a very significant 440 basis points. Apart from volume, this improvement was driven by 4 factors: The first 2 of which were margin rate impacts while the second 2 were mix effects. First was the RSA remediation cost we absorbed in Q1 '11. This resulted in what was effectively an adverse onetime impact of approximately 50 basis points to the Q1 '11 non-GAAP gross margin rate. Second was a step-function improvement to the margin rates of specific products and services which played out over the course of the year. The integration of Data Domain and Isilon into our supply chain was a big factor here. We also benefited from greater efficiencies in our services operations. Third was the benefit to mix of some low margin businesses declining through 2011. Our Consumer Products business deemphasized low-margin, resale focus hard drive systems in favor of more value-added NAS systems. In addition, we saw the decline in the Dell co-branded CLARiiON business throughout 2011. These 2 declining businesses reduced our lower margin revenues over the course of the year and have a resulting positive impact to gross margin improvements during 2011. Fourth was the improving mix of higher-margin businesses and products and we benefited from this over the course of 2011. This is an important ongoing aspect of our financial model as our faster growing businesses tend to be our higher-margin businesses. When we will look at 2012 and how we expect gross margins to progress from Q1 to Q4 this year, the first 3 of these factors will not repeat. The fourth, however, is ongoing. We certainly do expect to see continual mix-related improvements to gross margins as our higher-margin, faster growing businesses become a bigger proportion of the business. This is an important part of our strategy and a key element of our triple play, and of course, we'll continue to have the benefit from volumes as our business continues to grow. To help you understand the relative contribution to these drivers, to improvements in gross margin we saw from Q1 '11 to Q4 '11, approximately 1/2 of the improvement's gross margins through 2011 resulted from the first 3 factors that will not be repeated in 2012. We expect the growth in volume to continue to benefit the gross margin line, but obviously, the improvement from strategic mix shift will be more gradual this year and moving forward. This dynamic is reflected in our outlook for 2012. The improvement in gross margin in Q1 drove non-GAAP operating margin up 150 basis points as SG&A growth was in line with revenue growth and R&D higher, as we have projected it would be in January. Investments in our go-to-market and R&D are important to maintaining our triple play over the long-term. You'll see some of the results of these investments in the form of exciting product announcements we'll make throughout this year. Other expense was $31 million non-GAAP. We've updated our full-year guidance for Other expense reflects some gains from strategic investments in Q1. Our non-GAAP Q1 tax rate was 24%. We expect it to be 21% for the full year, assuming the U.S. R&D tax credit is passed in Q4. Non-GAAP EPS grew 19% over last year's first quarter to $0.37 per share. Share count was higher than expected due to the effect of the 39% increase in our share price in the quarter on our 2012 warrants that were settled in Q1 2012, and our on 2013 convertible and warrants. As a result, we've increased our full year share count projection by 45 million shares, the impact of which is about $0.04 for the full year 2012. We still expect 2012 non-GAAP EPS to be $1.70 due to the offsetting benefit from slightly higher operating margins than we predicted in January. Our strong execution drove record Q1 free cache flow of $1.4 billion, $611 million higher than non-GAAP net income for the period. Contributing to this was continued strong growth in deferred revenue, up 10% sequentially to $6.8 billion. We ended Q1 with $10.9 billion in cash and investments after using $1.7 billion of cash to settle the first tranche of our convertible debt in January. Our U.S. cash, excluding VMware, was down from $4.8 billion to $4 billion as a result of this repayment. Our priorities for the use of cash has not changed. We still expect to buy $700 million of EMC shares in 2012 and continue to invest in the business. With the results we continue to achieve quarter after quarter, it is clear that our strategy is the right one, our execution is solid and we're on track to deliver our triple play. This gives us greater confidence in our ability to meet and potentially exceed our 2012 goals of $22 billion of revenue, non-GAAP EPS of $1.70 and free cash flow of $4.9 billion. In summary, the business we have built is at the intersection of 3 strong secular trends, cloud, Big Data and trust, that will persist into the foreseeable future. With this fundamental shift in our favor and unparalleled combination of best-of-breed offerings, a wealth of experience and a proven track record, we think we are better positioned than any other company in IT. With continued steady acquisition, we are well on our way to achieving the financial potential we laid out for you last year. Over $28 billion in revenue in 2014, which represents compound annual revenue growth of at least 13% from 2010 and non-GAAP EPS growth even faster than this. With that, I'll hand over to Joe. Joe?

Thank you, David, and my thanks to everyone joining us for today's call. We appreciate your interest in EMC. Overall, I was very pleased with our execution and performance in Q1. I have always believed that starting at a new year with strength is incredibly important. The momentum and confidence it builds throughout EMC, our customers and our partners, is invaluable. I will talk about the economy and IT spending trends shortly, but we firmly believe that the 11% year-over-year growth rate we produced in Q1 was significantly greater than that of the IT market. And thus, we gained share. I would like to thank the more than 54,000 people of EMC and VMware for their passion to win and their dedication to our customer's success. In Q1, we saw IT spending in our business unfold pretty much as we expected and predicted. Overall IT spending growth was fairly good in the Americas and APJ, as our 11% and 20% year-over-year respective increases demonstrated. In Europe, I believe that overall IT spending growth was, at best, flat. For sure, the 6% year-over-year growth we posted in Q1 was better than average. And finally, we saw our highest growth rates in the rapid growth economies. Across our BRIC, plus 13 countries, we grew over 25% in Q1 versus the same period last year. Looking at Q1 year-over-year IT spending growth from a vertical industry point of view, we saw some softness in the banking sector. Average growth in retail, manufacturing, telco and information-technology verticals. Good growth in insurance, government, healthcare, education and media. And we saw rapid growth in and -- with service providers. Net-net, we continue to expect that global IT spending growth will be in the 3% to 4% range this year. And for sure, the IT markets for virtualization, cloud computing, information storage, information protection, information security and for information intelligence and analytics will grow faster than the IT average. And we at EMC and VMware will expect to grow faster than our total addressable market. What underpins our belief in our ability to succeed in the future is our strategy and the focus we have in cloud computing, Big Data and trust. What makes our strategy work is blend of several key ingredients that we have built deeply into our DNA. First and foremost, EMC and VMware are product companies. And as such, our mission is to produce truly innovative and distinctive products which are complemented by world-class enabling and supportive services with a tightknit partner ecosystem by our side. Our recipe to produce these innovative products calls for us to invest over 11% of revenues into organic R&D and bet heavily on our brilliant engineering teams. And in addition, to acquire smaller, best-of-breed technology companies to enhance and extend our cloud, Big Data and trust strategy and reach. This one-two punch gives us a competitive product edge and we aim to continue this winning strategy of dual innovation engines. That said, a great strategy is not sufficient alone. Equally as important, we at EMC and VMware have also built the following attributes into our DNA. We always exhibit an excellence in execution and an urgency in everything we do. We have built an accomplished executive leadership group that truly comes together as a team. We have a passion to win that permeates every level and every person in our company and most importantly, every fiber in our DNA assures we have maniacal focus on our customers. Collectively, this is our formula for success. We have limited time together today, and I would like use a bit of it to drill down on EMC's storage business and share a bit of our view on this market and our strategy. First, let's start with the media itself. We can store a string of bytes, be it measured in megabytes, gigabytes or terabytes, in memory or on a single-level cell flash device or on a multilevel cell flash device or on a high-speed spinning drive or on a SATA or so-called FAT FAST drive. I've listed these forms of media from the most expensive, highest performance on top, and in order going down, to the least expensive, lowest performance media on the bottom. By the way, the price differential here, from top to bottom, is significantly more than 100:1. And there are substantial price differentials between each of these media layers. So where's the best place to store the aforementioned string of bytes? Well the answer is, it depends. It depends on the performance requirements of the application, the business process, the activity level or how often the data is being accessed, the required retention periods for the data and I could go on and on with this. It depends. But net-net, we at EMC will use all these forms of media and undoubtedly more forms will come in the future to provide our customers with unmatched fit and choice. With these media types, we will use our strength, breadth and depth and ability to create organic and nonorganic innovation and produce truly distinctive storage products. Products like VFCache that plugs directly into a server PCIe slot. Products like Project Thunder, our coming server Flash appliance, storage products that feature 100% Flash media, and of course, we will continue to lead the market with hybrid storage arrays that incorporate memory, Flash and spinning drive technology, as this category of storage will undoubtedly make up the vast majority for years to come. Additionally, EMC will feature and support all connectivity options. Fiber Channel, FCOe, iscuzzy, NAS and direct-attached. And we will offer object, file and block access methods and scale up, scale out in geographically dispersed architectures. And across all of our storage offerings, we will fully integrate and feature advanced management and automation software like ProSphere; software like FAST, or fully automated storage tiering; software that de-duplicates and compresses redundant data; and automation for active/active distributive work loads across data centers. In short, we will have the best fit, most complete family of best-of-breed storage solutions that truly meet and exceed the needs of our most demanding customers. For sure, information storage is not, and I repeat, not a one-size-fits-all world. And all this product prowess is backed by our reputation for quality and service and fronted by the best storage sales organization in the industry, bar none. Thank you again for being with us today. I will now turn it back to Tony to moderate the Q&A portion of today's call. Tony?

Thanks, Joe. Before we open up the lines for questions, as usual, we ask you to try and limit yourself to one question, including clarifications. This will enable to take as many questions as possible in the time we have left. We thank you all for your cooperation in this matter. Evan, can we open up the lines for questions please?

[Operator Instructions] Our first question today comes from Deepak Sitaraman with Credit Suisse. Deepak Sitaraman - Crédit Suisse AG, Research Division: Can you start by maybe just giving us an update on how drive constraints, how did it impact EMC in the first quarter and is it expected to have an impact in the second? And also, just if you could comment on how the price increases you put into place in Q1 were received by customers and whether you saw any orders pushed out of Q1 that could potentially benefit later quarters?

All right, Deepak. Let you take that answer. So first of all, kudos to the drive suppliers for responding rapidly to a very serious situation. And the quarter played out as expected. There were constraints, and there still are constraints, particularly in near-line drives. But we got the drives. During the quarter, we expected -- needed to make our numbers. Albeit, in the near-line space, they came in a little late in the quarter, end of February to early March. And of course, as we said on the last call, we had to do some balancing during the quarter to meet supply and demand. We do expect it to be constrained certainly throughout Q2. But again, we do have line of sight to the drives that we need. We think there'll be some incremental improvement in the second half but a certain class of drives will see constraint throughout the entire year. On the price increase side, as you know, we did put drive price increases up between 5% and 15% in early January. And whilst nobody likes a price increase, you can tell by our gross margins that we're able to capture the majority, if not all, of those price increases. And given the supply constraints, we don't expect there to be any significant reduction in prices in the near future. Maybe towards the end of the year when the whole situation becomes a little bit more normal. And then finally, in terms of orders, the good news is that although it took us a little longer this quarter to deliver some of the orders we took early in the quarter, we don't think we lost orders and we don't think that customers pushed out business because I think everybody's in the same boat when it comes to drive availability. And I think, if anything, we were better off the most.

The next question Aaron Rakers with Stifel, Nicolaus. Aaron C. Rakers - Stifel, Nicolaus & Co., Inc., Research Division: Kind of sticking to the similar topic on the drive discussion. You guys obviously outlined that the price differential between Flash and all the way down to near-line SATA drives. Can you talk a little bit about the mix of those drive configurations? Where we stand today and where you expect to be a year from now. And also, on top of that, how should we think about that similar to the price discussion, the differential in the gross margin that EMC sees.

Okay, Aaron. In terms of -- yes, right. You are right. Right now, when you look at what we ship inside arrays, the majority -- the vast major part is between fiber and the SATA FAST type drives. Flash, today, is a small single-digit percentage. But the adage goes, in hybrid array, a little Flash goes a long way. And what I mean by that is that you can improve the performance of an array dramatically by having maybe less than 5% of the capacity in Flash and using FAST software, moving those hot data sets into the high-performing media types. So we see a small increase and a steady increase going forward in the mix of Flash, but we still think that the vast majority of capacity shipped for many, many years is going be fiber and SATA. Within that, a mix more towards SATA and less towards fiber. But we think that's pretty much how things play out. And from a margin point of view, as Joe said, we're fairly agnostic to the media type. In fact, different media types are in fact good for us because we can offer more choices, more price points to our customers. And we're getting, very broadly, similar margins across those media types. So the mix shift in media is not going to have a material impact upon our gross margins.

Our next question comes with Brian Marshall with ISI Group.

Obviously, the cloud market is growing very rapidly. And I think, Joe, you mentioned -- I think you used the word rapidly when you discussed the service router growth. We've been picking up that the private cloud adoption has grown much faster than the public cloud adoption and was wondering if you could give some commentary around here. Is this still an issue with respect to ELAs as well as security and data breaches? And if so, when do you think this is going to fixed where you could see public cloud adoption really start to grow at the rate of private cloud?

Well, I think, for a long, long time that the private cloud market is going to be much bigger than the public cloud market. That being said, the public cloud market will be the faster growing of the 2 because it's coming from a tiny base, if you will. But we do believe, totally, that the world is going to be hybrid. Certainly, as you heard on the VMware call last night, kind of the state of the art is that customers are now confident enough that they are, in significant numbers, working on virtualizing and cloudizing, if you will, private cloudizing their Tier 1 apps. And that probably has the most return and benefits for our customers and that's where a lot of the action is. But certainly, on their lower tiers and test and dev, I think over time, you'll see customers -- basically, when they get to a peak workload or a peak time of the year, they'll be pushing out some applications like test and dev and other applications to a public cloud, and that'll avoid them having to buy for peak of the day, peak of the day, peak times and help reduce and contain their overall IT cost. Which they can then plow back into doing more application work and get business benefits. That's a trend you're going to see. So it's not an either/or, we're in a world of both. You also heard Paul say yesterday that the progress that we're making in vSphere adopted clouds, and of course, I just told you that the public cloud business is probably the fastest growing sector of all kind of verticals, if you will, that I spoke about. So both sides of the consolidated company are doing well with the cloud trend and phenomena. And we think we're going to continue to push the heck out of it. But it's a world of both, it's and, not or.

Our next question comes with Brian Alexander with Raymond James. Brian G. Alexander - Raymond James & Associates, Inc., Research Division: You've won a lot of new customers in the mid-tier segment of the last several quarters. Can you talk about the penetration rates of those customers versus your expectations? And maybe similar color on the share of wallet opportunity here and how significant that could be for you EMC going forward.

Great, David, why don't you start and I'll...

Yes, Brian, I mean that's clearly be well in the whole locks of all the measure that we have success, and particularly the VNX Family, but also applies to Isilon and BRS, which are all significant new customer door openers for us. And those new customers are across-the-board in terms of size. So in some cases, we've been going after kind of small, medium businesses where, effectively, we become their internal IT storage device. But also many of those new customers are in large enterprises. So it's not a one-size-fits-all banner. Also, I mentioned that VCE has been a significant new customer door opener for us, in those case, in some of the very largest enterprises. So we think there's great potential and it's not all in the SMB marketplace. There's some new customers in the enterprise market which we're in for the first time in many years. And obviously, those are great potential growth markets for us going forward.

Yes, Brian. To drill down, on the specific question, you asked about mid-tier and new customers. This is the -- I always felt that the best way to look at growth in any market is on an apples-to-apples basis because obviously, acquisition effects can swing your growth rates. So on apples-to-apples basis, in the last 4 quarters, which would be Q2 of '11, Q3 of '11, Q4 of '11 and of course, Q1 of '12, and of course, that one year time span, we have grown well over, year-on-year, on an apples-to-apples basis, 20%. And a great thing is that we have really kind of hyped up our channel programs and are a full -- I believe 2/3 of those orders were heavily touched by our channel partners. And a lot of those customers, we don't give specific numbers, but a lot of those customers are new customers and this channel reach is really helping us. So obviously, this mid-tier thrust we have and really terrific set of best-of-breed products there really paying off.

The next question comes from Alex Kurtz with Sterne Agee. Alex Kurtz - Sterne Agee & Leach Inc., Research Division: When you look at the Symmetrix growth rate, obviously, it was up against a tough comp. How should we be thinking about that product going forward, in the enterprise, as well as the service provider market? I know it's had success in the service provider market in the past. Is that really where Symmetrix is going to grow? Provide the upside to the range longer term or do you see maybe a product refresh helping in the enterprise as well?

Alex, let me take this. First of all, we are very confident in the future of Symmetrix and VMAX. We expected VMAX to be down this quarter for 2 reasons. One is the one that David highlighted and you mentioned. It is a tremendous quarter we had one year ago. I mean, it's highly unusual that you would grow from a Q4 to a Q1, with Symmetrix, 12%. Highly unusual that you would actually decline from Q1 to Q2, 8%. Which is exactly what happened last year. That was just -- so year-on-year growth last year was 25%. So it was a really strong quarter and that is absolutely a major factor and we knew that, and that's why we planned the way we planned. But you hit upon the second reason, which is a major reason too. Look, life cycles are important in any product. But I'll tell you point-blank, the higher-end product you have, right? The more important a life cycle is. And if you recall, we launched the VMAX in April of 2009. So it is pretty close to exactly 3 years old. And clearly, our customers are expecting and wanting a new, even higher-end model and product. And all I'm going to say is we don't want to get ahead of ourselves and ruin the announcement, but I'm probably am going to do that anyhow. I'll tell you point-blank, the customers are expecting that will not be disappointed, and it's coming soon.

Our next question comes with Brian White with Topeka Capital Markets.

Joe, I'm wondering if you'll talk a little bit about the Greenplum opportunity. I know one of your colleagues was at a conference recently, highlighted the Greenplum opportunity is essentially what VMware had seen that type of growth over the last several years. So I'm wondering, number one, do you believe that? And number two, if you could give us a little more granularity on the trends you're seeing in that business.

First of all, we're very, very pleased with the trends in Greenplum. Rather than give our view, let me quote IDC, they just came out with a Big Data white paper and analysis for hardware, software and services and they did it from 2010 to 2015. I don't know if you saw it. But in 2010, they thought the Big Data market was $3.2 billion and they think it'll grow almost 40%, 39.4%, if memory serves me right, it was the actual CAGR they had in there. Between then, it'll be a $16.9 billion market in 2015. So there's a heck of an opportunity. Now if you look at the Big Data market, we're really playing in the highest end of that market. If you think of what a customer really needs to do to get an incredible competitive advantage, they want to take their internal structure data, which there's a ton of; they want to take their internal unstructured data, which there's multiple times as much of; and then they want to go to the public markets and public sources and get the massive amount of data that's available there and blend these all together and really use this data in real-time predictive analysis to give their companies a competitive advantage. And that's the area that we're playing in and we don't even try to go and say displace a existing data warehouse. We're going after the new stuff which is more complex and that's what products like Chorus and our Hadoop distribution and support is all about as well as, of course, our Greenplum database. So we're playing, I think, at the highest end of the pyramid. So if the entire pyramid is growing at 39.4%, ours is growing faster than that and we're growing faster than that. So we're very excited about the opportunity here. And as I said, I've always been -- one of the things I preach, and my team is probably tired of me saying it, but I really believe big companies should not do small things. Big companies should only do small things that are going to become big things. And in our case and our size, we should not enter a market unless we think we can do $1 billion plus there. And this is the case where I think that $1 billion plus will be light, we can do more than that and we'll do more than that. So I'm very pleased with our progress and that's kind of how we think about this opportunity.

Next in queue Amit Daryanani with RBC Capital Markets.

Just had a question. You guys discussed the Flash-based markets in your prepared comments. Could you talk about, maybe initially, the initial uptick of the VFCache? And I know EMC offers multiple options when consider deploying Flash, be it pure 0, VFCache or Thunder. I guess, which form factor do you see eventually having a broader uptake and do you think you have all the pieces internally to play in the Flash deployments or would you need to do some acquisitions there?

As opportunity would have it, Pat Gelsinger literally just walked through the door and to listen. And take us a second to give them the mic, which we will do, and I'll let somebody who knows a lot more about this subject than me answer the question. So Pat, when you get the mic hooked up to you, please.

VFCache. We really view Q1 as a seeding period for VFCache. Lots of early customer experiences, lots of trials, lots of environments and as I think David commented on his remarks, about Oracle database environments, SQL environments, et cetera. We've also started to seed them into the Internet properties as well, right? Which is where some of the other vendors have had early success. So Q1, clearly a lot of early interest from many, many customers across many, many industries. So we're quite excited about that. We're also starting to see the broadening of the product family as we go through the year. Clearly, a Thunder-like appliance is an easier product for an EMC sales force, right? And many of our customers don't want to be disrupting blade environments and others that occur. So we're actually seeing that there's a lot of interest for a Thunder appliance in many use cases, and as such, quite excited about this potential. We're just beginning, as we've indicated in Q2, we'll have the first early customer betas beginning for the Thunder appliance. With regard to last piece of the question, we are clearly seeing that this is a hot segment of the industry. We have organic activities, we have many engagements with other industry players. We're not going to make any indications toward broader, nonorganic plays. But we do see that this is great opportunity for us. And we've clearly accelerated our internal activities, both from the VFCache Thunder, our use of MLC cache as well as SLC Flash, as well as the hybrid array opportunities which, as Joe indicated in his remarks, is clearly -- the large majority of the industry will be hybrid arrays for the long-term.

The next in queue is Shelby Seyrafi with FBN Securities.

So you did very well in VMware and in security. But in storage, I think you were impacted by the high-end compared -- difficult compare and the product transition. But I'm wondering if there's another factor in storage. Competitive. Maybe you can talk about the competitive environment, especially in the channel versus say net app over the past 6 to 9 months.

Well, I've said it -- a little bit of it before, Shelby. Our 20% apples-to-apples growth, I think, is significantly fast than net apps. Significantly faster. And our channel buildup is great. I've said many times that there was certainly a negative side with our kind of divorce from Dell, if you will, and I said there's a significant upside and that it always -- the channel always reacted negatively to our Dell relationship. And without them, since we've had that divorce, we have really ramped up the channel and I really don't think there's any big company doing better in the channel right now than we are. We've made tremendous gains and get tremendous recognition. That's a big piece of our success and we're going to continue to hammer that home.

Next in queue is from Daniel Ives with FBR. Daniel H. Ives - FBR Capital Markets & Co., Research Division: Joe, could you just talk but, specifically, what you're seeing from Europe? I mean, from your conversations with customers, maybe compare it to where we were 3 months ago or thoughts going into the year.

Yes. I'll let Dave little handle a little bit of that, too. But I'll give you a little bit of color. A matter for fact, I was in Europe last -- I spent the week in Europe last week and I was in 3 different countries, U.K., Switzerland and Italy. And clearly, there's opportunity there, right? The things are not stalled. Clearly, everybody's worried about everything, whether it's the elections in France or Greek debt. I mean, everybody's got more than a few things to worry about. I know this conversation always come up in the business with CIOs and CEOs and COOs that I meet over there, government officials. But the private companies over there are still -- got their head down and they're moving forward and they have plans and they understand that it if they stay still, they'll go backwards. Because it's very tough to stay still in a competitive global economy like this. So there are investment opportunities and I do think that, at best, the IT spending will be flat. But if not, I don't believe IT spending will be down anything dramatically. I would say, less than 1% down to flat is where -- if I had to call it or place a bet is where I'd bet. So obviously, there's a lot of caution, everybody is looking over their shoulder. But there's also, in the business community, a lot of confidence in themselves. Not as much in the governments, but in themselves, and I think that bodes well.

All right, thank you. We have time for one more question and then a few concluding comments from Joe.

Our next question comes from Katy Huberty with Morgan Stanley.

I appreciate your comments around the incremental margin drivers you had in 2011, but the reality is the first quarter is, that was your lowest operating margin? And the guidance of 24% for the full year doesn't imply that much expansion as we move through this year. So can you just talk about what, other than conservatism, is driving that lower margin expansion?

Well Katy, I think you're exactly right. You do need to look at things sequentially. And what I'm really saying is that we expect gross margins to increase sequentially from Q1 to Q4 this year. I pointed out the sequential increase you saw last year, half of that was from the things that really we don't expect to reoccur. And just to put that, also into context, when I look at the 290 basis points of gross margin improvement we achieved, Q1 this year versus Q1 last year, about 1/2 of that improvement was also from the 3 factors which I mentioned, which would have occurring during 2011 that won't be occurring during 2012. So I do expect they'll be sequential margin improvement from where we are. Also, bear in mind that we've been pretty consistent upon our guidance for OpEx during the year. We said that we expect our SG&A growth to be in line, broadly, with revenue growth and we expect R&D growth to grow faster. So we do expect OpEx to continue to increase as a percentage of revenue, this year, as we move through the year. So you put all those together and you can trend to a number that's pretty consistent with what we've implied in our guidance, and those are really the moving parts.

Well, again, thank you for being with us today. Just kind of -- to summarize, we truly believe that our cloud, Big Data and trust strategies are right on. And they are opening up expanded opportunities with our customers and they're creating, exponentially, more excitement with our partner ecosystem. Our 2012 product roadmap is strong. We have a really great team. We have that momentum I spoke about, in my prepared remarks, and confidence within EMC that we can succeed. And we will talk you more about our strategy and products. And to that end, I would like to invite you to EMC World, it's always a place where we launch a significant number of products. And there's more than little bit of excitement there, so that's in May 20, and we invite you to join us. So again, thank you for being with us today and I wish you all the best. Bye-bye.

Thank you for joining today's conference. You may disconnect at this time.