Edgar Filing: EMC CORP

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 1-9853

EMC CORPORATION

(Exact name of registrant as specified in its charter)


Massachusetts		04-2680009
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

176 South Street Hopkinton, Massachusetts		01748
(Address of principal executive offices)		(Zip Code)

(508) 435-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of March 31, 2007 was 2,098,455,122.

EMC CORPORATION


		Page No.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets at March 31, 2007 and December 31, 2006		3

Consolidated Income Statements for the Three Months Ended March 31, 2007 and 2006		4

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006		5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007 and 2006		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosures About Market Risk		22

Item 4. Controls and Procedures		23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		24

Item 1A. Risk Factors		24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30

Item 3. Defaults Upon Senior Securities		30

Item 4. Submission of Matters to a Vote of Security Holders		30

Item 5. Other Information		30

Item 6. Exhibits		30

SIGNATURES		31

EXHIBIT INDEX		32

FACTORS THAT MAY AFFECT FUTURE RESULTS

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Federal securities laws, about our business and prospects. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the date hereof. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “plans,” “intends,” “expects,” “goals” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our future results may differ materially from our past results and from those projected in the forward-looking statements due to various uncertainties and risks, including those described in Item 1A of Part II (Risk Factors). We disclaim any obligation to update any forward-looking statements contained herein after the date of this Quarterly Report.

PART I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

EMC CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


ASSETS	March 31, 2007			December 31, 2006
Current assets:
Cash and cash equivalents	$	2,347,374		$	1,828,106
Short-term investments		1,936,816			1,521,925
Accounts and notes receivable, less allowance for doubtful accounts of $33,546 and $39,509		1,542,351			1,692,214
Inventories		824,841			834,800
Deferred income taxes		419,624			418,146
Other current assets		248,657			225,396

Total current assets		7,319,663			6,520,587
Long-term investments		1,535,779			2,246,290
Property, plant and equipment, net		2,075,989			2,035,559
Deferred income taxes		109,350			104,446
Intangible assets, net		956,157			1,003,549
Other assets, net		629,478			638,655
Goodwill, net		5,995,892			6,017,161

Total assets	$	18,622,308		$	18,566,247

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	726,755		$	680,263
Accrued expenses		1,458,330			1,592,022
Income taxes payable		27,941			63,806
Deferred revenue		1,552,615			1,325,671

Total current liabilities		3,765,641			3,661,762
Income taxes payable		213,077			219,342
Deferred revenue		732,252			780,124
Long-term convertible debt		3,450,000			3,450,000
Other liabilities		121,560			129,312
Commitments and contingencies
Stockholders’ equity:
Series preferred stock, par value $0.01; authorized 25,000 shares; none outstanding		—			—
Common stock, par value $0.01; authorized 6,000,000 shares; issued and outstanding 2,098,455 and 2,122,339 shares		20,985			21,223
Additional paid-in capital		2,250,009			2,564,554
Retained earnings		8,113,609			7,794,493
Accumulated other comprehensive loss, net		(44,825	)		(54,563	)

Total stockholders’ equity		10,339,778			10,325,707

Total liabilities and stockholders’ equity	$	18,622,308		$	18,566,247

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION

CONSOLIDATED INCOME STATEMENTS

(in thousands, except per share amounts)

(unaudited)


	For the Three Months Ended
	March 31, 2007			March 31, 2006
Revenues:
Product	$	2,112,426		$	1,848,530
Services		862,579			702,157

		2,975,005			2,550,687
Costs and expenses:
Cost of product		1,038,478			917,897
Cost of services		366,587			299,447
Research and development		355,392			283,489
Selling, general and administrative		875,690			748,224
Restructuring credits		(2,670	)		(1,194	)

Operating income		341,528			302,824
Investment income		52,139			61,803
Interest expense		(18,293	)		(2,010	)
Other income, net		4,840			2,716

Income before taxes and cumulative effect of a change in accounting principle		380,214			365,333
Income tax provision		67,607			89,505

Income before cumulative effect of a change in accounting principle		312,607			275,828
Cumulative effect of a change in accounting principle, net of tax benefit of $0 and $808		—			(3,372	)

Net income	$	312,607		$	272,456

Net income per weighted average share, basic:
Income before cumulative effect of a change in accounting principle	$	0.15		$	0.12
Cumulative effect of a change in accounting principle		—			—

Net income	$	0.15		$	0.12

Net income per weighted average share, diluted:
Income before cumulative effect of a change in accounting principle	$	0.15		$	0.12
Cumulative effect of a change in accounting principle		—			—

Net income	$	0.15		$	0.11

Weighted average shares, basic		2,080,039			2,350,606

Weighted average shares, diluted		2,121,826			2,400,312

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months Ended
	March 31, 2007			March 31, 2006
Cash flows from operating activities:
Cash received from customers	$	3,298,580		$	2,878,265
Cash paid to suppliers and employees		(2,471,509	)		(2,013,463	)
Dividends and interest received		57,824			60,297
Interest paid		(3,201	)		(2,020	)
Income taxes paid		(73,011	)		(285,901	)

Net cash provided by operating activities		808,683			637,178

Cash flows from investing activities:
Additions to property, plant and equipment		(170,526	)		(160,520	)
Capitalized software development costs		(51,920	)		(48,883	)
Purchases of short and long-term available for sale securities		(1,891,806	)		(2,185,463	)
Sales and maturities of short and long-term available for sale securities		2,192,202			1,328,151
Business acquisitions, net of cash acquired		(3,261	)		(18,759	)
Other		(860	)		(7,700	)

Net cash provided by (used in) investing activities		73,829			(1,093,174	)

Cash flows from financing activities:
Issuance of common stock		103,312			62,608
Repurchase of common stock		(488,662	)		(376,056	)
Excess tax benefits from stock-based compensation		12,812			6,309
Payment of short and long-term obligations		(620	)		(314	)
Proceeds from short and long-term obligations		2,229			70

Net cash used in financing activities		(370,929	)		(307,383	)

Effect of exchange rate changes on cash and cash equivalents		7,685			3,794

Net increase (decrease) in cash and cash equivalents		519,268			(759,585	)
Cash and cash equivalents at beginning of period		1,828,106			2,322,370

Cash and cash equivalents at end of period	$	2,347,374		$	1,562,785

Reconciliation of net income to net cash provided by operating activities:
Net income	$	312,607		$	272,456
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of a change in accounting principle		—			3,372
Depreciation and amortization		212,848			181,394
Stock-based compensation expense		83,347			103,616
Reductions in provision for doubtful accounts		(787	)		(2,167	)
Deferred income taxes, net		(457	)		(31,121	)
Excess tax benefits from stock-based compensation		(12,812	)		(6,309	)
Other		1,980			6,655
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable		142,873			205,380
Inventories		18,302			41,498
Other assets		(11,068	)		19,393
Accounts payable		45,685			54,746
Accrued expenses		(150,962	)		(160,245	)
Income taxes payable		(4,952	)		(180,562	)
Deferred revenue		181,489			124,365
Other liabilities		(9,410	)		4,707

Net cash provided by operating activities	$	808,683		$	637,178

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	For the Three Months Ended
	March 31, 2007			March 31, 2006
Net income	$	312,607		$	272,456
Other comprehensive income (loss), net of taxes (benefit):
Foreign currency translation adjustments		7,249			788
Changes in market value of investments, including unrealized gains and losses and reclassification adjustments to net income, net of taxes (benefit) of $(2,469) and $104		2,560			(13,455	)
Changes in market value of derivatives, net of tax benefit of $(7) and $(60)		(71	)		(544	)

Other comprehensive income (loss)		9,738			(13,211	)

Comprehensive income	$	322,345		$	259,245

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Company

EMC Corporation (“EMC”) and its subsidiaries develop, deliver and support the Information Technology (“IT”) industry’s broadest range of information infrastructure technologies and solutions that are designed to help individuals and organizations handle everything they need to do with their digital information.

EMC’s systems, software and services support our customers’ critical business processes by helping them build information infrastructures from the most comprehensive systems available to store, manage and protect information at the right service levels and the right costs. We refer to this as an information lifecycle management (“ILM”) strategy. Our information management software and solutions empower our customers to capture, manage and leverage structured and unstructured information – documents, images or emails – to support their business processes. Our virtual infrastructure software helps organizations respond to changing IT requirements by dynamically altering their computing and storage environments with flexible virtualization technologies. Our resource management software allows organizations to better understand, manage and automate the operation of their information infrastructure. Our information security division offers customers security solutions to assess the risk to their information, secure the people accessing information and the infrastructure, protect the confidentiality and integrity of the information itself, and manage security information and events to assure effectiveness and ease the burdens of compliance.

General

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. These statements include the accounts of EMC and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual consolidated financial statements have been condensed or omitted. Accordingly, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2006 which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2007.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary to fairly state the results as of and for the three-month periods ended March 31, 2007 and 2006.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard (“FAS”) No. 157, “Fair Value Measurements” (“FAS No. 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. FAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and should be applied prospectively, except in the case of a limited number of financial instruments that require retrospective application. We are currently evaluating the potential impact of FAS No. 157 on our financial position and results of operations.

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FAS 115” (“FAS No. 159”). The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. FAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impact of FAS No. 159 on our financial position and results of operations.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2. Investments

Our investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. Investments with remaining maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining maturities of more than 12 months from the balance sheet date are classified as long-term investments. As of March 31, 2007, we had total short and long-term investments of approximately $3.5 billion.

Unrealized losses on investments at March 31, 2007 by investment category and length of time the investment has been in an unrealized loss position are as follows (table in thousands):


	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government and agency obligations	$	125,166	$	(257	)	$	188,415	$	(1,487	)	$	313,581	$	(1,744	)
U.S. corporate debt securities		14,983		(54	)		168,337		(1,751	)		183,320		(1,805	)
Asset and mortgage-backed securities		57,452		(129	)		217,114		(3,343	)		274,566		(3,472	)
Municipal obligations		263,991		(363	)		250,462		(2,636	)		514,453		(2,999	)
Foreign debt securities		7,966		(21	)		21,124		(250	)		29,090		(271	)

Total	$	469,558	$	(824	)	$	845,452	$	(9,467	)	$	1,315,010	$	(10,291	)

We evaluate investments with unrealized losses to determine if the losses are other than temporary. The gross unrealized losses were due to changes in interest rates. We have determined that the gross unrealized losses at March 31, 2007 are temporary. In making this determination, we considered the financial condition and near-term prospects of the issuers, the magnitude of the losses compared to the investments’ cost, the length of time the investments have been in an unrealized loss position and our ability to hold the investment to maturity.

3. Inventories

Inventories consist of (table in thousands):


	March 31, 2007		December 31, 2006
Purchased parts	$	68,770	$	75,206
Work-in-process		435,431		451,045
Finished goods		320,640		308,549

	$	824,841	$	834,800

4. Property, Plant and Equipment

Property, plant and equipment consists of (table in thousands):


	March 31, 2007			December 31, 2006
Furniture and fixtures	$	192,463		$	190,925
Equipment		2,911,923			2,799,367
Buildings and improvements		1,047,310			1,039,409
Land		116,540			116,222
Building construction in progress		169,841			141,196

		4,438,077			4,287,119
Accumulated depreciation		(2,362,088	)		(2,251,560	)

	$	2,075,989		$	2,035,559

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Building construction in progress and land owned at March 31, 2007 include $62.4 million and $6.0 million, respectively, of facilities not yet placed in service that we are holding for future use.

5. Accrued Expenses

Accrued expenses consist of (table in thousands):


	March 31, 2007		December 31, 2006
Salaries and benefits	$	476,963	$	595,691
Product warranties		248,481		242,744
Restructuring (See Note 8)		159,823		199,538
Other		573,063		554,049

	$	1,458,330	$	1,592,022

Product Warranties

Systems sales include a standard product warranty. At the time of the sale, we accrue for the systems’ warranty costs. The initial systems’ warranty accrual is based upon our historical experience, expected future costs and specific identification of the systems’ requirements. Upon expiration of the initial warranty, we may sell additional maintenance contracts to our customers. Revenue from these additional maintenance contracts is deferred and recognized ratably over the service period. The following represents the activity in our warranty accrual for our standard product warranty (table in thousands):


	For the Three Months Ended
	March 31, 2007			March 31, 2006
Balance, beginning of the period	$	242,744		$	206,608
Provision		37,104			54,948
Amounts charged to the accrual		(31,367	)		(27,007	)

Balance, end of the period	$	248,481		$	234,549

The provision includes amounts accrued for systems at the time of shipment, adjustments for changes in estimated costs for warranties on systems shipped in the period and changes in estimated costs for warranties on systems shipped in prior years. It is not practicable to determine the amounts applicable to each of the components. The provision for the three months ended March 31, 2006 includes $19.9 million of stock-based compensation expense associated with the cumulative effect of adoption of FAS No. 123R, “Share-Based Payment” (“FAS No. 123R”).

6. Net Income Per Share

The reconciliation from basic to diluted earnings per share for both the numerators and denominators is as follows (table in thousands, except per share amounts):


	For the Three Months Ended
	March 31, 2007		March 31, 2006
Numerator:
Net income, as reported - basic	$	312,607	$	272,456
Adjustment for interest expense on assumed conversion of Documentum Notes		—		643

Net income - diluted	$	312,607	$	273,099

Denominator:
Basic weighted average common shares outstanding		2,080,039		2,350,606
Weighted common stock equivalents		41,787		40,650
Assumed conversion of Documentum Notes		—		9,056

Diluted weighted average shares outstanding		2,121,826		2,400,312

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Options to acquire 165.0 million and 182.3 million shares of common stock for the three months ended March 31, 2007 and 2006, respectively, were excluded from the calculation of diluted earnings per share because of their antidilutive effect. For the three months ended March 31, 2007, there were no shares potentially issuable under our $1.725 billion 1.75% convertible senior notes due 2011 (the “2011 Notes”), our $1.725 billion 1.75% convertible senior notes due 2013 (the “2013 Notes” and, together with the 2011 Notes, the “Notes”) and the associated warrants (the “Sold Warrants”) because these instruments were not “in-the-money.” As a result, the Notes and the Sold Warrants were excluded from the calculation of diluted net income per weighted average share for the three months ended March 31, 2007. The Notes and the Sold Warrants did not impact the calculation of diluted net income per weighted average share for the three months ended March 31, 2006 because we did not enter into these transactions until November 2006. The effect of our $125.0 million 4.5% Senior Convertible Notes due April 1, 2007, which were assumed in connection with the Documentum acquisition (the “Documentum Notes”) on the calculation of diluted net income per weighted average share for the three months ended March 31, 2006 was calculated using the “if converted” method. We redeemed all of the outstanding Documentum Notes in April 2006.

In connection with our adoption of FAS No. 123R, the calculation of assumed proceeds used to determine our diluted weighted average shares outstanding under the treasury stock method for the three months ended March 31, 2007 and 2006, respectively, was adjusted by tax windfalls and shortfalls associated with all of our outstanding stock awards. Windfalls and shortfalls are computed by comparing the tax deductible amount of outstanding stock awards to their grant date fair values and multiplying the result by the applicable statutory tax rate. A positive result creates a windfall, which increases the assumed proceeds and a negative result creates a shortfall, which reduces the assumed proceeds.

7. Stockholders’ Equity

Repurchases of Common Stock

We utilize both authorized and unissued shares (including repurchased shares) to satisfy all shares issued under our equity plans. In April 2006, our Board of Directors authorized the repurchase of 250.0 million shares of our common stock. For the three months ended March 31, 2007, we repurchased 35.2 million shares of our common stock. Of the 250.0 million shares authorized for repurchase, we have repurchased 145.0 million shares in the aggregate at a total cost of $1.7 billion, leaving a remaining balance of 105.0 million shares authorized for future repurchases. In 2007, we plan to spend at least $1.0 billion on common stock repurchases.

Stock-Based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in our consolidated income statement for the three months ended March 31, 2007 and 2006 (table in thousands):


Three Months Ended March 31, 2007	Stock Options			Restricted Stock			Total Stock- Based Compensation
Cost of product	$	6,280		$	1,476		$	7,756
Cost of services		4,759			1,043			5,802
Research and development		12,830			10,612			23,442
Selling, general and administrative		27,090			19,257			46,347

Stock-based compensation expense before income taxes		50,959			32,388			83,347
Income tax benefit		(12,895	)		(9,830	)		(22,725	)

Total stock-based compensation, net of tax	$	38,064		$	22,558		$	60,622


Three Months Ended March 31, 2006	Stock Options			Restricted Stock			Total Stock- Based Compensation
Cost of product	$	11,004		$	1,164		$	12,168
Cost of services		6,391			744			7,135
Research and development		16,885			8,377			25,262
Selling, general and administrative		40,964			18,087			59,051

Stock-based compensation expense before income taxes		75,244			28,372			103,616
Income tax benefit		(14,230	)		(7,864	)		(22,094	)

Total stock-based compensation, net of tax	$	61,014		$	20,508		$	81,522

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock option expense includes $7.9 million and $7.7 million of expense associated with our employee stock purchase plan for the three months ended March 31, 2007 and 2006, respectively.

In connection with the adoption of FAS No. 123R, we recorded a cumulative effect adjustment of $3.4 million to recognize compensation costs recorded in our pro forma equity compensation disclosures that would have been capitalized on our consolidated balance sheet as of January 1, 2006. Additionally, included in the cumulative effect adjustment was the application of an estimated forfeiture rate on our previously recognized expense on unvested restricted stock and restricted stock units.

The fair value of each option granted during the three months ended March 31, 2007 and 2006, respectively, is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


Stock Options	Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
Dividend yield		None			None
Expected volatility		30.0	%		35.0	%
Risk-free interest rate		4.69	%		4.55	%
Expected life (in years)		4.2			4.0
Weighted-average fair value at grant date	$	4.45		$	4.62


Employee Stock Purchase Plan	Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
Dividend yield		None			None
Expected volatility		25.2	%		26.8	%
Risk-free interest rate		5.04	%		4.43	%
Expected life (in years)		0.5			0.5
Weighted-average fair value at grant date	$	3.03		$	3.17

Expected volatilities are based on our historical volatility and implied volatilities from traded options in our stock. We use EMC historical data to estimate the expected term of options granted within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

8. Restructuring Charges (Credits)

During the three months ended March 31, 2007 and 2006, we recognized restructuring credits of $2.7 million and $1.2 million, respectively.

The restructuring credit for the three months ended March 31, 2007 represents a net reduction of accruals from several of our previous restructuring programs. The reductions were primarily attributable to lower than expected costs associated with vacating leased facilities.

The restructuring credit for the three months ended March 31, 2006 also represents a net reduction of accruals from several of our previous restructuring programs. The reductions were primarily attributable to lower than expected severance payments partially offset by higher costs associated with vacating leased facilities.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2006 Restructuring Programs

The activity for the 2006 restructuring programs for the three months ended March 31, 2007 is presented below (table in thousands):

Three Months Ended March 31, 2007


Category	Balance as of December 31, 2006		Adjustment to the Provision		Utilization			Balance as of March 31, 2007
Workforce reductions	$	127,820	$	—	$	(20,337	)	$	107,483
Consolidation of excess facilities		5,536		350		(499	)		5,387
Contractual and other obligations		4,814		—		(4,289	)		525

Total	$	138,170	$	350	$	(25,125	)	$	113,395

The 2006 restructuring programs included a workforce reduction that commenced in the fourth quarter of 2006 and covers approximately 1,350 employees worldwide. The workforce reduction’s objective is to further integrate EMC and the majority of the businesses we have acquired over the past three years. These actions impacted our major business functions and major geographic regions. Approximately 70% of the affected employees are or were based in North America, excluding Mexico, and 30% are or were based in Europe, Latin America, Mexico and the Asia Pacific region. As of March 31, 2007, approximately 500 employees have been terminated.

Prior Restructuring Programs

We implemented restructuring programs from 1998 through 2005. The activity for these programs for the three months ended March 31, 2007 and 2006, respectively, is presented below (tables in thousands):

Three Months Ended March 31, 2007


Category	Balance as of December 31, 2006		Adjustment to the Provision			Utilization			Balance as of March 31, 2007
Workforce reductions	$	21,135	$	—		$	(9,356	)	$	11,779
Consolidation of excess facilities		40,233		(3,020	)		(2,564	)		34,649

Total	$	61,368	$	(3,020	)	$	(11,920	)	$	46,428

Three Months Ended March 31, 2006


Category	Balance as of December 31, 2005		Adjustment to the Provision			Utilization			Balance as of March 31, 2006
Workforce reductions	$	89,199	$	(1,638	)	$	(20,326	)	$	67,235
Consolidation of excess facilities		65,414		444			(5,035	)		60,823

Total	$	154,613	$	(1,194	)	$	(25,361	)	$	128,058

Adjustments to the provision during the three months ended March 31, 2007 were due to lower than expected costs associated with vacating leased facilities. Adjustments to the provision during the three months ended March 31, 2006 were primarily attributable to lower than expected severance payments. Substantially all employees included in the 2005 and prior restructuring programs have been terminated. The remaining balance owed for the consolidation of excess facilities represents lease obligations on vacated facilities. These amounts are expected to be paid out through 2015.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. Commitments and Contingencies

Line of Credit

We have available for use a credit line of $50.0 million in the United States. As of March 31, 2007, we had no borrowings outstanding on the line of credit. The credit line bears interest at the bank’s base rate and requires us, upon utilization of the credit line, to meet certain financial covenants with respect to limitations on losses. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance. At March 31, 2007, we were in compliance with the covenants.

Litigation

We are a party to various litigation matters which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

10. Segment Information

Management has organized the business around our offerings. In the fourth quarter of 2006, we realigned our business into four segments: Information storage, Content management and archiving, VMware virtual infrastructure and RSA information security. We established our RSA information security segment in the third quarter of 2006 with the acquisitions of RSA Security Inc. and Network Intelligence Corporation. We have conformed our prior period presentations to be consistent with our current segments. Our management measures are designed to assess segment operating performance. As a result, the corporate reconciling items are used to capture stock-based compensation expense and acquisition-related intangible asset amortization expense. Management does not include these costs in evaluating the performance of its operating segments. Our management makes financial decisions and allocates resources based on revenues and gross profit achieved at the segment level. We do not allocate selling, general and administrative expenses, research and development expenses, restructuring credits or assets to each segment, as management does not use this information to measure the performance of the operating segments.

The revenue components and gross profit attributable to these segments are set forth in the following tables (tables in thousands, except percentages):


	Information Storage			Content Management and Archiving			VMware Virtual Infrastructure			RSA Information Security			Corporate Reconciling Items			Consolidated
For the Three Months Ended
March 31, 2007
Systems revenues	$	1,302,741		$	68		$	—		$	2,957		$	—		$	1,305,766
Software revenues		486,558			68,472			169,696			81,934			—			806,660
Services revenues		637,629			103,658			86,322			34,970			—			862,579

Total revenues		2,426,928			172,198			256,018			119,861			—			2,975,005
Cost of sales		1,228,809			62,302			39,673			31,716			42,565			1,405,065

Gross profit	$	1,198,119		$	109,896		$	216,345		$	88,145		$	(42,565	)	$	1,569,940

Gross profit percentage		49.4	%		63.8	%		84.5	%		73.5	%		—			52.8	%

March 31, 2006
Systems revenues	$	1,222,624		$	4,304		$	—		$	—		$	—		$	1,226,928
Software revenues		446,720			83,038			91,844			—			—			621,602
Services revenues		583,010			79,978			39,169			—			—			702,157

Total revenues		2,252,354			167,320			131,013			—			—			2,550,687
Cost of sales		1,110,330			47,939			18,173			—			40,902			1,217,344

Gross profit	$	1,142,024		$	119,381		$	112,840		$	—		$	(40,902	)	$	1,333,343

Gross profit percentage		50.7	%		71.3	%		86.1	%		—			—			52.3	%

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Our revenues are attributed to the geographic areas according to the location of the customers. Revenues by geographic area are included in the following table (table in thousands):


	For the Three Months Ended
	March 31, 2007		March 31, 2006
United States	$	1,673,280	$	1,446,373
Europe, Middle East and Africa		873,286		749,990
Asia Pacific		320,929		251,358
Latin America, Mexico and Canada		107,510		102,966

Total	$	2,975,005	$	2,550,687

No country other than the United States accounted for 10% or more of revenues during the three months ended March 31, 2007 or 2006.

Long-lived assets, excluding financial instruments and deferred tax assets in the United States were $9,198.1 million at March 31, 2007 and $9,352.9 million at December 31, 2006. No country other than the United States accounted for 10% or more of these assets at March 31, 2007 or at December 31, 2006. Long-lived assets, excluding financial instruments and deferred tax assets, internationally were $459.4 million at March 31, 2007 and $342.0 million at December 31, 2006.

For the three months ended March 31, 2007 and 2006, sales to Dell, Inc. accounted for 13.5% and 13.9%, respectively, of our total revenues, and accounted for 12.3% and 10.2%, respectively, of our accounts receivable at March 31, 2007 and December 31, 2006. Revenues from Dell, Inc. are included in all segments, except for RSA information security.

11. Income Taxes

Our effective income tax rate was 17.8% and 24.5% for the three months ended March 31, 2007 and 2006, respectively. The effective income tax rate is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies. For the three months ended March 31, 2007 and 2006, the effective tax rate varied from the statutory tax rate as a result of the mix of income attributable to foreign versus domestic jurisdictions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. During the three months ended March 31, 2007, we recognized net tax benefits of $19.9 million from reductions in income tax contingencies and the release of a valuation allowance recorded on certain foreign deferred tax assets. During the three months ended March 31, 2006, we recognized net tax benefits of $11.4 million from reductions in income tax contingencies.

EMC adopted FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), at the beginning of fiscal year 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As a result of implementing FIN No. 48, we recognized a cumulative effect adjustment of $6.5 million to increase the January 1, 2007 retained earnings balance. Prior to the adoption of FIN No. 48, our policy was to classify accruals for uncertain positions as a current liability unless it was highly probable that there would not be a payment or settlement for such identified risks for a period of at least a year. We reclassified $219.3 million of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities is not anticipated within one year of the balance sheet date.

As of January 1, 2007, we had $175.1 million of unrecognized tax benefits. If recognized, $144.0 million would be recognized as a reduction of income tax expense impacting the effective income tax rate. Both of these amounts did not change significantly during the three months ended March 31, 2007. We are subject to U.S. federal income tax and various state, local and international income taxes in numerous jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We have substantially concluded all U.S. federal income tax matters for years through 2004. The U.S. federal income tax audit for 2005 and 2006 is scheduled to commence in June 2007, and we have income tax audits in progress in numerous state, local and international jurisdictions in which we operate. In our international jurisdictions that comprise a significant portion of our operations, the years that may be examined vary, with the earliest year being 2000. Based on the outcome of examinations of EMC, the result of the expiration of statutes of limitations for specific jurisdictions or the result of ruling requests from taxing authorities, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in our statement of financial position. We anticipate that several of these audits may be finalized within the next 12 months. However, based on the status of these examinations, and the protocol of finalizing such audits, it is not possible to estimate the impact of any amount of such changes, if any, to our previously recorded uncertain tax positions.

We recognize interest expense and penalties related to income tax matters in income tax expense. In addition to the unrecognized tax benefits noted above, we had accrued $32.0 million of interest and penalties as of January 1, 2007. The amount did not change significantly during the three months ended March 31, 2007.

12. Subsequent Event

In April 2007, we filed a registration statement with the Securities and Exchange Commission to register to sell Class A Common Stock of our wholly-owned subsidiary, VMware, Inc. (“VMware”). We have previously announced our intention to sell approximately 10% of VMware through an initial public offering.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q and the MD&A contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2007. The following discussion contains forward-looking statements and should also be read in conjunction with the risk factors set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q. The forward-looking statements do not include the impact of any potential mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or closed after the date hereof.

All dollar amounts in this MD&A are in millions, except per share amounts.

Certain tables may not add due to rounding.

INTRODUCTION

Our financial objective is to achieve profitable growth. Management believes that by providing a combination of systems, software, services and solutions to meet customers’ needs, we will be able to further profitably increase revenues. Our efforts over the past few years have been primarily focused on growing revenues by enhancing and expanding our portfolio of offerings to satisfy our customers’ information infrastructure requirements. We have increased our overall investment in research and development (“R&D”) from $283.5 for the three months ended March 31, 2006 to $355.4 for the three months ended March 31, 2007. These R&D expenditures have enabled us to introduce new and enhanced offerings. We have also made acquisitions over the past three years to expand our offerings.

Additionally, as further discussed below, in 2006 we implemented an integration plan for EMC and most of the acquisitions we have made over the past three years. The objectives of the plan are to improve efficiencies across our business and reduce costs, while helping us to present a more unified “One EMC” appearance to our customers.

Through a combination of increasing our revenues and controlling the level of cost increases, our objective is to increase our overall level of profitability.

RESULTS OF OPERATIONS

Revenues

In the fourth quarter of 2006, we realigned our business into four segments: Information storage, Content management and archiving, VMware virtual infrastructure and RSA information security. We have conformed our prior period presentations to be consistent with our current segments. The following table presents revenue by our segments:


	For the Three Months Ended				$ Change		% Change
	March 31, 2007		March 31, 2006		$ Change		% Change
Information storage	$	2,426.9	$	2,252.4	$	174.5	7.7	%
Content management and archiving		172.2		167.3		4.9	2.9
VMware virtual infrastructure		256.0		131.0		125.0	95.4
RSA information security		119.9		—		119.9	NM

Total revenues	$	2,975.0	$	2,550.7	$	424.3	16.6	%

NM – not measurable

The Information storage segment revenues include systems, software license and services revenues. Systems revenues were $1,302.7 and $1,222.6 for the three months ended March 31, 2007 and 2006, respectively, representing an increase of 6.6%. Software license revenues were $486.6 and $446.7 for the three months ended March 31, 2007 and 2006, respectively, representing an increase of 8.9%. The increase in both systems and software license revenues was due to greater demand for these products attributable to increased demand for our IT infrastructure offerings, wider acceptance of information lifecycle management-based solutions and a broadened product portfolio. Services revenues were $637.6 and $583.0 for the three months ended March 31, 2007

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

and 2006, respectively, representing an increase of 9.4%. Services revenues consist of software and hardware maintenance and professional services revenues. Services revenues increased due to greater demand for our professional services, largely to support and implement information lifecycle management-based solutions. Additionally, demand for both software and systems maintenance increased with increased sales of systems and software.

The content management and archiving segment revenues include software license, services and systems revenues. Software license revenues were $68.5 and $83.0 for the three months ended March 31, 2007 and 2006, respectively, representing a decrease of 17.5% caused by a decreased demand for content management software. Within each quarter we derive revenues from license transactions that exceed $1.0. Based upon the number of these transactions that occur within any given quarter, the year over year change in license revenue may be positively or negatively impacted. Services revenues were $103.7 and $80.0 for the three months ended March 31, 2007 and 2006, respectively, representing an increase of 29.6%. The increase in services revenues was attributable to greater software maintenance revenues primarily attributable to a higher level of new maintenance agreements and maintenance renewals and an increase in professional services revenues. Systems revenues were $0.1 and $4.3 for the three months ended March 31, 2007 and 2006, respectively, caused by a decrease in demand for content management systems.

The VMware virtual infrastructure segment revenues include software license and services revenues. Software license revenues were $169.7 and $91.8 for the three months ended March 31, 2007 and 2006, respectively, representing an increase of 84.9%. The software license revenue increase was attributable to increased demand for virtual infrastructure software and the introduction of new product offerings. Services revenues were $86.3 and $39.2 for the three months ended March 31, 2007 and 2006, respectively, representing an increase of 120.2%. The increase was due to higher software maintenance revenues and professional services revenues associated with the growth in sales of virtualization software product offerings.

The RSA information security segment was created during the third quarter of 2006 as a result of our acquisitions of RSA Security Inc. (“RSA”) and Network Intelligence Corporation (“Network Intelligence”) in September 2006. The RSA information security segment provides technologies to secure information no matter where it resides or travels inside or outside of an organization and throughout its lifecycle and includes systems, software license, software maintenance and other services revenues. Total revenues for the three months ended March 31, 2007 were $119.9.

Revenues by geography were as follows:


	For the Three Months Ended				% Change
	March 31, 2007		March 31, 2006		% Change
United States	$	1,673.3	$	1,446.4	15.7	%
Europe, Middle East and Africa		873.3		750.0	16.4
Asia Pacific		320.9		251.4	27.6
Latin America, Mexico and Canada		107.5		103.0	4.4

Revenue increased in the three months ended March 31, 2007 compared to the same period in 2006 in all of our markets due to greater demand for our products and services. Also contributing to the increase were revenues generated from the acquisition of RSA. The lower growth rate in Latin America, Mexico and Canada was primarily attributable to lower levels of demand in Latin America. Changes in exchange rates favorably impacted revenue growth by 2.1% for the three months ended March 31, 2007. The impact of the change in rates was most significant in the European market, primarily Germany, France, Italy and the United Kingdom.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Costs and Expenses

The following table presents our costs and expenses, other income and net income.


	For the Three Months Ended						$ Change			% Change
	March 31, 2007			March 31, 2006			$ Change			% Change
Cost of revenue:
Information storage	$	1,228.8		$	1,110.3		$	118.5		10.7	%
Content management and archiving		62.3			47.9			14.4		30.1
VMware virtual infrastructure		39.7			18.2			21.5		118.1
RSA information security		31.7			—			31.7		NM
Corporate reconciling items		42.6			40.9			1.7		4.2

Total cost of revenue		1,405.1			1,217.3			187.8		15.4

Gross margins:
Information storage		1,198.1			1,142.0			56.1		4.9
Content management and archiving		109.9			119.4			(9.5	)	(8.0	)
VMware virtual infrastructure		216.3			112.8			103.5		91.8
RSA information security		88.1			—			88.1		NM
Corporate reconciling items		(42.6	)		(40.9	)		(1.7	)	(4.2	)

Total gross margin		1,569.9			1,333.3			236.6		17.7
Operating expenses:
Research and development		355.4			283.5			71.9		25.4
Selling, general and administrative		875.7			748.2			127.5		17.0
Restructuring credits		(2.7	)		(1.2	)		(1.5	)	125.0

Total operating expenses		1,228.4			1,030.5			197.9		19.2

Operating income		341.5			302.8			38.7		12.8
Investment income, interest expense and other income, net		38.7			62.5			(23.8	)	(38.1	)

Income before taxes and cumulative effect of a change in accounting principle		380.2			365.3			14.9		4.1
Provision for income taxes		67.6			89.5			(21.9	)	(24.5	)

Income before cumulative effect of a change in accounting principle		312.6			275.8			36.8		13.3
Cumulative effect of a change in accounting principle		—			(3.4	)		3.4		100.0

Net income	$	312.6		$	272.5		$	40.1		14.7	%

NM – not measurable

Gross Margins

Our overall gross margin percentages were 52.8% and 52.3% for the three months ended March 31, 2007 and 2006, respectively. Our overall gross margin for the three months ended March 31, 2007 was negatively impacted 1.3% by the information storage segment, 0.4% by the content management and archiving segment and 0.3% by increases in intangible amortization expense associated with acquisitions. Our overall gross margin for the three months ended March 31, 2007 was favorably impacted 1.4% by the VMware virtual infrastructure segment, 0.9% by the incremental margin generated from the RSA information security segment as a result of the acquisitions of RSA and Network Intelligence during the third quarter of 2006, and 0.2% by decreases in stock-based compensation expense.

For segment reporting purposes, stock-based compensation and acquisition-related intangible asset amortization are recognized as corporate expenses and are not allocated among our various operating segments. Stock-based compensation expense and acquisition-related intangible asset amortization expense was $42.6 and $40.9 for the three months ended March 31, 2007 and 2006, respectively. Acquisition-related intangible asset amortization expense was $29.0 and $21.6 for the three months ended

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

March 31, 2007 and 2006, respectively. The increase was primarily due to the acquisitions of RSA and Network Intelligence in September 2006. Stock-based compensation expense was $13.6 and $19.3 for the three months ended March 31, 2007 and 2006, respectively. The decrease in stock-based compensation expense for the three months ended March 31, 2007 was primarily due to higher valued options that became fully vested prior to the beginning of the quarter ended March 31, 2007.

The gross margin percentages for the information storage segment were 49.4% and 50.7% for the three months ended March 31, 2007 and 2006, respectively. The decrease in the gross margin percentage was primarily attributable to a reduction in our systems gross margin, caused in part by a change in the mix of our systems revenue resulting in a greater portion of systems which yield a lower margin being sold in the current quarter. Additionally, the percentage of professional service revenues as a percentage of total service revenues increased to 43.4% for the three months ended March 31, 2007, from 40.9% for the three months ended March 31, 2006. Professional service revenues generally provide a lower gross margin percentage than other services revenues.

The gross margin percentages for the content management and archiving segment were 63.8% and 71.3% for the three months ended March 31, 2007 and 2006, respectively. The decrease in the gross margin percentage was primarily due to a reduction in the mix of software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total segment revenues declined to 39.8% for the three months ended March 31, 2007 from 49.6% for the three months ended March 31, 2006. Software license revenues generally provide a higher gross margin percentage than services revenues.

The gross margin percentages for the VMware virtual infrastructure segment were 84.5% and 86.1% for the three months ended March 31, 2007 and 2006, respectively. The decrease in the gross margin percentage was attributable to a reduction in the mix of software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total segment revenues declined to 66.3% for the three months ended March 31, 2007 from 70.1% for the three months ended March 31, 2006. Software license revenues generally provide a higher gross margin percentage than services revenues.

The gross margin percentage for the RSA information security segment was 73.5% for the three months ended March 31, 2007.

Research and Development

As a percentage of revenues, R&D expenses were 11.9% and 11.1% for the three months ended March 31, 2007 and 2006, respectively. In addition, we incurred $54.4 and $52.9 during the first quarters of 2007 and 2006, respectively, of software development costs which were capitalized. R&D expenses increased for the three months ended March 31, 2007 compared to the same period in 2006 due to increased investments to support new product development and incremental R&D efforts resulting from the acquisition of RSA in the third quarter of 2006.

Selling, General and Administrative

As a percentage of revenues, selling, general and administrative (“SG&A”) expenses were 29.4% and 29.3% for the three months ended March 31, 2007 and 2006, respectively. SG&A expenses increased primarily due to higher salaries and benefits resulting from an increase in headcount, in part due to the acquisition of RSA. Additionally, higher commission expense attributable to the growth in revenues contributed to the increase in SG&A. Partially offsetting these expense increases was a decrease in stock-based compensation expense. SG&A related stock-based compensation expense decreased to $46.3 from $59.1 for the three months ended March 31, 2007 and 2006, respectively. The decrease in stock-based compensation expense for the three months ended March 31, 2007 was primarily due to higher valued options that became fully vested prior to the beginning of the quarter ended March 31, 2007.

Restructuring Credits

During the three months ended March 31, 2007 and 2006, we recognized restructuring credits of $2.7 and $1.2, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

The restructuring credit for the three months ended March 31, 2006 also represents a net reduction of accruals from several of our previous restructuring programs. The reductions were primarily attributable to lower than expected severance payments, partially offset by higher costs associated with vacating leased facilities.

The activity for the 2006 and the prior restructuring programs for the three months ended March 31, 2007 and 2006 respectively, is presented in the following tables:

2006 Restructuring Programs

Three Months Ended March 31, 2007


Category	Balance as of December 31, 2006		Adjustment to the Provision		Utilization			Balance as of March 31, 2007
Workforce reductions	$	127.8	$	—	$	(20.3	)	$	107.5
Consolidation of excess facilities		5.5		0.4		(0.5	)		5.4
Contractual and other obligations		4.8		—		(4.3	)		0.5

Total	$	138.2	$	0.4	$	(25.1	)	$	113.4

Prior Restructuring Programs

We implemented restructuring programs from 1998 through 2005. The activity for these programs for the three months ended March 31, 2007 and 2006 respectively, is presented below:

Three Months Ended March 31, 2007


Category	Balance as of December 31, 2006		Adjustment to the Provision			Utilization			Balance as of March 31, 2007
Workforce reductions	$	21.1	$	—		$	(9.4	)	$	11.8
Consolidation of excess facilities		40.2		(3.0	)		(2.6	)		34.6

Total	$	61.4	$	(3.0	)	$	(11.9	)	$	46.4

Three Months Ended March 31, 2006


Category	Balance as of December 31, 2005		Adjustment to the Provision			Utilization			Balance as of March 31, 2006
Workforce reductions	$	89.2	$	(1.6	)	$	(20.3	)	$	67.2
Consolidation of excess facilities		65.4		0.4			(5.0	)		60.8

Total	$	154.6	$	(1.2	)	$	(25.4	)	$	128.1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Investment Income

Investment income was $52.1 and $61.8 for the three months ended March 31, 2007 and 2006, respectively. Investment income decreased due to lower average outstanding cash and investment balances, partially offset by greater yields on investments and decreased realized losses on investments. The weighted average return on investments, excluding realized losses, was 4.3% and 3.9% for the three months ended March 31, 2007 and 2006, respectively. Net realized losses were $4.5 and $6.9 for the three months ended March 31, 2007 and 2006, respectively.

Interest Expense

Interest expense was $18.3 and $2.0 for the three months ended March 31, 2007 and 2006, respectively. Interest expense increased primarily due to higher debt balances. In November 2006, we completed the issuance of our $1,725.0 1.75% convertible senior notes due 2011 (the “2011 Notes”) and our $1,725.0 1.75% convertible senior notes due 2013 (the “2013 Notes” and, together with the 2011 Notes, the “Notes”). Interest expense for the three months ended March 31, 2006 was primarily attributable to interest associated with our $125.0 4.5% Senior Convertible Notes due April 1, 2007, which were assumed in connection with the Documentum acquisition (the “Documentum Notes”). The Documentum Notes were redeemed in April 2006.

Other Income, Net

Other income, net was $4.8 and $2.7 for the three months ended March 31, 2007 and 2006, respectively. The change was primarily due to higher gains from the sale of strategic investments and a decrease in foreign currency transaction losses.

Provision for Income Taxes

Our effective income tax rate was 17.8% and 24.5% for the three months ended March 31, 2007 and 2006, respectively. The effective income tax rate is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits or resolutions of tax audits or other tax contingencies. For the three months ended March 31, 2007, the effective tax rate varied from the statutory tax rate as a result of the mix of income attributable to foreign versus domestic jurisdictions. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States. During the three months ended March 31, 2007, we recognized net tax benefits of $19.9 from reductions in income tax contingencies and the release of a valuation allowance recorded on certain foreign deferred tax assets. During the three months ended March 31, 2006, we recognized net tax benefits of $11.4 from reductions in income tax contingencies. Our effective income tax rate decreased from the three months ended March 31, 2006 to March 31, 2007 primarily due to a change in the forecasted mix of our domestic and international profits.

Financial Condition

Cash provided by operating activities was $808.7 and $637.2 for the three months ended March 31, 2007 and 2006, respectively. Cash received from customers was $3,298.6 and $2,878.3 for the three months ended March 31, 2007 and 2006, respectively. The increase was attributable to higher sales volume and greater cash proceeds from the sale of maintenance contracts which are typically billed and paid in advance of services being rendered. Cash paid to suppliers and employees was $2,471.5 and $2,013.5 for the three months ended March 31, 2007 and 2006, respectively. The increase was partially attributable to higher headcount. Total headcount was approximately 31,700 and 27,000 at March 31, 2007 and 2006, respectively. The majority of the headcount increase was due to the general growth of the business, as well as increased acquisition activity subsequent to March 31, 2006 including the acquisition of RSA. Cash received from dividends and interest was $57.8 and $60.3 for the three months ended March 31, 2007 and 2006, respectively. The decrease was due to lower balances of cash, cash equivalents and short and long-term investments, partially offset by an increase in the rates of return on these balances. For the three months ended March 31, 2007 and 2006, we paid $73.0 and $285.9, respectively, in income taxes. The payments for both quarters represent our net payouts of international, federal and state income tax liabilities, primarily associated with taxable income earned in fiscal years 2006 and 2005, respectively. The decrease for the quarter ended March 31, 2007 was primarily attributable to income tax payments made in the quarter ended March 31, 2006 for funds repatriated in 2005 under the American Jobs Creation Act of 2004.

On January 1, 2007, we adopted the Financial Accounting Standards Board’s (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

enterprise’s financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. As a result of adopting the new standard in the first quarter of 2007, we reclassified $219.3 of income tax liabilities from current to non-current liabilities because a cash settlement of these liabilities is not anticipated within one year of the balance sheet date.

Cash provided by (used in) investing activities was $73.8 and $(1,093.2) for the three months ended March 31, 2007 and 2006, respectively. Capital additions were $170.5 and $160.5 for the three months ended March 31, 2007 and 2006, respectively. The increase in capital spending was attributable to the costs associated with the construction of new headquarter facilities for our VMware subsidiary, partially offset by a decrease in spending on various IT initiatives to further integrate our acquisitions. Capitalized software development costs on a cash basis were $51.9 and $48.9 for the first three months of 2007 and 2006, respectively. Net sales (purchases) and maturities of investments were $300.4 and $(857.3) for the three months ended March 31, 2007 and 2006, respectively. This activity varies from period to period based upon our cash collections, cash requirements and maturity dates of our investments.

Cash used for financing activities was $370.9 and $307.4 for the three months ended March 31, 2007 and 2006, respectively. For the three months ended March 31, 2007 and 2006, we spent $488.7 and $376.1 to repurchase 35.2 million and 27.7 million shares of our common stock, respectively. In April 2006, our Board of Directors authorized the repurchase of 250.0 million shares of our common stock. Of the 250.0 million shares authorized for repurchase, we have cumulatively repurchased 145.0 million shares at a total cost of $1,700.0, leaving a remaining balance of 105.0 million shares authorized for future repurchases. We plan to spend at least $1,000.0 on common stock repurchases during 2007; however, the number of shares purchased and timing of our purchases will be dependent upon a number of factors, including the price of our stock, market conditions, our cash position and alternative demands for our cash resources. We generated $103.3 and $62.6 of cash during the three months ended March 31, 2007 and 2006, respectively, from the exercise of stock options.

Depreciation and amortization expense was $212.8 and $181.4 for the three months ended March 31, 2007 and 2006, respectively. The increase in depreciation and amortization expense was primarily attributable to intangible amortization expense associated with increased acquisition activity subsequent to March 31, 2006, including the acquisition of RSA in the third quarter of 2006. Higher amortization expense associated with capitalized software development costs also contributed to the increase. A general growth in our property, plant and equipment balances also resulted in greater depreciation expense.

We have a credit line of $50.0 in the United States. As of March 31, 2007, we had no borrowings outstanding on the line of credit. The credit line bears interest at the bank’s base rate and requires us, upon utilization of the credit line, to meet certain financial covenants with respect to limitations on losses. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance. At March 31, 2007, we were in compliance with the covenants.

In November 2006, we issued our 2011 Notes and 2013 Notes for total gross proceeds of $3,450.0. The Notes are structurally subordinated to all liabilities of our subsidiaries and are effectively subordinated to our secured indebtedness. As of March 31, 2007, the aggregate amount of liabilities of our subsidiaries was approximately $2,300.0, excluding intercompany liabilities.

Based on our current operating and capital expenditure forecasts, we believe that the combination of funds currently available, funds to be generated from operations and our available lines of credit will be adequate to finance our ongoing operations for at least the next twelve months.

To date, inflation has not had a material impact on our financial results.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K filed with the SEC on February 27, 2007. Our exposure to market risks has not changed materially from that set forth in our Annual Report.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Item 1A. RISK FACTORS

The risk factors that appear below could materially affect our business, financial condition and results of operations. The risks and uncertainties described below are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies.

Our business could be materially adversely affected as a result of general economic and market conditions.

We are subject to the effects of general global economic and market conditions. If these conditions deteriorate, our business, results of operations or financial condition could be materially adversely affected.

Our business could be materially adversely affected as a result of a lessening demand in the information technology market.

Our revenue and profitability depend on the overall demand for our products and services. Delays or reductions in IT spending, domestically or internationally, could materially adversely affect demand for our products and services which could result in decreased revenues or earnings.

Competitive pricing, sales volume, mix and component costs could materially adversely affect our revenues, gross margins and earnings.

Our gross margins are impacted by a variety of factors, including competitive pricing, component and product design costs as well as the volume and relative mixture of product and services revenues. Increased component costs, increased pricing pressures, the relative and varying rates of increases or decreases in component costs and product price, changes in product and services revenue mixture or decreased volume could have a material adverse effect on our revenues, gross margins or earnings.

The costs of third-party components comprise a significant portion of our product costs. While we generally have been able to manage our component and product design costs, we may have difficulty managing such costs if supplies of certain components become limited or component prices increase. Any such limitation could result in an increase in our component costs. An increase in component or design costs relative to our product prices could have a material adverse effect on our gross margins and earnings. Moreover, certain competitors may have advantages due to vertical integration of their supply chain, which may include disk drives, microprocessors, memory components and servers.

The markets in which we do business are highly competitive and we encounter aggressive price competition for all of our products and services from numerous companies globally. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices or provide information infrastructure products or services, together with other IT products or services, at minimal or no additional cost in order to preserve or gain market share. Such price competition may result in pressure on our product and service prices, and reductions in product and service prices may have a material adverse effect on our revenues, gross margins and earnings. We currently believe that pricing pressures are likely to continue.

If our suppliers are not able to meet our requirements, we could have decreased revenues and earnings.

We purchase or license many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. These components and products include disk drives, high density memory components, power supplies and software developed and maintained by third parties. We have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel or materially change contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell certain products cost-effectively or on a timely basis, if at all, and have significantly decreased quarterly revenues and earnings,

which would have a material adverse effect on our business, results of operations and financial condition. Additionally, we periodically transition our product line to incorporate new technologies. The importance of transitioning our customers smoothly to new technologies, along with our historically uneven pattern of quarterly sales, intensifies the risk that the failure of a supplier to meet our quality or delivery requirements will have a material adverse impact on our revenues and earnings.

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.

As part of our business strategy, we seek to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business, which may include, among other things:

•

the effect of the acquisition on our financial and strategic position and reputation

•

the failure of an acquired business to further our strategies

•

the failure of the acquisition to result in expected benefits, which may include benefits relating to enhanced revenues, technology, human resources, cost savings, operating efficiencies and other synergies

•

the difficulty and cost of integrating the acquired business, including costs and delays in implementing common systems and procedures and costs and delays caused by communication difficulties or geographic distances between the two companies’ sites

•

the assumption of liabilities of the acquired business, including litigation-related liability

•

the potential impairment of acquired assets

•

the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners

•

the diversion of our management’s attention from other business concerns

•

the impairment of relationships with customers or suppliers of the acquired business or our customers or suppliers

•

the potential loss of key employees of the acquired company

•

the potential incompatibility of business cultures

These factors could have a material adverse effect on our business, results of operations or financial condition. To the extent that we issue shares of our common stock or other rights to purchase our common stock in connection with any future acquisition, existing shareholders may experience dilution and our earnings per share may decrease.

In addition to the risks commonly encountered in the acquisition of a business as described above, we may also experience risks relating to the challenges and costs of closing a transaction. Further, the risks described above may be exacerbated as a result of managing multiple acquisitions at the same time.

We also seek to invest in businesses that offer complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business.

We may be unable to keep pace with rapid industry, technological and market changes.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will be properly positioned in the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no assurance that enhancements to existing products and solutions or new products and solutions will receive customer acceptance. As competition in the IT industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits.

Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking virtualization, infrastructure management, information security and operating system technologies which could require us to modify existing products. Risks inherent in the transition to new products include:

•

the difficulty in forecasting customer preferences or demand accurately

•

the inability to expand production capacity to meet demand for new products

•

the impact of customers’ demand for new products on the products being replaced, thereby causing a decline in sales of existing products and an excessive, obsolete supply of inventory

•

delays in initial shipments of new products

Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors’ responses to the introductions and the desire by customers to evaluate new products for extended periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on our business, results of operations or financial condition.

The markets we serve are highly competitive and we may be unable to compete effectively.

We compete with many companies in the markets we serve, certain of which offer a broad spectrum of IT products and services and others which offer specific information storage, management or virtualization products or services. Some of these companies (whether independently or by establishing alliances) may have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and greater opportunity to address customers’ various IT requirements than us. In addition, as the IT industry consolidates, companies may improve their competitive position and ability to compete against us. We compete on the basis of our products’ features, performance and price as well as our services. Our failure to compete on any of these bases could affect demand for our products or services, which could have a material adverse effect on our business, results of operations or financial condition.

Companies may develop new technologies or products in advance of us or establish business models or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products, including hardware and software products and services by our competitors, and the implementation of effective marketing or sales strategies by our competitors. The material adverse effect to our business could include a decrease in demand for our products and services and an increase in the length of our sales cycle due to customers taking longer to compare products and services and to complete their purchases.

We may have difficulty managing operations.

Our future operating results will depend on our overall ability to manage operations, which includes, among other things:

•

retaining and hiring, as required, the appropriate number of qualified employees

•

managing, protecting and enhancing, as appropriate, our infrastructure, including but not limited to, our information systems and internal controls

•

accurately forecasting revenues

•

training our sales force to sell more software and services

•

successfully integrating new acquisitions

•

managing inventory levels, including minimizing excess and obsolete inventory, while maintaining sufficient inventory to meet customer demands

•

controlling expenses

•

managing our manufacturing capacity, real estate facilities and other assets

•

executing on our plans

An unexpected decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of war or acts of terrorism.

Terrorist acts or acts of war may cause damage or disruption to our employees, facilities, customers, partners, suppliers, distributors and resellers, which could have a material adverse effect on our business, results of operations or financial condition. Such conflicts may also cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of components and distribution of products.

Our business may suffer if we are unable to retain or attract key personnel.

Our business depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. There can be no assurance that we will be successful in retaining existing personnel or recruiting new personnel. The loss of one or more key or other employees, our inability to attract additional qualified employees or the delay in hiring key personnel could have a material adverse effect on our business, results of operations or financial condition.

In addition, we have historically used stock options and other equity awards as key elements of our compensation packages for many of our employees. Under recent accounting rules, we are required to treat stock-based compensation as an expense. In addition, changes to regulatory or stock exchange rules and regulations and in institutional shareholder voting guidelines on equity plans may result in additional requirements or limitations on our equity plans. As a result, we may change our compensation practices with respect to the number of shares and type of equity awards used. The value of our equity awards may also be adversely affected by the volatility of our stock price. These factors may impair our ability to attract, retain and motivate employees.

Changes in generally accepted accounting principles may adversely affect us.

From time to time, the Financial Accounting Standards Board (“FASB”) promulgates new accounting principles that are applicable to us. These new standards or other proposals could have a material adverse impact on our results of operations or financial condition.

The Financial Accounting Standards Board’s Emerging Issues Task Force (the “Task Force”) has on its agenda a plan to review the accounting for convertible debt instruments that require or permit partial cash settlement upon conversion. The Task Force has proposed to discuss whether the current accounting treatment should be retained or if it should be modified to require the debt portion to be recorded at the fair market value of a similar liability. If the Task Force concludes that the accounting should be modified, this would result in incremental interest expense being recognized on our convertible debt instrument over the life of the debt, negatively impacting our diluted earnings per share.

Our quarterly revenues and earnings could be materially adversely affected by uneven sales patterns and changing purchasing behaviors.

Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter’s total sales occur in the last month and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. We believe this uneven sales pattern is a result of many factors including:

•

the relative dollar amount of our product and services offerings in relation to many of our customers’ budgets, resulting in long lead times for customers’ budgetary approval, which tends to be given late in a quarter

•

the tendency of customers to wait until late in a quarter to commit to purchase in the hope of obtaining more favorable pricing from one or more competitors seeking their business

•

the fourth quarter influence of customers’ spending their remaining capital budget authorization prior to new budget constraints in the first six months of the following year

•

seasonal influences

Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity accordingly. If predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed predicted demand, the ability to assemble, test and ship orders received in the last weeks and days of each quarter may be limited, which could materially adversely affect quarterly revenues and earnings.

In addition, our revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and our backlog at any particular time is not necessarily indicative of future sales levels. This is because:

•

we assemble our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers

•

we generally ship products shortly after receipt of the order

•

customers may reschedule or cancel orders with little or no penalty

Loss of infrastructure, due to factors such as an information systems failure, loss of public utilities or extreme weather conditions, could impact our ability to ship products in a timely manner. Delays in product shipping or an unexpected decline in revenues without a corresponding and timely slowdown in expenses, could intensify the impact of these factors on our business, results of operations and financial condition.

In addition, unanticipated changes in our customers’ purchasing behaviors such as customers taking longer to negotiate and complete their purchases or making smaller, incremental purchases based on their current needs, also make the prediction of revenues, earnings and working capital for each financial period difficult and uncertain and increase the risk of unanticipated variations in our quarterly results and financial condition.

Risks associated with our distribution channels may materially adversely affect our financial results.

In addition to our direct sales force, we have agreements in place with many distributors, systems integrators, resellers and original equipment manufacturers to market and sell our products and services. We may, from time to time, derive a significant percentage of our revenues from such distribution channels. For the quarter ended March 31, 2007, Dell Inc., one of our channel partners, accounted for 13.5% of our revenues. Our financial results could be materially adversely affected if our contracts with channel partners were terminated, if our relationship with channel partners were to deteriorate, if the financial condition of our channel partners were to weaken, if our channel partners are not able to timely and effectively implement their planned actions or if the level of demand for our channel partners’ products and services decreases. In addition, as our market opportunities change, we may have an increased reliance on channel partners, which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the visibility to our management of potential customers and demand for products and services, thereby making it more difficult to accurately forecast such demand. In addition, there can be no assurance that our channel partners will not develop, market or sell products or services in competition with us in the future.

In addition, as we focus on new market opportunities and additional customers through our various distribution channels, including small-to-medium sized businesses, we may be required to provide different levels of service and support than we typically provided in the past. We may have difficulty managing directly or indirectly through our channels these different service and support requirements and may be required to incur substantial costs to provide such services which may adversely affect our business, results of operations or financial condition.

Changes in foreign conditions could impair our international operations.

A substantial portion of our revenues is derived from sales outside the United States. In addition, a substantial portion of our products is manufactured outside of the United States. Accordingly, our future results could be materially adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a specific country’s or region’s political or economic conditions, trade restrictions, import or export licensing requirements, the overlap of different tax structures or changes in international tax laws, changes in regulatory requirements, compliance with a variety of foreign laws and regulations and longer payment cycles in certain countries.

Undetected problems in our products could directly impair our financial results.

If flaws in design, production, assembly or testing of our products (by us or our suppliers) were to occur, we could experience a rate of failure in our products that would result in substantial repair, replacement or service costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate test and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of the risks associated with alliances.

We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to continue or expand such relationships could have a material adverse effect on our business, results of operations or financial condition.

There can be no assurance that companies with which we have strategic alliances, certain of which have substantially greater financial, marketing or technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors.

Our business may suffer if we cannot protect our intellectual property.

We generally rely upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain our proprietary rights in our technology and products. However, there can be no assurance that any of our proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, there can be no assurance that we will be able to adequately protect our proprietary technology against unauthorized third-party copying or use, which could adversely affect our competitive position. Further, there can be no assurance that we will be able to obtain licenses to any technology that we may require to conduct our business or that, if obtainable, such technology can be licensed at a reasonable cost.

From time to time, we receive notices from third parties claiming infringement by our products of third-party patent or other intellectual property rights. Responding to any such claim, regardless of its merit, could be time-consuming, result in costly litigation, divert management’s attention and resources and cause us to incur significant expenses. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products or a successful claim of infringement against us requiring us to pay royalties to a third party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

We may become involved in litigation that may materially adversely affect us.

From time to time in the ordinary course of our business, we may become involved in various legal proceedings, including patent, commercial, product liability, employment, class action, whistleblower and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of operations or financial condition.

We may have exposure to additional income tax liabilities.

As a multinational corporation, we are subject to income taxes in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. From time to time, we are subject to income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse effect on our results of operations or financial condition.

There are risks associated with our previously-announced proposed initial public offering of VMware, Inc. (“VMware”).

We announced that we intend to sell approximately 10% of our wholly-owned subsidiary, VMware, via an initial public offering (an “IPO”), and VMware has filed an initial registration statement to register such portion of its shares. We may not complete the IPO, in which event we will have incurred significant expenses which we will be unable to recover, and for which we will not receive any benefit. Additionally, our strategic objectives for the IPO, including improving visibility into VMware’s performance and growth relative to the market and strengthening VMware employee retention and recruitment, are based on the completion of the IPO. If we do not complete the IPO, we will need to pursue alternative means of accomplishing these strategic objectives.

If the IPO is completed, VMware would be a new public company. We are unable to predict what the market price of our common stock would be after the IPO. We cannot assure you that the IPO, if completed, will produce any increase for our shareholders in the market value of their holdings in our company. In addition, the market price of our common stock could be volatile for several months after the IPO and may continue to be more volatile than our common stock would have been if a transaction had not occurred.

Changes in regulations could materially adversely affect us.

Our business, results of operations or financial conditions could be materially adversely affected if laws, regulations or standards relating to us or our products are newly implemented or changed. In addition, our compliance with existing regulations may have a material adverse impact on us. Under applicable federal securities laws, including the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal control structure and procedures for financial reporting. Should we or our independent auditors determine that we have material weaknesses in our internal controls, our results of operations or financial condition may be materially adversely affected or our stock price may decline.

Our stock price is volatile.

Our stock price, like that of other technology companies, is subject to significant volatility because of factors such as:

•

the announcement of acquisitions, new products, services or technological innovations by us or our competitors

•

quarterly variations in our operating results

•

changes in revenue or earnings estimates by the investment community

•

speculation in the press or investment community

In addition, our stock price is affected by general economic and market conditions and has been negatively affected by unfavorable global economic and market conditions. If such conditions deteriorate, our stock price could decline.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES IN THE FIRST QUARTER OF 2007


Period	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2007 – January 31, 2007	21,841,340		$	13.69	20,000,000	120,189,363
February 1, 2007 – February 28, 2007	9,801,213			14.59	9,575,400	110,613,963
March 1, 2007 – March 31, 2007	5,610,039			13.50	5,592,400	105,021,563

Total	37,252,592	⁽²⁾	$	13.90	35,167,800	105,021,563

(1)

Except as noted in note (2), all shares were purchased in open-market transactions pursuant to a previously announced authorization by our Board of Directors in April 2006 to repurchase 250.0 million shares of our common stock. These repurchase authorizations do not have a fixed termination date.

(2)

Includes an aggregate of 2,084,792 shares withheld from employees for the payment of taxes.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

(a) Exhibits

See index to Exhibits on page 32 of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	EMC CORPORATION

Date: May 4, 2007	By:	/s/ DAVID I. GOULDEN
		David I. Goulden
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX


3.1		Restated Articles of Organization of EMC Corporation, as amended. (1)
3.2		Amended and Restated By-laws of EMC Corporation. (2)
4.1		Form of Stock Certificate. (1)
31.1		Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

(1)	Incorporated by reference to EMC Corporation’s Annual Report on Form 10-K filed March 6, 2006 (No. 33-03656).

(2)	Incorporated by reference to EMC Corporation’s Current Report on Form 8-K filed February 16, 2006 (No. 33-03656).

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