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, 2009

¨	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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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


Large accelerated filer x		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

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, 2009 was 2,013,003,351.

EMC CORPORATION


		Page No.
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets at March 31, 2009 and December 31, 2008		3

Consolidated Income Statements for the Three Months Ended March 31, 2009 and 2008		4

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008		5

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2009 and 2008		6

Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2009 and 2008		7

Notes to Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24

Item 3. Quantitative and Qualitative Disclosures About Market Risk		34

Item 4. Controls and Procedures		34

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		35

Item 1A. Risk Factors		35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3. Defaults Upon Senior Securities		43

Item 4. Submission of Matters to a Vote of Security Holders		43

Item 5. Other Information		43

Item 6. Exhibits		43

SIGNATURES		44

EXHIBIT INDEX		45

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). The forward-looking statements speak only as of the date of this Quarterly Report and undue reliance should not be placed on these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Quarterly Report.

PART I

FINANCIAL INFORMATION

(unaudited)

Item 1.

FINANCIAL STATEMENTS

EMC CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


	March 31, 2009			December 31, 2008
				(As Adjusted)
ASSETS
Current assets:
Cash and cash equivalents	$	6,323,452		$	5,843,685
Short-term investments		928,277			963,292
Accounts and notes receivable, less allowance for doubtful accounts of $51,875 and $48,080		1,700,096			2,252,640
Inventories		820,504			842,803
Deferred income taxes		511,680			477,101
Other current assets		312,152			285,508

Total current assets		10,596,161			10,665,029
Long-term investments		2,533,237			2,370,493
Property, plant and equipment, net		2,192,096			2,223,007
Intangible assets, net		738,259			795,616
Other assets, net		799,873			773,631
Goodwill		7,042,473			7,046,799

Total assets	$	23,902,099		$	23,874,575

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	657,793		$	757,405
Accrued expenses		1,712,979			1,901,884
Securities lending payable		347,142			412,321
Income taxes payable		33,815			136,802
Deferred revenue		2,139,253			2,010,024

Total current liabilities		4,890,982			5,218,436
Income taxes payable		244,849			255,182
Deferred revenue		1,210,207			1,182,360
Deferred income taxes		430,110			389,787
Long-term convertible debt		3,018,242			2,991,943
Other liabilities		184,034			180,917

Total liabilities		9,978,424			10,218,625

Commitments and contingencies (see Note 11)
EMC Corporation’s shareholders’ equity:
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 2,013,003 and 2,012,938 shares		20,130			20,129
Additional paid-in capital		2,889,879			2,817,054
Retained earnings		10,865,281			10,671,212
Accumulated other comprehensive loss, net		(200,459	)		(179,952	)

Total EMC Corporation’s shareholders’ equity		13,574,831			13,328,443
Non-controlling interest in VMware, Inc.		348,844			327,507

Total shareholders’ equity		13,923,675			13,655,950

Total liabilities and shareholders’ equity	$	23,902,099		$	23,874,575

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, 2009			March 31, 2008
				(As Adjusted)
Revenues:
Product sales	$	1,969,120		$	2,340,430
Services		1,181,642			1,129,629

		3,150,762			3,470,059
Costs and expenses:
Cost of product sales		1,013,330			1,074,583
Cost of services		454,177			486,081
Research and development		383,293			433,514
Selling, general and administrative		1,024,773			1,082,215
In-process research and development		—			79,204
Restructuring charge (credit)		15,572			(357	)

Operating income		259,617			314,819
Investment income		39,844			77,140
Interest expense		(45,543	)		(43,069	)
Other expense, net		(10,758	)		(4,763	)

Income before provision for income taxes		243,160			344,127
Income tax provision		37,815			86,319

Net income		205,345			257,808
Less: Net income attributable to the non-controlling interest in VMware, Inc.		(11,276	)		(6,161	)

Net income attributable to EMC Corporation	$	194,069		$	251,647

Net income per weighted average share, basic attributable to EMC Corporation common shareholders	$	0.10		$	0.12

Net income per weighted average share, diluted attributable to EMC Corporation common shareholders	$	0.10		$	0.12

Weighted average shares, basic		2,008,915			2,075,152

Weighted average shares, diluted		2,021,062			2,110,805

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, 2009			March 31, 2008
Cash flows from operating activities:				(As Adjusted)
Cash received from customers	$	3,860,223		$	4,066,805
Cash paid to suppliers and employees		(2,877,408	)		(3,056,784	)
Dividends and interest received		46,656			77,958
Interest paid		(4,007	)		(2,865	)
Income taxes paid		(161,773	)		(166,822	)

Net cash provided by operating activities		863,691			918,292

Cash flows from investing activities:
Additions to property, plant and equipment		(95,320	)		(146,512	)
Capitalized software development costs		(87,627	)		(54,321	)
Purchases of short and long-term available for sale securities		(2,277,512	)		(608,819	)
Sales and maturities of short and long-term available for sale securities		2,169,095			1,196,985
Acquisitions, net of cash acquired		—			(337,809	)
Other		(906	)		(3,030	)

Net cash (used in) provided by investing activities		(292,270	)		46,494

Cash flows from financing activities:
Issuance of EMC’s common stock from the exercise of stock options		8,637			27,397
Issuance of VMware’s common stock from the exercise of stock options		4,503			23,669
Payments on securities lending		(65,179	)		—
Repurchase of EMC’s common stock		—			(557,244	)
Excess tax benefits from stock-based compensation		776			28,511
Payment of short and long-term obligations		(19,257	)		(3,782	)
Proceeds from short and long-term obligations		1,038			1,114

Net cash used in financing activities		(69,482	)		(480,335	)

Effect of exchange rate changes on cash and cash equivalents		(22,172	)		11,784

Net increase in cash and cash equivalents		479,767			496,235
Cash and cash equivalents at beginning of period		5,843,685			4,482,211

Cash and cash equivalents at end of period	$	6,323,452		$	4,978,446

Reconciliation of net income to net cash provided by operating activities:
Net income	$	205,345		$	257,808
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		255,798			254,619
Non-cash interest expense on convertible debt		26,299			25,027
Non-cash restructuring and in-process research and development		2,072			80,970
Stock-based compensation expense		112,647			119,087
Increase in provision for doubtful accounts		5,388			3,975
Deferred income taxes, net		(4,527	)		(34,492	)
Excess tax benefits from stock-based compensation		(776	)		(28,511	)
Other		795			(4,887	)
Changes in assets and liabilities, net of acquisitions:
Accounts and notes receivable		550,917			416,788
Inventories		(2,226	)		(28,174	)
Other assets		(22,271	)		(78,881	)
Accounts payable		(80,021	)		27,501
Accrued expenses		(222,591	)		(253,761	)
Income taxes payable		(119,431	)		(46,545	)
Deferred revenue		153,156			175,983
Other liabilities		3,117			31,785

Net cash provided by operating activities	$	863,691		$	918,292

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, 2009			March 31, 2008
				(As Adjusted)
Net income	$	205,345		$	257,808
Other comprehensive income, net of taxes (benefit):
Foreign currency translation adjustments		(26,735	)		11,487
Changes in market value of investments, including unrealized gains and losses and reclassification adjustment to net income, net of taxes (benefit) of $5,903 and $1,061		4,426			(5,238	)
Changes in market value of derivatives, net of tax (benefit) of $681 and $(19)		1,802			(764	)

Other comprehensive (loss) income		(20,507	)		5,485

Comprehensive income		184,838			263,293
Comprehensive income attributable to the non-controlling interest in VMware, Inc.		(11,276	)		(6,161	)

Comprehensive income attributable to EMC Corporation	$	173,562		$	257,132

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

EMC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

(unaudited)

For the three months ended March 31, 2009:


	Common Stock					Additional Paid-in Capital			Retained Earnings		Other Comprehensive Loss			Non-controlling Interest in VMware		Total Shareholders’ Equity
	Shares		Par Value			Additional Paid-in Capital			Retained Earnings		Other Comprehensive Loss			Non-controlling Interest in VMware		Total Shareholders’ Equity
Balance, January 1, 2009	2,012,938		$	20,129		$	2,817,054		$	10,671,212	$	(179,952	)	$	327,507	$	13,655,950
Stock issued through stock option and stock purchase plans	1,557			16			8,621			—		—			—		8,637
Tax shortfall from stock options exercised	—			—			(11,890	)		—		—			—		(11,890	)
Restricted stock grants, cancellations and withholdings, net	(1,492	)		(15	)		(35,459	)		—		—			—		(35,474	)
Stock-based compensation	—			—			119,351			—		—			—		119,351
Impact from equity transactions of VMware, Inc.	—			—			(7,798	)		—		—			10,061		2,263
Change in market value of investments	—			—			—			—		4,426			—		4,426
Change in market value of derivatives	—			—			—			—		1,802			—		1,802
Translation adjustment	—			—			—			—		(26,735	)		—		(26,735	)
Net income	—			—			—			194,069		—			11,276		205,345

Balance, March 31, 2009	2,013,003		$	20,130		$	2,889,879		$	10,865,281	$	(200,459	)	$	348,844	$	13,923,675

For the three months ended March 31, 2008:


	Common Stock					Additional Paid-in Capital			Retained Earnings		Other Comprehensive Loss			Non-controlling Interest in VMware		Total Shareholders’ Equity
	Shares		Par Value			Additional Paid-in Capital			Retained Earnings		Other Comprehensive Loss			Non-controlling Interest in VMware		Total Shareholders’ Equity
Balance, January 1, 2008	2,102,187		$	21,022		$	3,462,673		$	9,396,108	$	(8,449	)	$	188,988	$	13,060,342
Stock issued through stock option and stock purchase plans	2,167			21			27,376			—		—			—		27,397
Tax benefit from stock options exercised	—			—			29,400			—		—			—		29,400
Restricted stock grants, cancellations and withholdings, net	(1,261	)		(13	)		(44,998	)		—		—			—		(45,011	)
Repurchase of common stock	(35,856	)		(358	)		(556,885	)		—		—			—		(557,243	)
Stock-based compensation	—			—			122,125			—		—			—		122,125
Impact from equity transactions of VMware, Inc.	—			—			3,198			—		—			14,810		18,008
Change in market value of investments	—			—			—			—		(5,238	)		—		(5,238	)
Change in market value of derivatives	—			—			—			—		(764	)		—		(764	)
Translation adjustment	—			—			—			—		11,487			—		11,487
Net income	—			—			—			251,647		—			6,161		257,808

Balance, March 31, 2008	2,067,237		$	20,672		$	3,042,889		$	9,647,755	$	(2,964	)	$	209,959	$	12,918,311

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.

EMC’s Information Infrastructure business supports customers’ information lifecycle management (ILM) strategies and helps them build information infrastructures that store, protect, optimize and leverage their vast and growing quantities of information. EMC’s Information Infrastructure business consists of three segments – Information Storage, Content Management and Archiving, and RSA Information Security.

EMC’s VMware Virtual Infrastructure business, which is comprised of a majority equity stake in VMware, Inc. (“VMware”), is the leading provider of virtualization solutions from the desktop to the data center. VMware’s virtual infrastructure software solutions run on industry-standard desktops and servers and support a wide range of operating system and application environments, as well as networking and storage infrastructures.

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 consolidated financial statements include the accounts of EMC, its wholly owned subsidiaries and VMware, a company majority-owned by EMC. All intercompany transactions have been eliminated.

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, 2008 which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009.

Effective January 1, 2009, we adopted FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 changed the accounting treatment for certain convertible securities including our convertible debt. Under FSP APB 14-1, issuers are required to allocate the bond proceeds into a debt portion and a conversion option. The allocation of the bond portion is based upon the fair value of the debt without the equity conversion option. The residual value is allocated to the conversion option which is accounted for in additional paid-in capital. As a result of this change, the bonds are recorded at a discount which are amortized over the instruments expected life using the effective interest method, resulting in additional non-cash interest expense.

We revised prior period financial statements by reclassifying $669.1 million of our convertible debt associated with 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”) to additional paid-in capital and revised interest expense by $25.0 million for the three months ended March 31, 2008. The revision reduced net income attributable to EMC Corporation by $17.2 million and reduced both basic and diluted net income attributable to EMC Corporation common shareholders by $0.01 per weighted average share. Retained earnings as of January 1, 2008 were reduced by $74.2 million.

Effective January 1, 2009, we adopted FAS No. 160, “Non-controlling Interest in Consolidated Financial Statements” (“FAS No. 160”). FAS No. 160 requires that (a) the ownership interest in subsidiaries be clearly identified, labeled and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity, (b) the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated income statement, and (c) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently within equity. A parent’s ownership interest in a subsidiary changes if the parent purchases additional ownership interest in its subsidiary, the parent sells some of its ownership interest or the subsidiary issues additional ownership interests. Upon adoption of FAS No. 160, previously reported financial statements were revised and we reclassified the previously reported expense of Minority interest in VMware to a component of shareholders’ equity as non-controlling interest in VMware, Inc. Previously reported Minority interest was renamed Net income attributable to the non-controlling interest in VMware, Inc. See Note 3.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 necessary to fairly state the results as of and for the three-month periods ended March 31, 2009 and 2008.

Net Income Per Share

Basic net income per weighted average share has been computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per weighted average share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of stock options, restricted stock and restricted stock units, our Notes and associated warrants (“Sold Warrants”). Additionally, for purposes of calculating diluted net income per weighted average share, net income is adjusted for the difference between VMware’s reported diluted and basic net income per weighted average share, if any, multiplied by the number of shares of VMware held by EMC.

New Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) on FAS No. 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This statement amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This statement does not amend existing recognition and measurement guidance to other-than-temporary impairments of equity securities. This statement is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We are currently assessing the impact this statement will have on our financial position and results of operations.

In April 2009, the FASB issued FSP on FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liabilities Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This statement provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements” when the volume and level of activity for the asset or liability have significantly decreased. This statement also includes guidance on identifying circumstances that indicate a transaction is not orderly. This statement is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. We are currently assessing the impact this statement will have on our financial position and results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This statement requires disclosure about fair value of financial instruments for interim reporting periods of publicly traded companies as in annual financial statements. This statement also amends APB Opinion No. 28, “Interim Financial Reporting” to require those disclosures in summarized financial information at interim reporting periods. This statement is effective for interim reporting periods ending after June 15, 2009. We do not expect this statement to have a material impact on our financial position or results of operations.

In April 2009, the FASB issued FSP on FAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This statement amends and clarifies FASB Statement No. 141 (revised 2007), “Business Combinations” to address the application issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This statement did not have a material impact on our financial position or results of operations.

2. Convertible Debt

In November 2006, we issued our Notes for total gross proceeds of $3.45 billion. The Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. Holders may convert their Notes at their option on any day prior to the close of business on the scheduled trading day immediately preceding (i) September 1, 2011, with respect to the 2011 Notes, and (ii) September 1, 2013, with respect to the 2013 Notes, in each case only under the following circumstances: (1) during the five business-day period after any five consecutive trading-day period (the “measurement period”) in which the price

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

per Note of the applicable series for each day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; or (3) upon the occurrence of certain events specified in the Notes. Additionally, the Notes will become convertible during the last three months prior to the respective maturities of the 2011 Notes and the 2013 Notes.

Upon conversion, we will pay cash up to the principal amount of the debt converted. With respect to any conversion value in excess of the principal amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand dollars of principal amount of Notes, which represents a 27.5% conversion premium from the date the Notes were issued and is equivalent to a conversion price of approximately $16.08 per share of our common stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a “fundamental change” (as defined in the indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes that elects to convert its Notes in connection with such fundamental change.

The Notes pay interest in cash at a rate of 1.75% semi-annually in arrears on December 1 and June 1 of each year.

In connection with the sale of the Notes, we entered into separate convertible note hedge transactions with respect to our common stock (the “Purchased Options”). The Purchased Options allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would pay to the holders of the Notes upon conversion. The Purchased Options will cover, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock. Half of the Purchased Options expire on December 1, 2011 and the remaining half of the Purchased Options expire on December 1, 2013. We paid an aggregate amount of $669.1 million of the proceeds from the sale of the Notes for the Purchased Options.

We also entered into separate transactions in which we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately 215 million shares of our common stock at an exercise price of approximately $19.55 per share of our common stock. Half of the Sold Warrants have expiration dates between February 15, 2012 and March 15, 2012 and the remaining half of the Sold Warrants have expiration dates between February 18, 2014 and March 18, 2014. We received aggregate proceeds of $391.1 million from the sale of the Sold Warrants.

The Purchased Options and Sold Warrants will generally have the effect of increasing the conversion price of the Notes to approximately $19.55 per share of our common stock, representing an approximate 55% conversion premium based on the closing price of $12.61 per share of our common stock on November 13, 2006.

The following table represents the key components of our convertible debt (table in thousands):


	March 31, 2009			December 31, 2008
Debt principal	$	3,450,000		$	3,450,000
Unamortized discount		(431,758	)		(458,057	)

Net carrying amount of the convertible debt	$	3,018,242		$	2,991,943


	For the Three Months Ended
	March 31, 2009			March 31, 2008
Contractual interest expense on the coupon	$	15,094		$	15,094
Amortization of the discount component recognized as interest expense		26,299			25,027

Total interest expense on the convertible debt	$	41,393		$	40,121

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of March 31, 2009, the unamortized discount consists of $161.6 million which will be amortized over 2.7 years and an unamortized discount of $270.2 million which will be amortized over 4.7 years. The effective interest rate on the Notes was 5.6% for the quarters ended March 31, 2009 and 2008. The carrying amount of the equity components was $669.1 million at both March 31, 2009 and December 31, 2008.

3. Non-controlling Interest in VMware, Inc.

The effect of changes in our ownership interest in VMware on our equity were as follows (table in thousands):


	March 31, 2009			March 31, 2008
Net income attributable to EMC Corporation	$	194,069		$	251,647

Transfers (to) from the non-controlling interest in VMware:
Increase in EMC Corporation’s additional paid-in-capital for VMware’s equity issuances		1,730			9,428
Decrease in EMC Corporation’s additional paid-in-capital for VMware’s other equity activity		(9,528	)		(6,230	)

Net transfers (to) from non-controlling interest		(7,798	)		3,198

Change from net income attributable to EMC Corporation and transfers from the non-controlling interest in VMware, Inc.	$	186,271		$	254,845

4. Derivatives

We hedge our exposure in foreign currency-denominated monetary assets and liabilities with foreign currency forward and option contracts. Since these derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the consolidated balance sheet at fair value and the changes in fair value from these contracts are recorded in other expense, net, in the consolidated income statement. These derivative contracts mature in less than one year.

We also use foreign currency forward and option contracts to hedge our exposure on a portion of our forecasted revenue and expense transactions.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table provides the major types of derivative instruments outstanding as of March 31, 2009 and December 31, 2008 (table in thousands):


	Fair Values of Derivative Instruments
	Asset Derivatives
	March 31, 2009			December 31, 2008
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange contracts	Other assets	$	3,063	Other assets	$	4,977

Total derivatives designated as hedging instruments:		$	3,063		$	4,977

Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other assets	$	35,362	Other assets	$	39,065

Total derivatives not designated as hedging instruments:		$	35,362		$	39,065

Total asset derivatives		$	38,425		$	44,042


	Liability Derivatives
	March 31, 2009			December 31, 2008
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange contracts	Accrued expenses	$	3,046	Accrued expenses	$	5,603

Total derivatives designated as hedging instruments:		$	3,046		$	5,603

Derivatives not designated as hedging instruments:
Foreign exchange contracts	Accrued expenses	$	29,537	Accrued expenses	$	34,347

Total derivatives not designated as hedging instruments:		$	29,537		$	34,347

Total liability derivatives		$	32,583		$	39,950

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table provides the effect derivative instruments had on other comprehensive loss (“OCI”) and results of operations (table in thousands):


The Effect of Derivative Instruments on the Consolidated Income Statement For the Three Months Ended March 31, 2009 and 2008
Derivatives Designated as Hedging Instruments under Statement 133 – Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)						Derivatives Not Designated as Hedging Instruments under Statement 133	Amount of Gain or (Loss) Recognized in Other expense, net
	2009		2008				2009			2008				2009			2008				2009			2008
Foreign exchange contracts	$	11,085	$	(12,200	)	Product revenue	$	14,286		$	(12,349	)	Other expense, net	$	(1,448	)	$	(1,560	)	Foreign exchange contracts	$	(472	)	$	2,969
						SG&A		(5,684	)		931

Total	$	11,085	$	(12,200	)	Total	$	8,602		$	(11,418	)	Total	$	(1,448	)	$	(1,560	)	Total	$	(472	)	$	2,969

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Investments and Fair Value

We account for financial assets and liabilities in accordance with FAS No. 157, “Fair Value Measurements” (“FAS No. 157”). FAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under FAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last is considered unobservable, that may be used to measure fair value:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair market values. At March 31, 2009, with the exception of our auction rate securities, the vast majority of our investments were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, we assess other factors to determine the security’s market value, including broker quotes or model valuations. Each month we perform independent price verifications of all of our holdings. In the event a price fails a pre-established tolerance check, it is researched so that we can assess the cause of the variance to determine what we believe is the appropriate fair market value.

In general, investments with remaining effective maturities of 12 months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than 12 months from the balance sheet date are classified as long-term investments. As a result of the lack of liquidity for auction rate securities, we have classified these as long-term investments as of March 31, 2009. At March 31, 2009, all of our available for sale, short- and long-term investments, excluding auction rate securities, were recognized at fair value, which was determined based upon observable inputs from our pricing service vendors for identical or similar assets. At March 31, 2009 and December 31, 2008, auction rate securities were valued using a discounted cash flow model.

The following tables summarize the composition of our investments at March 31, 2009 and December 31, 2008 (tables in thousands):


	March 31, 2009
	Amortized Cost Basis		Aggregate Fair Value
U.S. government and agency obligations	$	1,249,360	$	1,268,880
U.S. corporate debt securities		442,327		431,494
Asset and mortgage-backed securities		278,748		246,903
Municipal obligations		1,233,731		1,253,412
Auction rate securities		229,418		198,560
Foreign debt securities		62,155		62,265

Total	$	3,495,739	$	3,461,514

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


	December 31, 2008
	Amortized Cost Basis		Aggregate Fair Value
U.S. government and agency obligations	$	1,102,739	$	1,130,530
U.S. corporate debt securities		463,874		451,813
Asset and mortgage-backed securities		304,769		263,384
Municipal obligations		1,230,772		1,243,308
Auction rate securities		230,217		199,169
Foreign debt securities		45,944		45,581

Total	$	3,378,315	$	3,333,785

Gross unrealized gains on all of our investments were $45.1 million and $45.0 million at March 31, 2009 and December 31, 2008, respectively. Gross unrealized losses on these investments were $79.3 million and $89.6 million at March 31, 2009 and December 31, 2008, respectively.

In accordance with FAS No. 157, the following table represents our fair value hierarchy for our financial assets and liabilities measured at fair value as of March 31, 2009 (table in thousands):


	Level 1		Level 2		Level 3		Total
Cash	$	836,539	$	—	$	—	$	836,539
Cash equivalents		5,434,322		52,591		—		5,486,913
U.S. government and agency obligations		832,844		436,036		—		1,268,880
U.S. corporate debt securities		—		431,494		—		431,494
Asset and mortgage-backed securities		—		246,903		—		246,903
Municipal obligations		—		1,253,412		—		1,253,412
Auction rate securities		—		—		198,560		198,560
Foreign debt securities		—		62,265		—		62,265

Total cash and investments	$	7,103,705	$	2,482,701	$	198,560	$	9,784,966

Other items:
Foreign exchange derivative assets	$	—	$	38,425	$	—	$	38,425
Foreign exchange derivative liabilities		—		32,583		—		32,583

To determine the estimated fair value of our investment in auction rate securities, we used a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include an incremental discount rate for the lack of liquidity in the market (“liquidity discount margin”) for an estimated period of time. The discount rate we selected was based on AA-rated banks as the majority of our portfolio is invested in student loans where EMC acts as a financier to these lenders. The liquidity discount margin represents an estimate of the additional return an investor would require for the lack of liquidity of these securities over an estimated two-year holding period. The rate used for the discount margin was 5% at March 31, 2009 and December 31, 2008.

The following table provides a summary of changes in fair value of our Level 3 financial assets for the quarter ended March 31, 2009 (table in thousands):


	March 31, 2009
Balance at December 31, 2008	$	199,169
Sales		(799	)
Change in fair market value of investments		190

Balance at March 31, 2009	$	198,560

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Unrealized losses on investments at March 31, 2009 by investment category and length of time the investment has been in a continuous 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	$	44,819	$	(79	)	$	133	$	(2	)	$	44,952	$	(81	)
U.S. corporate debt securities		281,481		(10,714	)		17,780		(2,232	)		299,261		(12,946	)
Asset and mortgage-backed securities		150,586		(9,387	)		49,931		(22,824	)		200,517		(32,211	)
Municipal obligations		169,250		(1,857	)		38,630		(890	)		207,880		(2,747	)
Auction rate securities		8,994		(1,256	)		189,566		(29,602	)		198,560		(30,858	)
Foreign debt securities		15,959		(426	)		376		(1	)		16,335		(427	)

Total	$	671,089	$	(23,719	)	$	296,416	$	(55,551	)	$	967,505	$	(79,270	)

Investment Losses

For the three months ended March 31, 2009, we considered $0.5 million of unrealized losses to be other than temporary and recognized the losses as a charge to earnings. We considered $79.3 million of losses to be temporary and recognized the estimated decline in value as a component of other comprehensive loss within our shareholders’ equity. In making this determination, we considered the financial condition and near-term prospects of the issuers, the underlying value and performance of the collateral, the time to maturity, the length of time the investments have been in an unrealized loss position and our ability and intent to hold the investment to maturity if necessary to avoid losses. The significant components of the temporary impairments are as follows:

Auction Rate Securities

Our auction rate securities are predominantly rated AAA and are primarily collateralized by student loans. The underlying loans of all but two of our auction rate securities, with a market value of $17.5 million, have partial guarantees by the U.S. government as part of the Federal Family Education Loan Program (“FFELP”) through the U.S. Department of Education. FFELP guarantees at least 95% of the loans which collateralize the auction rate securities. The two securities whose underlying loans are not guaranteed by the U.S. government have credit enhancements and are insured by third party agencies. We believe the quality of the collateral underlying all of our auction rate securities will enable us to recover our principal balance in full.

Beginning in mid-February 2008, liquidity issues in the global credit markets resulted in the complete failure of auctions associated with our auction rate securities as the amount of securities submitted for sale in those auctions exceeded the amount of bids. For each unsuccessful auction, the interest rate moves to a maximum rate defined for each security, generally reset periodically at a level higher than defined short-term interest benchmarks. To date, we have collected all interest payable on all of our auction rate securities when due and expect to continue to do so in the future. The principal associated with failed auctions will not be accessible until successful auctions occur, a buyer is found outside of the auction process, the issuers establish a different form of financing to replace these securities, issuers repay principal over time from cash flows prior to final maturity, or final payments come due according to contractual maturities ranging from 15 to 40 years. We understand that issuers and financial markets are in the process of developing alternatives that may improve liquidity, although it is not yet clear when or to what extent such efforts will be successful. We expect that we will receive the entire principal associated with these auction rate securities through one of the means described above. None of the auction rate securities in our portfolio are mortgage-backed or collateralized debt obligations.

Asset- and Mortgage-Backed Securities

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

including the borrowers’ payment history, and our position in the capital structure. We estimated the losses in the underlying loans for these securities and compared these losses to our position in the security. For those securities where the underlying collateral is not sufficient, we have recorded other-than-temporary losses on these securities which aggregated $0.5 million for the quarter ended March 31, 2009. For the securities where the collateral is deemed to be adequate, we believe we will realize the current cost basis of these securities based on our position in the credit structure.

U.S. Corporate Debt Securities

Our U.S. corporate debt securities are predominantly rated A or better. The security issuers are from a cross section of industries, including banking and finance, insurance, consumer, industrial, technology and utilities. To mitigate concentration of risk, we impose sector limits at the portfolio and CUSIP level. The average maturity is 1.28 years. To date, we have collected all interest payable on all the debt securities when due and expect to continue to do so in the future. We have analyzed the issuers’ credit history, current financial standing and their ability to retire the debt obligations. We expect that we will receive the entire principal associated with these securities.

The contractual maturities of investments held at March 31, 2009 are as follows (table in thousands):


	March 31, 2009
	Amortized Cost Basis		Aggregate Fair Value
Due within one year	$	666,147	$	664,286
Due after 1 year through 5 years		1,974,170		1,992,668
Due after 5 years through 10 years		250,126		250,546
Due after 10 years		605,296		554,014

Total	$	3,495,739	$	3,461,514

6. Inventories

Inventories consist of (table in thousands):


	March 31, 2009		December 31, 2008
Purchased parts	$	43,924	$	62,866
Work-in-process		463,790		488,286
Finished goods		312,790		291,651

	$	820,504	$	842,803

7. Property, Plant and Equipment

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


	March 31, 2009			December 31, 2008
Furniture and fixtures	$	222,288		$	224,736
Equipment		3,313,457			3,387,498
Buildings and improvements		1,343,708			1,280,580
Land		115,848			115,873
Building construction in progress		93,488			95,219

		5,088,789			5,103,906
Accumulated depreciation and amortization		(2,896,693	)		(2,880,899	)

	$	2,192,096		$	2,223,007

Construction in progress at March 31, 2009 includes $62.5 million for facilities not yet placed in service that we are holding for future use.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8. Accrued Expenses

Accrued expenses consist of (table in thousands):


	March 31, 2009		December 31, 2008
Salaries and benefits	$	571,855	$	712,237
Product warranties		262,255		269,218
Restructuring (see Note 10)		172,696		224,702
Other		706,173		695,727

	$	1,712,979	$	1,901,884

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, 2009			March 31, 2008
Balance, beginning of the period	$	269,218		$	263,561
Current period provision		25,435			40,582
Amounts charged to the accrual		(32,398	)		(36,847	)

Balance, end of the period	$	262,255		$	267,296

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 periods. It is not practicable to determine the amounts applicable to each of the components.

9. 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):


	For the Three Months Ended
	March 31, 2009			March 31, 2008
Numerator:
Net income attributable to EMC Corporation, basic	$	194,069		$	251,647
Incremental dilution from VMware		(188	)		(1,633	)

Net income attributable to EMC Corporation, diluted	$	193,881		$	250,014

Denominator:
Basic weighted average common shares outstanding		2,008,915			2,075,152
Weighted average common stock equivalents		12,147			35,653

Diluted weighted average shares outstanding		2,021,062			2,110,805

Options to acquire 214.9 million and 100.7 million shares of our common stock for the three months ended March 31, 2009 and 2008, respectively, were excluded from the calculation of diluted earnings per share attributable to EMC Corporation

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

shareholders because of their antidilutive effect primarily due to their exercise prices being less than the average market price of common stock for the period. For the three months ended March 31, 2009 and 2008, there were no shares potentially issuable under our Notes and 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 attributable to EMC Corporation shareholders. The incremental dilution from VMware represents the impact of VMware’s dilutive securities on EMC’s diluted net income per share and is calculated by multiplying the difference between VMware’s basic and diluted earnings per share by the number of VMware shares owned by EMC.

10. Restructuring Charges and Impairment

For the three months ended March 31, 2009, we incurred restructuring charges of $15.6 million compared to $0.4 million of restructuring credits for the three months ended March 31, 2008.

In December of 2008, we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. The plan includes the following components:

•

A reduction in force resulting in the elimination of approximately 2,400 positions which will be substantially completed by the end of 2009 and fully completed by the third quarter of 2010.

•

The consolidation of facilities and the termination of contracts. These actions are expected to be completed by 2015.

•

The write-off of certain assets for which EMC has determined it will no longer derive any benefit. These actions were completed in the fourth quarter of 2008.

In addition to this plan, we also recognized an asset impairment charge for certain assets for which the forecasted cash flows from the assets are less than the assets’ net book value.

The total charge resulting from these actions is expected to be between $362.0 million and $387.0 million, with $247.9 million recognized in 2008, $100.0 million to $125.0 million to be recognized in 2009 and 2010 and the remainder to be recognized through 2015. Total cash expenditures associated with the plan are expected to be in the range of $310.7 million to $335.7 million.

The restructuring charge for the three months ended March 31, 2009 was primarily attributable to recognizing additional expense related to the restructuring program implemented in December 2008 for workforce reductions, consolidation of facilities and termination of contracts.

The restructuring credit for the three months ended March 31, 2008 was primarily attributable to lower than expected severance payments on our 2006 restructuring programs, partially offset by higher than expected severance payments on our 2007 and prior restructuring programs.

The activity for each charge is explained in the following sections.

December 2008 Restructuring Program

The activity for the December 2008 restructuring program for the three months ended March 31, 2009 is presented below (table in thousands):

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision		Utilization			Balance as of March 31, 2009
Workforce reductions	$	184,440	$	6,809	$	(51,924	)	$	139,325
Consolidation of excess facilities and other contractual obligations		2,376		9,089		(7,299	)		4,166

Total	$	186,816	$	15,898	$	(59,223	)	$	143,491

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The adjustment to the workforce reductions provision is primarily attributable to individuals whose severance expense is being recognized ratably from the date of notification through their last day of work. These employees are required to render services beyond a minimum retention period in order to receive their severance. As of March 31, 2009, we had completed approximately 50% of the headcount reductions. The adjustment to the provision for the consolidation of excess facilities and other contractual obligations represents lease termination costs for facilities vacated in the quarter in accordance with our plan as part of our December 2008 restructuring program.

September 2008 Restructuring Program

The activity for the September 2008 restructuring program for the three months ended March 31, 2009 is presented below (tables in thousands):

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision		Utilization			Balance as of March 31, 2009
Workforce reductions	$	1,834	$	425	$	(591	)	$	1,668

Total	$	1,834	$	425	$	(591	)	$	1,668

The remaining cash portion owed for the 2008 restructuring programs is $141.4 million. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2010. The cash expenditures relating to the consolidation of excess facilities and other contractual obligations are expected to be paid out by the end of 2015.

Prior Restructuring Programs

Prior to 2007, we had instituted several restructuring programs. The activity for these programs for the three months ended March 31, 2009 and 2008, respectively, is presented below (tables in thousands):

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision			Utilization			Balance as of March 31, 2009
Workforce reductions	$	14,322	$	(751	)	$	(5,740	)	$	7,831
Consolidation of excess facilities		20,860		—			(1,879	)		18,981
Contractual and other obligations		870		—			(145	)		725

Total	$	36,052	$	(751	)	$	(7,764	)	$	27,537

2008


Category	Balance as of December 31, 2007		Adjustment to the Provision			Utilization			Balance as of March 31, 2008
Workforce reductions	$	96,821	$	(397	)	$	(34,677	)	$	61,747
Consolidation of excess facilities		28,273		(35	)		(3,186	)		25,052
Contractual and other obligations		830		75			(5	)		900

Total	$	125,924	$	(357	)	$	(37,868	)	$	87,699

The remaining cash portion owed for these programs is $24.6 million. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2010. The cash expenditures relating to the excess facilities are expected to be paid out by the end of 2015. The cash expenditures relating to the contractual obligations are expected to be paid out by the end of 2009.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. 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, 2009, 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, 2009, we were in compliance with the covenants.

Litigation

We are involved in a variety of claims, demands, suits, investigations, and proceedings, including those identified below, that arise from time to time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property, product liability, employment, benefits and securities matters. As required by Statement of Financial Accounting Standards No. 5, we have estimated the amount of probable losses that may result from any such pending matters, and such amounts are reflected in our consolidated financial statements. These recorded amounts are not material to our consolidated financial position or results of operations. While it is not possible to predict the outcome of these matters with certainty, we do not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition. Because litigation is inherently unpredictable, however, the actual amounts of loss may prove to be larger or smaller than the amounts reflected in our consolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our operating results or cash flows in a particular period.

United States ex rel. Rille and Roberts v. EMC Corporation. On February 27, 2009, the U.S. District Court for the Eastern District of Arkansas entered an order unsealing a civil False Claims Act “qui tam” action by two individuals (the “relators”) that named EMC as a defendant in December 2006. This action relates to the previously disclosed investigation being conducted by the Civil Division of the United States Department of Justice (the “DoJ”) regarding (i) EMC’s fee arrangements with systems integrators and other partners in federal government transactions, and (ii) EMC’s compliance with the terms and conditions of certain agreements pursuant to which we sold products and services to the federal government. By the same order of February 27, 2009, the U.S. District Court for the Eastern District of Arkansas also unsealed a complaint in intervention filed by the DoJ in June 2008 in this matter and directed that EMC be served with both complaints. The DoJ complaint, which adopts the claims advanced by the relators, asserts claims under the Anti-Kickback Act and False Claims Act in addition to breach of contract and other claims. The DoJ and the relators seek various remedies, including treble damages and statutory penalties. This action could lead to other related proceedings by various agencies of the federal government, which could result in suspension or debarment from sales to the federal government. We believe that we have meritorious factual and legal defenses to the claims raised and intend to defend this matter vigorously.

Derivative Demand Letters. In April 2009, we received two derivative demand letters sent on behalf of individuals purporting to be EMC shareholders. Both letters contain allegations to the effect that the existence of the matter captioned United States ex rel. Rille and Roberts v. EMC Corporation serves as evidence that certain Company officers and directors failed to exercise due care and/or failed to oversee compliance with the laws identified in the Roberts complaints. The matters relating to the demand letters have been referred to the Board of Directors and are proceeding in accordance with applicable Massachusetts law.

12. Segment Information

We manage our business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure. EMC Information Infrastructure operates in three segments: Information Storage, Content Management and Archiving and RSA Information Security, while VMware Virtual Infrastructure operates in a single segment. Our management measures are designed to assess performance of these operating segments excluding certain items. As a result, corporate reconciling items are used to capture the items excluded from segment operating performance measures, including stock-based compensation expense and acquisition-related intangible asset amortization expense. Additionally, in certain instances, IPR&D charges, restructuring charges and infrequently occurring gains or losses are also excluded from the measures used by management in assessing segment performance. The VMware Virtual Infrastructure amounts represent the revenues and expenses of VMware as reflected within EMC’s consolidated financial statements. Research and development expenses, SG&A and other income associated with the EMC Information Infrastructure business are not allocated to the segments within the EMC Information Infrastructure business, as they are managed centrally at the business unit level. For the three segments within the EMC Information Infrastructure business, gross profit is the segment operating performance measure.

EMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Our segment information for the three months ended March 31, 2009 and 2008 is as follows (tables in thousands, except percentages):



	EMC Information Infrastructure									EMC Information Infrastructure			VMware Virtual Infrastructure within EMC			Corp Reconciling Items			Consolidated
	Information Storage			Content Management and Archiving			RSA Information Security			EMC Information Infrastructure			VMware Virtual Infrastructure within EMC			Corp Reconciling Items			Consolidated
Three Months Ended:
March 31, 2009
Revenues:
Product revenues	$	1,572,408		$	58,710		$	80,671		$	1,711,789		$	257,331		$	—		$	1,969,120
Services revenues		790,932			115,605			62,035			968,572			213,070			—			1,181,642

Total consolidated revenues		2,363,340			174,315			142,706			2,680,361			470,401			—			3,150,762
Cost of sales		1,234,490			71,698			43,655			1,349,843			66,264			51,400			1,467,507

Gross profit	$	1,128,850		$	102,617		$	99,051			1,330,518			404,137			(51,400	)		1,683,255

Gross profit percentage		47.8	%		58.9	%		69.4	%		49.6	%		85.9	%		—			53.4	%

Research and development											257,584			80,864			44,845			383,293
Selling, general and administrative											760,663			178,865			85,245			1,024,773
Restructuring charges											—			—			15,572			15,572

Total costs and expenses											1,018,247			259,729			145,662			1,423,638

Operating income											312,271			144,408			(197,062	)		259,617
Other income (expense), net											12,791			(2,949	)		(26,299	)		(16,457	)

Income before tax											325,062			141,459			(223,361	)		243,160
Income tax provision											72,959			27,212			(62,356	)		37,815

Net income											252,103			114,247			(161,005	)		205,345
Net income attributable to the non-controlling interests in VMware, Inc.											—			(18,293	)		7,017			(11,276	)

Net income attributable to EMC Corporation										$	252,103		$	95,954		$	(153,988	)	$	194,069


	EMC Information Infrastructure
	Information Storage			Content Management and Archiving			RSA Information Security			EMC Information Infrastructure			VMware Virtual Infrastructure within EMC			Corp Reconciling Items			Consolidated
Three Months Ended:
March 31, 2008
Revenues:
Product revenues	$	1,903,639		$	61,128		$	81,683		$	2,046,450		$	293,980		$	—		$	2,340,430
Services revenues		808,190			124,075			53,174			985,439			144,190			—			1,129,629

Total consolidated revenues		2,711,829			185,203			134,857			3,031,889			438,170			—			3,470,059
Cost of sales		1,320,904			74,357			40,319			1,435,580			68,574			56,510			1,560,664

Gross profit	$	1,390,925		$	110,846		$	94,538			1,596,309			369,596			(56,510	)		1,909,395


Gross profit percentage		51.3	%		59.9	%		70.1	%		52.7	%		84.3	%		—			55.0	%
Research and development											294,505			97,173			41,836			433,514
Selling, general and administrative											822,978			172,496			86,741			1,082,215
In-process and development											—			—			79,204			79,204
Restructuring credit											(357	)		—			—			(357	)

Total costs and expenses											1,117,126			269,669			207,781			1,594,576

Operating income											479,183			99,927			(264,291	)		314,819
Other income (expense), net											51,696			2,639			(25,027	)		29,308

Income before tax											530,879			102,566			(289,318	)		344,127
Income tax provision											125,393			19,126			(58,200	)		86,319

Net income											405,486			83,440			(231,118	)		257,808
Net income attributable to the non-controlling interests in VMware, Inc.											—			(11,605	)		5,444			(6,161	)

Net income attributable to EMC Corporation										$	405,486		$	71,835		$	(225,674	)	$	251,647

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, 2009		March 31, 2008
United States	$	1,638,911	$	1,885,441
Europe, Middle East and Africa		986,640		1,052,607
Asia Pacific		374,319		379,787
Latin America, Mexico and Canada		150,892		152,224

Total	$	3,150,762	$	3,470,059

No country other than the United States accounted for 10% or more of revenues during the three months ended March 31, 2009 or 2008.

Long-lived assets, excluding financial instruments and deferred tax assets in the United States were $9,864.8 million at March 31, 2009 and $9,902.8 million at December 31, 2008. No country other than the United States accounted for 10% or more of these assets at March 31, 2009 or December 31, 2008. Internationally, long-lived assets, excluding financial instruments and deferred tax assets, were $907.9 million at March 31, 2009 and $936.3 million at December 31, 2008.

For the three months ended March 31, 2008, sales to Dell Inc. accounted for 12.5% of our total revenues.

13. Income Taxes

Our effective income tax rates were 15.6% and 25.1% for the three months ended March 31, 2009 and 2008, 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, 2008 and 2009, the effective tax rate varied from the statutory tax rate principally 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. The decrease in the effective tax rate in 2009 compared to 2008 was primarily attributable to non-deductible IPR&D charges during the quarter ended March 31, 2008 which increased the 2008 effective tax rate. Additionally, in 2009 our tax rate was impacted by the favorable resolution of uncertain tax positions related to transfer pricing and an increase in tax credits. These benefits were partially offset by an increase in our permanent book-tax differences.

We have substantially concluded all U.S. federal income tax matters for years through 2004 and are currently under audit for U.S. federal income tax for 2005 and 2006. We also have income tax audits in process in numerous state, local and international jurisdictions. Based on the timing and outcome of examinations of EMC, the result of the expiration of statutes of limitations for specific jurisdictions or the timing and 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. 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. However, it is reasonably possible that up to $32 million to $37 million of reserves for unrecognized tax benefits may be released within one year as a result of the lapse of statutes of limitations and the resolution of agreements with various foreign tax authorities.

Item 2.

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

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-Q. The following discussion contains forward-looking statements and should also be read in conjunction with the risk factors set forth in Item 1A. 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.

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

Certain tables may not add due to rounding.

INTRODUCTION

We manage our business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure.

EMC Information Infrastructure

Our EMC Information Infrastructure business consists of three of our segments: Information Storage, Content Management and Archiving and RSA Information Security. Our objective for our EMC Information Infrastructure business is to grow faster than the markets we serve by investing in the business for sustainable advantage.

To further improve the competitiveness and efficiency of our global business in response to a challenging global economy, in the fourth quarter of 2008, we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. We expected the program to reduce costs from our 2008 rate by approximately $350 in 2009, increasing to approximately $500 in 2010. The program’s focus is to consolidate back office functions, field and campus offices, rebalance investments towards higher-growth products and markets, reduce management layers, and further reduce indirect spend on contractors, third-party services and travel. The restructuring program will reduce our global Information Infrastructure workforce by approximately 2,400 positions. As part of our ongoing focus on costs, we have identified some additional near-term cost reduction actions that will save approximately another $100, predominately in the second half of 2009 yielding total expected savings in 2009 of approximately $450. These actions consist of temporary reductions in salaries and employee benefits. Given the shorter-term nature of some of these new initiatives, we still expect total cost reductions to be approximately $500 in 2010.

These programs will favorably impact our cost of sales, selling, general & administrative (“SG&A”) and research & development (“R&D”) expenses. For 2009, we estimate that approximately one-third of these reductions will be to our cost of sales and the remaining two-thirds will be to our other operating expenses.

The programs’ expected savings will come from both cost reductions and the transformation of several areas of our operational cost structure. As part of these efforts, we are undertaking several initiatives to transform the structural efficiency of our operations worldwide. These initiatives will include the consolidation and movement of various facilities and processes beginning in 2009 and to be completed by the end of 2010. As part of these transformation efforts, we expect to incur additional non-recurring transition costs of approximately $75 to $100 over this period. These investments are necessary to implement the new, more efficient capabilities ahead of transitioning from the existing cost structure. Through the end of the first quarter of 2009, we have incurred approximately $10 of these incremental costs.

VMware Virtual Infrastructure

The current financial focus of VMware is on long-term revenue growth to generate cash flows to fund expansion of industry segment share and development of virtualization-based products for data centers, desktops and cloud computing. VMware expects to grow its business by broadening its virtualization infrastructure software solutions technology and product portfolio, increasing product awareness, promoting the adoption of virtualization, and building long-term relationships with customers through the adoption of enterprise license agreements. VMware recently announced VMware vSphere 4, the next generation of VMware Infrastructure, its flagship virtual data center operating system product, and it is expected to be generally available during the second quarter of 2009. VMware expects to continue to introduce products that build on the vSphere foundation through 2009 and 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Although VMware is currently the leading provider of virtualization infrastructure software solutions, management believes the use of virtualization infrastructure solutions is at early stages by customers. The business faces competitive threats to its leadership from a number of companies, some of which have significantly greater resources, which could result in increased pressure to reduce prices on its offerings. As a result, management believes it is important to continue to invest in strategic initiatives related to product research and development, market expansion and associated support functions to expand industry leadership. These investments could result in contracting operating margins as VMware invests in its future.

Global Information Technology (“IT”) Spending

We expect the global economic situation to continue to have a negative impact on IT spending in 2009. Our best estimate is that 2009 global IT spending will decline as a percentage in the very high single digit to very low double digits range compared with 2008. We also expect that second quarter 2009 global IT spending will probably be flat compared with the first quarter of 2009, and the second half of 2009 will be stronger than the first half of the year.

Due to pressures on IT spending, we anticipate lower gross and operating margins for 2009 compared with 2008. We also believe that operating profitability should show signs of improvement from first quarter 2009 levels in the second half of 2009.

RESULTS OF OPERATIONS

Revenues

The following table presents revenue by our segments:


	For the Three Months Ended				$ Change			% Change
	March 31, 2009		March 31, 2008		$ Change			% Change
Information Storage	$	2,363.3	$	2,711.8	$	(348.5	)	(12.9	)%
Content Management and Archiving		174.3		185.2		(10.9	)	(5.9	)
RSA Information Security		142.7		134.9		7.8		5.8
VMware Virtual Infrastructure		470.4		438.2		32.2		7.3

Total revenues	$	3,150.8	$	3,470.1	$	(319.3	)	(9.2	)%

The Information Storage segment’s product revenues declined 17.4% from $1,903.6 for the three months ended March 31, 2008 to $1,572.4 for the three months ended March 31, 2009. The decrease was attributable to decreased demand for our storage product offerings resulting from the challenging global economic environment and resulting negative impact in customers’ IT purchases. The Information Storage segment’s services revenues declined 2.1% from $808.2 for the three months ended March 31, 2008 to $790.9 for the three months ended March 31, 2009. The decline in services revenues was primarily attributable to lower demand for professional services attributable to the challenging global economic environment and resulting negative impact in our customers’ IT purchases. Partially offsetting this decline was an increase in maintenance revenues due to continued demand for support from our installed base.

The Content Management and Archiving segment’s product revenues declined 3.9% from $61.1 for the three months ended March 31, 2008 to $58.7 for the three months ended March 31, 2009. The decrease was attributable to decreased demand for our Content Management and Archiving product offerings resulting from the challenging global economic environment and resulting negative impact in our customers’ IT purchases. The Content Management and Archiving segment services revenues declined 6.8% from $124.1 for the three months ended March 31, 2008 to $115.6 for the three months ended March 31, 2009. The decline in services revenues was primarily attributable to lower demand for professional services attributable to the challenging global economic environment and resulting negative impact in our customers’ IT purchases. Partially offsetting this decline was an increase in maintenance revenues due to continued demand for support from our installed base.

The RSA Information Security segment’s product revenues decreased 1.2% from $81.7 for the three months ended March 31, 2008 to $80.7 for the three months ended March 31, 2009. The decrease was primarily attributable to the challenging global economic environment and resulting negative impact in our customers’ IT purchases. The RSA Information Security segment’s services revenue increased 16.5% from $53.2 for the three months ended March 31, 2008 to $62.0 for the three months ended March 31, 2009. Services revenues increased due to an increase in maintenance revenues due to continued demand for support from our installed base as well as increased demand for professional consulting advisory services.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

The VMware Virtual Infrastructure segment’s product revenues declined 12.5% from $294.0 for the three months ended March 31, 2008 to $257.3 for the three months ended March 31, 2009. The decrease was primarily attributable to the challenging global economic environment and resulting negative impact in VMware customers’ IT purchases. VMware Virtual Infrastructure services revenues increased 47.8% from $144.2 for the three months ended March 31, 2008 to $213.1 for the three months ended March 31, 2009. Professional services revenues increased as a result of increased demand for the implementation of virtualization solutions. Although VMware continues to serve customers directly, VMware’s strategy has been to encourage partners to build their professional services business around VMware’s which VMware believes will leverage license sales through this channel. Accordingly, VMware expects the growth rate of professional services revenue to increase modestly in the future. Software maintenance revenues increased primarily due to the benefit from multi-year software maintenance contracts sold in previous periods.

In the second quarter of 2009, VMware announced VMware vSphere 4, its next generation of VMware Infrastructure. While VMware believes the offering can be a significant driver of revenue growth over the longer term, in the near term, there will be some disruption in the sales process that will impact near-term license revenue as VMware moves from one product generations to another, and at the same time VMware changes product pricing and packaging.

Consolidated revenues by geography were as follows:


	For the Three Months Ended				% Change
	March 31, 2009		March 31, 2008		% Change
United States	$	1,638.9	$	1,885.4	(13.1	)%
Europe, Middle East and Africa		986.6		1,052.6	(6.3	)
Asia Pacific		374.3		379.8	(1.4	)
Latin America, Mexico and Canada		150.9		152.2	(0.9	)

Revenues decreased for the three months ended March 31, 2009 compared to the same period in 2008 in all of our markets due to the challenging global economic environment and resulting negative impact in customers’ IT purchases. Changes in exchange rates contributed 3.5% to the overall revenue decrease for the three months ended March 31, 2009 compared to the same period in 2008. Changes in exchange rates favorably impacted revenue growth by 2.3% for the three months ended March 31, 2008. 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 attributable to EMC Corporation.


	For the Three Months Ended						$ Change			% Change
	March 31, 2009			March 31, 2008			$ Change			% Change
Cost of revenue:
Information Storage	$	1,234.5		$	1,320.9		$	(86.4	)	(6.5	)%
Content Management and Archiving		71.7			74.4			(2.7	)	(3.6	)
RSA Information Security		43.7			40.3			3.4		8.4
VMware Virtual Infrastructure		66.3			68.6			(2.3	)	(3.4	)
Corporate reconciling items		51.4			56.5			(5.1	)	(9.0	)

Total cost of revenue		1,467.5			1,560.7			(93.2	)	(6.0	)

Gross margins:
Information Storage		1,128.9			1,390.9			(262.0	)	(18.8	)
Content Management and Archiving		102.6			110.8			(8.2	)	(7.4	)
RSA Information Security		99.1			94.5			4.6		4.9
VMware Virtual Infrastructure		404.1			369.6			34.5		9.3
Corporate reconciling items		(51.4	)		(56.5	)		5.1		(9.0	)

Total gross margin		1,683.3			1,909.4			(226.1	)	(11.8	)

Operating expenses:
Research and development (1)		383.3			433.5			(50.2	)	(11.6	)
Selling, general and administrative (2)		1,024.8			1,082.2			(57.4	)	(5.3	)
In-process research and development		—			79.2			(79.2	)	NM
Restructuring charge (credit)		15.6			(0.4	)		16.0		NM

Total operating expenses		1,423.6			1,594.6			(171.0	)	(10.7	)

Operating income		259.6			314.8			(55.2	)	(17.5	)
Investment income, interest expense and other expense, net		(16.5	)		29.3			(45.8	)	(156.3	)

Income before income taxes		243.2			344.1			(100.9	)	(29.3	)
Income tax provision		37.8			86.3			(48.5	)	(56.2	)

Net income		205.3			257.8			(52.5	)	(20.4	)
Less: Net Income attributable to the non-controlling interests in VMware, Inc.		(11.3	)		(6.2	)		(5.1	)	82.3

Net income attributable to EMC Corporation	$	194.1		$	251.6		$	(57.5	)	(22.9	)%

(1)	Amount includes reconciling items of $44.8 and $41.8 for the three months ended March 31, 2009 and 2008, respectively.

(2)	Amount includes reconciling items of $85.2 and $86.7 for the three months ended March 31, 2009 and 2008, respectively.

NM	– not measurable

Gross Margins

Overall, our gross margin percentages were 53.4% and 55.0% for the three months ended March 31, 2009 and 2008, respectively. The decline in the gross margin percentage in the first quarter of 2009 compared to 2008 was primarily attributable to the Information Storage segment, which decreased overall gross margins by 220 basis points, and the Content Management and Archiving segment, which decreased overall gross margins by 7 basis points. These declines were partially offset by gross margin improvements in the VMware Virtual Infrastructure segment, which contributed 51 basis points, and the RSA Information Security segment, which contributed 1 basis point. The decrease in corporate reconciling items, consisting of stock-based compensation, acquisition-related intangible asset amortization and transition costs, increased the consolidated gross margin percentage by 15 basis points.

For segment reporting purposes, stock-based compensation, acquisition-related intangible asset amortization and transition costs are recognized as corporate expenses and are not allocated among our various operating segments. The decrease of $5.1 in the

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

corporate reconciling items for the quarter ended March 31, 2009 was attributable to a $7.6 decrease in intangible asset amortization expense associated with acquisitions consummated in prior years, partially offset by a $1.6 increase in stock-based compensation expense and a $0.9 increase in transition costs. The transition costs represent the incremental costs incurred to transform our current cost structure to a more streamlined cost structure.

The gross margin percentages for the Information Storage segment were 47.8% and 51.3% for the three months ended March 31, 2009 and 2008, respectively. The decrease in gross margin percentage was primarily attributable to lower sales volume and the acquisition of Iomega in June 2008. Iomega operates within the consumer and small marketplace which historically has had lower gross margins than our traditional Information Storage segment.

The gross margin percentages for the Content Management and Archiving segment were 58.9% and 59.9% for the three months ended March 31, 2009 and 2008, respectively. The decrease in the gross margin percentage was primarily attributable to a decline in the professional service margins attributable to decreased volume, partially offset by an increase in the mix of software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total revenues increased to 33.7% for the three months ended March 31, 2009 from 31.6% for the three months ended March 31, 2008.

The gross margin percentages for the RSA Information Security segment were 69.4% and 70.1% for the three months ended March 31, 2009 and 2008, respectively. The decrease in the gross margin percentage was primarily attributable to the reduction in the mix of software license revenues as a percentage of total segment revenues. Software license revenues as a percentage of total revenues decreased to 52.5% for the three months ended March 31, 2009 from 57.3% for the three months ended March 31, 2008.

The gross margin percentages for VMware Virtual Infrastructure were 85.9% and 84.3% for the three months ended March 31, 2009 and 2008, respectively. The increase in the gross margin percentage was primarily attributable to improved margins earned on both professional services and maintenance services.

Research and Development

As a percentage of revenues, R&D expenses were 12.2% and 12.5% for the first quarters of 2009 and 2008, respectively. R&D expenses decreased $50.2 for the three months ended March 31, 2009 compared to the same period in 2008, primarily due to a reduction in personnel-related costs, including salaries, benefits, recruiting, contract labor and consulting, facilities costs and materials costs. Personnel-related costs decreased by $39.7, the cost of facilities decreased by $5.5 and the cost of materials to support new product development decreased by $2.7 for the three months ended March 31, 2009 compared to the same period in 2008. Personnel-related costs declined primarily due to an increase in capitalized software development costs of $33.3, which reduce R&D expense. We expect capitalized software development costs to decrease for the remainder of 2009 due to VMware’s vSphere 4 reaching general availability.

Corporate reconciling items within R&D, which consist of stock-based compensation, intangible asset amortization and transition costs, increased $3.0 to $44.8 for the three months ended March 31, 2009 when compared to the same period in 2008. Stock-based compensation expense increased $2.4, intangible asset amortization increased $0.2 and transition costs were $0.4 for the three months ended March 31, 2009. For segment reporting purposes, corporate reconciling items are not allocated to our various operating segments.

R&D expenses within EMC’s Information Infrastructure business, as a percentage of EMC’s Information Infrastructure business revenues, were 9.6% and 9.7% for the three months ended March 31, 2009 and 2008, respectively. R&D expenses decreased $36.9 primarily due to a reduction in personnel-related costs, facilities costs and materials costs. Personnel-related costs decreased by $24.4, the cost of facilities decreased by $7.7 and the cost of materials decreased by $2.7 for the three months ended March 31, 2009 compared to the same period in 2008. Capitalized software development costs increased $7.5, which favorably impacted R&D expenses.

R&D expenses within the VMware Virtual Infrastructure business, as a percentage of VMware’s revenues, were 17.2% and 22.2% for the three months ended March 31, 2009 and 2008, respectively. R&D expenses decreased $16.3 for the three months ended March 31, 2009 compared to the same period in 2008, primarily due to a reduction in personnel-related costs, including salaries, benefits, recruiting, contract labor and consulting, which decreased $17.7. Capitalized software development costs increased $25.8, which favorably impacted R&D expense.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Selling, General and Administrative

As a percentage of revenues, SG&A expenses were 32.5% and 31.2% for the three months ended March 31, 2009 and 2008, respectively. SG&A expenses decreased by $57.4 for the three months ended March 31, 2009 compared to the same period in 2008, primarily due to a reduction in personnel-related costs and travel costs. Personnel-related costs decreased by $39.5 and travel decreased by $16.5 for the three months ended March 31, 2009 compared to the same period in 2008. Partially offsetting these decreases was an $8.0 increase in depreciation expense primarily associated with 2008 acquisitions.

Corporate reconciling items within SG&A, which consist of stock-based compensation, intangible asset amortization and transition costs decreased $1.5 to $85.2 for the three months ended March 31, 2009 when compared to the same period in 2008. Stock-based compensation decreased $10.4, partially offset by an increase in transition costs of $8.4 and intangible asset amortization of $0.5. The decrease in stock-based compensation expense was primarily attributable to the vesting of contingent performance awards being deemed not probable. For segment reporting purposes, corporate reconciling items are not allocated to our various operating segments.

SG&A expenses within EMC’s Information Infrastructure business, as a percentage of EMC’s Information Infrastructure business revenues were 28.4% and 27.1% for the three months ended March 31, 2009 and 2008, respectively. SG&A expenses decreased by $62.3 in the first quarter of 2009 when compared to the same period of 2008, primarily due to a reduction in personnel-related and travel costs. Personnel-related costs decreased by $46.7 and travel costs decreased by $13.3. Partially offsetting these decreases was an increase in depreciation expense of $5.3 primarily associated with 2008 acquisitions.

SG&A expenses within the VMware Virtual Infrastructure business as a percentage of VMware’s revenues were 38.0% and 39.4% for the three months ended March 31, 2009 and 2008, respectively. SG&A expenses increased $6.4 for the three months ended March 31, 2009 compared with the same period in 2008. The increase in SG&A expenses in the first quarter of 2009 was primarily the result of higher salaries and benefits costs due to increases in sales, marketing and administrative personnel.

In-Process Research and Development

In-process research and development (“IPR&D”) was $0.0 and $79.2 for the three months ended March 31, 2009 and March 31, 2008, respectively. There were no acquisitions consummated during the three months ended March 31, 2009.

For the quarter ended March 31, 2008, two IPR&D projects related to the acquisition of Pi Corporation (“Pi”) and one IPR&D project related to the acquisition of Infra Corporation Pty Limited (“Infra”) were identified and written off at the time of the respective date of each acquisition because they had no alternative uses and had not reached technological feasibility. The value assigned to the IPR&D was determined utilizing the income approach by determining cash flow projections relating to the identified IPR&D projects. The stage of completion of each in-process project was estimated to determine the discount rates to be applied to the valuation of the in-process technology. Based upon the level of completion and the risk associated with the in-process technology, we applied a discount rate of 50% for the Pi IPR&D projects and 20% for the Infra IPR&D project.

Restructuring Charges and Impairment

For the three months ended March 31, 2009, we incurred restructuring charges of $15.6 compared to $0.4 of restructuring credits for the three months ended March 31, 2008.

In December of 2008, we implemented a restructuring program to further streamline the costs related to our Information Infrastructure business. The plan includes the following components:

•

A reduction in force resulting in the elimination of approximately 2,400 positions which will be substantially completed by the end of 2009 and fully completed by the third quarter of 2010.

•

The consolidation of facilities and the termination of contracts. These actions are expected to be completed by 2015.

•

The write-off of certain assets for which EMC has determined it will no longer derive any benefit. These actions were completed in the fourth quarter of 2008.

In addition to this plan, we also recognized an asset impairment charge for certain assets for which the forecasted cash flows from the assets are less than the assets’ net book value.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

The total charge resulting from these actions is expected to be between $362.0 and $387.0, with $247.9 recognized in 2008, $100.0 to $125.0 to be recognized in 2009 and 2010 and the remainder to be recognized through 2015. Total cash expenditures associated with the plan are expected to be in the range of $310.7 to $335.7.

The activity for each charge is explained in the following sections.

December 2008 Restructuring Program

The activity for the December 2008 restructuring program for the three months ended March 31, 2009 is presented below:

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision		Utilization			Balance as of March 31, 2009
Workforce reductions	$	184.4	$	6.8	$	(51.9	)	$	139.3
Consolidation of excess facilities and other contractual obligations		2.4		9.1		(7.3	)		4.2

Total	$	186.8	$	15.9	$	(59.2	)	$	143.5

September 2008 Restructuring Program

The activity for the September 2008 restructuring program for the three months ended March 31, 2009 is presented below:

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision		Utilization			Balance as of March 31, 2009
Workforce reductions	$	1.8	$	0.4	$	(0.6	)	$	1.7

Total	$	1.8	$	0.4	$	(0.6	)	$	1.7

The remaining cash portion owed for the 2008 restructuring programs is $141.4. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2010. The cash expenditures relating to the consolidation of excess facilities and other contractual obligations are expected to be paid out by the end of 2015.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

Prior Restructuring Programs

Prior to 2007, we had instituted several restructuring programs. The activity for these programs for the three months ended March 31, 2009 and 2008, respectively, is presented below:

2009


Category	Balance as of December 31, 2008		Adjustment to the Provision			Utilization			Balance as of March 31, 2009
Workforce reductions	$	14.3	$	(0.8	)	$	(5.7	)	$	7.8
Consolidation of excess facilities		20.9		—			(1.9	)		19.0
Contractual and other obligations		0.9		—			(0.1	)		0.7

Total	$	36.1	$	(0.8	)	$	(7.8	)	$	27.5

2008


Category	Balance as of December 31, 2007		Adjustment to the Provision			Utilization			Balance as of March 31, 2008
Workforce reductions	$	96.8	$	(0.4	)	$	(34.7	)	$	61.7
Consolidation of excess facilities		28.3		—			(3.2	)		25.1
Contractual and other obligations		0.8		—			—			0.9

Total	$	125.9	$	(0.4	)	$	(37.9	)	$	87.7

The remaining cash portion owed for these programs is $24.6. The cash expenditures relating to workforce reductions are expected to be substantially paid by the end of 2010. The cash expenditures relating to the excess facilities are expected to be paid out by the end of 2015. The cash expenditures relating to the contractual obligations are expected to be paid out by the end of 2009.

Investment Income

Investment income was $39.8 and $77.1 for the three months ended March 31, 2009 and 2008, respectively. Investment income decreased for the three months ended March 31, 2009 compared to the same period in 2008 primarily due to lower weighted average returns on investments. The weighted average return on investments, excluding realized losses and gains, was 1.8% and 3.8% for the first quarters of 2009 and 2008, respectively.

Interest Expense

Interest expense was $45.5 and $43.1 for the three months ended March 31, 2009 and 2008, respectively. Interest expense consists primarily of interest on the Notes. Included in interest expense are non-cash interest charges of $26.3 and $25.0 for the three months ended March 31, 2009 and 2008, respectively. As a result of adopting FSP 14-1, we are accreting the debt to its face value over the term of the Notes.

Other Expense, Net

Other expense, net was $10.8 and $4.8 for the three months ended March 31, 2009 and 2008, respectively. Greater foreign currency transaction losses accounted for the increase.

Provision for Income Taxes

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

increased the 2008 effective tax rate. Additionally, in 2009 our tax rate was impacted by the favorable resolution of uncertain tax positions related to transfer pricing and an increase in tax credits. These benefits were partially offset by an increase in our permanent book-tax differences.

We have substantially concluded all U.S. federal income tax matters for years through 2004 and are currently under audit for U.S. federal income tax for 2005 and 2006. We also have income tax audits in process in numerous state, local and international jurisdictions. Based on the timing and outcome of examinations of EMC, the result of the expiration of statutes of limitations for specific jurisdictions or the timing and 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. 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. However, it is reasonably possible that up to $32 to $37 of reserves for unrecognized tax benefits may be released within one year as a result of the lapse of statutes of limitations and the resolution of agreements with various foreign tax authorities.

Non-controlling Interests in VMware, Inc.

The net income attributable to the non-controlling interest in VMware was $11.3 and $6.2 for the three months ended March 31, 2009 and 2008, respectively. The $5.1 increase was due to an increase in VMware’s net income and an increase in the weighted average percentage ownership by the non-controlling interests in VMware. VMware’s net income was $69.9 and $43.1 for the three months ended March 31, 2009 and 2008, respectively. The weighted average non-controlling interests in VMware were approximately 16% and 14% for the three months ended March 31, 2009 and 2008, respectively.

Financial Condition

Cash provided by operating activities was $863.7 and $918.3 for the three months ended March 31, 2009 and 2008, respectively. Cash received from customers was $3,860.2 and $4,066.8 for the three months ended March 31, 2009 and 2008, respectively. The decrease in cash received from customers was attributable to a reduction in sales volume and lower 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 $2,877.4 and $3,056.8 for the three months ended March 31, 2009 and 2008, respectively. The decrease was attributable to a reduction in material costs correlated to lower sales volume and the benefits of our cost transformation program to reduce our cost structure. Cash received from dividends and interest declined to $46.7 for the quarter ended March 31, 2009 compared with $78.0 for the quarter ended March 31, 2008, due to lower yields on our investments. For the quarters ended March 31, 2009 and 2008, we paid $161.8 and $166.8, respectively, in income taxes. These payments are comprised of estimated taxes for the current year, extension payments for the prior year and refunds or payments associated with income tax filings and tax audits.

Cash used in investing activities was $292.3 for the three months ended March 31, 2009, compared to cash provided by investing activities of $46.5 for the three months ended March 31, 2008. Cash paid for acquisitions decreased $337.8 in the first quarter of 2009 when compared to the same period in 2008 as there were no acquisitions made in the first quarter of 2009. Capital additions were $95.3 and $146.5 for the three months ended March 31, 2009 and 2008, respectively. The lower level of capital additions was primarily due to lower spending on infrastructure for the current quarter. Capitalized software development costs were $87.6 and $54.3 for the first three months ended March 31, 2009 and 2008, respectively. The increase was primarily attributable to VMware’s efforts on its software development activities. We expect the amount of capitalized software development costs to decrease for the remainder of the year. Net purchases of investments were $108.4 for the three months ended March 31, 2009 compared to net sales and maturities of $588.2 for the first three months ended March 31, 2008. This activity varies from period to period based upon our cash collections, cash requirements and maturity dates of our investments.

Cash used in financing activities was $69.5 and $480.3 for the three months ended March 31, 2009 and 2008, respectively. For the three months ended March 31, 2008, we spent $557.2 to repurchase 35.9 million shares of our common stock. We made no share repurchases in the quarter ended March 31, 2009. We generated $13.1 and $51.1 during the three months ended March 31, 2009 and 2008, respectively, from the exercise of stock options.

We have a credit line of $50.0 in the United States. As of March 31, 2009, 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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

provide collateral to secure the outstanding balance. At March 31, 2009, we were in compliance with the covenants. As of March 31, 2009, the aggregate amount of liabilities of our subsidiaries was approximately $3,800.

At March 31, 2009, our total cash, cash equivalents, and short-term and long-term investments were $9,785.0. This balance includes approximately $2,031.5 held by VMware and $3,865.1 held by EMC in overseas entities.

Investment Losses

For the three months ended March 31, 2009, we considered $0.5 of unrealized losses to be other than temporary and recognized the losses as a charge to earnings. We considered $79.3 of losses to be temporary and recognized the estimated decline in value as a component of other comprehensive loss within our shareholders’ equity. In making this determination, we considered the financial condition and near-term prospects of the issuers, the underlying value and performance of the collateral, the time to maturity, the length of time the investments have been in an unrealized loss position and our ability and intent to hold the investment to maturity if necessary to avoid losses. The significant components of the temporary impairments are as follows:

Auction Rate Securities

Our auction rate securities are predominantly rated AAA and are primarily collateralized by student loans. These securities represent approximately 2.0% of our cash, cash equivalents and investments. The underlying loans of all but two of our auction rate securities, with a market value of $17.5, have partial guarantees by the U.S. government as part of the Federal Family Education Loan Program (“FFELP”) through the U.S. Department of Education. FFELP guarantees at least 95% of the loans which collateralize the auction rate securities. The two securities whose underlying loans are not guaranteed by the U.S. government have credit enhancements and are insured by third party agencies. We believe the quality of the collateral underlying all of our auction rate securities will enable us to recover our principal balance in full.

Asset- and Mortgage-Backed Securities

Our asset- and mortgage-backed securities are predominantly rated AAA. The assets underlying these securities are generally residential or commercial obligations, automobile loans, credit card loans, equipment loans and home equity loans. The average maturity is 0.54 years and 3.06 years for the asset-backed and mortgage-backed securities, respectively. For these securities, 53% are mortgage-backed. The mortgage loans may have fixed rate or adjustable rate terms. The remainder of the portfolio consists of asset-backed securities. To date, we have collected all interest payable on all these securities when due and expect to continue to do so in the future. For each security which has a temporary decline in value, we analyzed the collateral value, collateral statistics, including the borrowers’ payment history, and our position in the capital structure. We estimated the losses in the underlying loans for these securities and compared these losses to our position in the security. For those securities where the underlying collateral is not sufficient, we have recorded other-than-temporary losses on these securities which aggregated $0.5 at March 31, 2009. For the securities where the collateral is deemed to be adequate, we believe we will realize the current cost basis of these securities based on our position in the credit structure.

U.S. Corporate Debt Securities

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS - (Continued)

risk, we impose sector limits at the portfolio and CUSIP level. The average maturity is 1.28 years. To date, we have collected all interest payable on all the debt securities when due and expect to continue to do so in the future. We have analyzed the issuers’ credit history, current financial standing and their ability to retire the debt obligations. We expect that we will receive the entire principal associated with these securities.

New Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) on FAS No. 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This statement amends the other-than- temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This statement does not amend existing recognition and measurement guidance to other-than-temporary impairments of equity securities. This statement is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We are currently assessing the impact this statement will have on our financial position and results of operations.

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, 2009. Our exposure to market risks has not changed materially from that set forth in our Annual Report.

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. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Item 1A of our Annual Meeting on Form 10-K for the fiscal year ended December 31, 2008. 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, including the current economic crisis.

We are subject to the effects of general global economic and market conditions. If these conditions remain uncertain or persist, spread or deteriorate further, our business, results of operations or financial condition could be materially adversely affected. In addition, the financial crisis in the banking sector and financial markets have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit and equity markets. Possible consequences from the financial crisis on our business, including insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies, increased risk that customers may delay payments, fail to pay or default on credit extended to them, and counterparty failures negatively impacting our treasury operations, could have a material adverse effect on our results of operations or financial condition.

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.

Our customers operate in a variety of markets, including the financial services, credit and housing, automotive and construction markets. Any adverse effects to such markets 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 may 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 and virtual 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 will 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. The current economic crisis may also negatively affect our suppliers’ solvency, which could, in turn, result in product delays or otherwise materially adversely affect our business, results of operations or financial condition.

Our financial performance may be impacted by the financial performance of VMware.

Because we consolidate VMware’s financial results in our results of operations, our financial performance will be impacted by the financial performance of VMware. VMware’s financial performance may be affected by a number of factors, including, but not limited to:

•

rates of customer adoption for virtualization solutions;

•

fluctuations in demand, adoption, sales cycles and pricing levels for VMware’s products and services;

•

fluctuations in foreign currency exchange rates;

•

changes in customers’ budgets for information technology purchases and in the timing of their purchasing decisions;

•

VMware’s ability to compete with existing or new competitors;

•

the timing of recognizing revenue in any given quarter which as a result of software revenue recognition policies, can be affected by a number of factors, including product announcements and beta programs;

•

the sale of VMware products in the timeframes they anticipate, including the number and size of orders in each quarter;

•

VMware’s ability to develop, introduce and ship in a timely manner new products and product enhancements that meet customer demand, certification requirements and technical requirements;

•

VMware’s ability to effectively manage future growth and acquisitions;

•

changes to VMware’s effective tax rate;

•

the increasing scale of VMware’s business and its effect on VMware’s ability to maintain historical rates of growth;

•

the timing of the announcement or release of products or upgrades by VMware or by its competitors;

•

VMware’s ability to implement scalable systems of internal controls;

•

the timing and amount of R&D costs that qualify for capitalization;

•

VMware’s ability to control costs, including its operating expenses;

•

VMware’s ability to attract and retain highly skilled employees, particularly those with relevant experience in software development and sales; and

•

general economic conditions in VMware’s domestic and international markets.

Our stock price is volatile and may be affected by the trading price of VMware Class A common stock and/or speculation about the possibility of future actions we might take in connection with our VMware stock ownership.

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; and

•

speculation in the press or investment community.

The trading price of our common stock has been and likely will continue to be affected by various factors related to VMware, including:

•

the trading price for VMware Class A common stock;

•

actions taken or statements made by us, VMware, or others concerning the potential separation of VMware from us, including by spin-off, split-off or sale; and

•

factors impacting the financial performance of VMware, including those discussed in the prior risk factor.

In addition, although we own a majority of VMware and consolidate their results, our stock price may not reflect our pro rata ownership interest of VMware.

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; and

•

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, content management, security 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; and

•

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 investment portfolio could experience a decline in market value which could adversely affect our financial results.

We held $3.5 billion in short and long-term investments as of March 31, 2009. The investments are invested primarily in investment grade debt securities, and we limit the amount of investment with any one issuer. A further deterioration in the economy, including a continuing credit crisis, increased defaults by issuers, or significant volatility in interest rates, could cause the investments to decline in value or could impact the liquidity of the portfolio. If market conditions deteriorate significantly, our results of operations or financial condition could be materially adversely affected.

If our cost cutting measures are not successful, our business could be adversely affected.

A variety of factors could prevent us from achieving our goal of better aligning our revenues and cost structure. We may not be able to identify and implement appropriate cost savings in a timely manner. Additionally, we may determine that the costs of implementing reductions outweigh the commensurate benefits. Should we implement certain cost reductions, there could be adverse consequences on our business which could have a material adverse effect on our results of operations or financial position.

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.

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 nine months of the following year; and

•

seasonal influences.

Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity or our supply chain 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; and

•

customers may generally 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. 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 or acquire other companies that 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.

Due to the international nature of our business, changes in foreign conditions or other factors could impair our international operations, future revenue or financial condition.

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. In addition, we hold a significant portion of our cash and investments in our international subsidiaries. Potential regulations could impact our ability to transfer the cash and investments to the United States. Additionally, should we desire to repatriate cash, we may incur a significant tax obligation.

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, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, 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.

Changes in regulations could materially adversely affect us.

Our business, results of operations or financial condition 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.

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 could have a material adverse impact on our results of operations or financial condition. For example, in May 2008, the FASB voted to issue FASB Staff Position (“FSP”) APB 14-1, which changes the accounting treatment for certain convertible securities which include our Notes. See Note 1 to our Consolidated Financial Statements.

In addition, in 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) “Business Combinations.” The standard, which is effective commencing in our 2009 fiscal year, will result in significant changes in accounting for acquisitions. Depending upon the number of and magnitude of acquisitions which we may consummate in 2009, the standard 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 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; and

•

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. Additionally, regardless of the form of consideration issued, acquisitions could negatively impact our net income and our earnings per share.

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.

Our pension and retirement benefit plan assets are subject to market volatility.

We have noncontributory defined benefit pension plans and a post-retirement benefit plan assumed as part of our Data General acquisition. The plans’ assets are invested in common stocks, bonds and cash. The expected long-term rate of return on the plans’ assets is 8.0%. For the ten years ended December 31, 2007, the actual long-term rate of return was 6.0%. In 2008, we experienced a 27.0% loss on the plans’ assets. As such, the actual long-term rate of return achieved on the plans’ assets for the ten years ended December 31, 2008 was 1.6%. Given current market conditions, should we not achieve the expected rate of return on our plans’ assets or if our plans experience a decline in the fair value of their assets, we may be required to contribute assets to the plans which could materially adversely affect our results of operations or financial condition.

Our business could be materially adversely affected by changes in regulations or standards regarding energy use of our products.

We continually seek ways to increase the energy efficiency of our products. Recent analyses have estimated the amount of global carbon emissions that are due to information technology products. As a result, governmental and non-governmental organizations have turned their attention to development of regulations and standards to drive technological improvements and reduce such amount of carbon emissions. There is a risk that the rush to development of these standards will not fully address the complexity of the technology developed by the IT industry or will favor certain technological approaches. Depending on the regulations or standards that are ultimately adopted, compliance could adversely affect 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.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES IN THE FIRST QUARTER OF 2009


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 of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2009 – January 31, 2009	2,850,125	$	11.59	—	188,649,602
February 1, 2009 – February 28, 2009	14,054	$	10.14	—	188,649,602
March 1, 2009 – March 31, 2009	—	$	—	—	188,649,602

Total	2,864,179	$	11.58	—	188,649,602

(1)

Represents 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 45 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 8, 2009	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 Bylaws of EMC Corporation. (1)

4.1		Form of Stock Certificate. (2)

10.1*		EMC Corporation Amended and Restated 2003 Stock Plan, as amended and restated as of March 30, 2009. (filed herewith)

10.2*		Amendment No. 2 to Employment Arrangement with Joseph M. Tucci dated May 7, 2009. (filed herewith)

10.3*		Form of 2009 Total Compensation Plan Letter to Executive Vice Presidents. (filed herewith)

10.4		EMC Corporation Amended and Restated 1989 Employee Stock Purchase Plan, as amended and restated effective as of July 1, 2009. (filed herewith)

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)

*	Identifies an exhibit that is a management contract or compensatory plan or arrangement.

(1)	Incorporated by reference to EMC Corporation’s Annual Report on Form 10-K filed February 27, 2009 (No. 1-9853).

(2)	Incorporated by reference to EMC Corporation’s Annual Report on Form 10-K filed February 29, 2008 (No. 1-9853).