Dell Technologies Inc.
Q1 2006 Earnings Call Transcript

Published: 20 Apr 2006

[Operator:]

Welcome and thank you for standing by. Operator comments. Now I would like to turn the meeting over to Mr. Tony Takazawa, Vice President of Global Investor Relations.

[Tony Takazawa:]

Thank you, Sherry. Good morning, welcome to EMC’s call to discuss our financial results for Q1 2006. In our press release issued earlier this morning, EMC reported quarterly revenues of $2.551 billion, with net income of $272 million and GAAP EPS of $0.11. Today we’ll be discussing our results on both a GAAP and non-GAAP basis. To help you with your analysis, we have included in today’s presentation and press release, financial details and commentary to reconcile our non-GAAP analysis with our GAAP results. On today’s call, Bill Teuber, EMC’s Executive Vice President and CFO, will start things off and walk you through our Q1 financial performance and highlights. We will then be joined by Joe Tucci, EMC’s Chairman, President and CEO. Joe will provide commentary on our strategy and our results. After the prepared remarks we will open up the lines and take your questions. We’ll be joined at that time by Howard Elias, Executive Vice President of Global Marketing and Corporate Development. We will be making references to our slides today, so we encourage you to view them on EMC’s website at EMC.com. An archive of the audio and slide presentation will also be available following the call. Finally, I do want to note that the call this morning will contain forward-looking statements and information concerning factors that could cause results to differ from those in our forward-looking statements, can be found in EMC’s filings with the US Securities and Exchange Commission. With that, it is now my pleasure to introduce EMC’s CFO, Bill Teuber. Bill?

[William Teuber:]

Thanks, Tony. This quarter’s financials reflect a number of changes which I’ll walk you through as we go along, so please bear with me. Thank you also for joining us this morning. Q1 was a quarter which demonstrated the continued strength of EMC’s business model, which relies increasingly on a more solutions-orientated approach to delivering customer value. We had some elements of our business perform better than expected and also a few areas that didn’t quite meet our expectations. While this caused us to come in a bit less than 1% below our expected revenue range, EPS was right on target and the overall business continues to perform well. Today I’m going to discuss with you how we look at the business from a geographic standpoint, and from the perspective of our solutions-based approach. I’ll walk you through a bit of detail on the areas where performance didn’t meet our expectations, and I’ll spend some time on areas where things went well, such as Symmetrix, Content Management and VMware, in the success of our overall model. As always, I’ll touch on some of the income statements and balance sheet items and give you our thoughts as we look ahead. As you know, the basis of reporting for every company has changed because of FAS123R. Considering this rule change, as well as the non-cash charges that acquisitive companies have, we believe that our non-GAAP results give better insight into the health of our business. Correspondingly, we have changed the basis of our presentation to reflect this non-GAAP approach and we have provided you with the data for the appropriate historical comparisons. Many other companies are providing results in this manner, and we agree that it’s a valuable way to analyze EMC. Beginning this quarter, I’m going to focus on our earnings, excluding a number of non-cash items we have been talking with you about for the last year, namely

[Joseph Tucci:]

Thanks, Bill. I would like to start by also welcoming everyone to today’s conference call and as always, thanks for dialing in. Q1 is always our toughest quarter. The major reason for this is that our primary focus for the first two months of any Q1 is on installing the vast amount of hardware and software products we sold in the previous quarter, Q4. As you know, Q4 is always a barn-burner(?) of a quarter for us. Our revenues tend to spike 14-16% above our next-largest quarter. We’re sure Q1 of 2006 is no exception. In fact, it really didn’t start to kick in until early March. The good news is that we handled it all quite well, as was demonstrated by the fact that our inventory balances declined to $693 million, turns were up to over 7, DSO came in at 42 days and our deferred revenue rose to almost $2 billion. In Q1 we generated over $635 million in cash from operations. Though revenue was a bit lighter than we would have liked, I assure you that we left more than its shortfall in excess unplanned backlog. Again, due to the fact that too many orders came in on the last few days of the quarter and we were not able to turn them around and shift these hardware products which obviously also include associated software components. Right now, I’m sure you’re thinking something like this

[Tony Takazawa:]

Thanks a lot, Joe. For some time now, we’ve been asking you to try and limit yourselves to one question, including clarification. I wanted to take this opportunity to thank you all for your cooperation in this matter. We’ve gotten a lot of positive feedback on this approach to the Q&A as we’re able to get through many different questioners within our allotted time and I’m sure we’ll have plenty today. Thank you again for your help in making this process run smoothly and fairly. Sherry, can we open up the line for Q&A?

[Operator:]

Thank you. Operator Instructions. Our first question comes from Tony Sacconaghi of Sanford Bernstein.

[Tony Sacconaghi, Sanford Bernstein:]

Yes, thank you. You announced a sizeable share repurchase which, by my calculations, all else being equal, should have about a $0.05 boost to EPS through the remainder of the year by effectively lowering your share count. That associated boost was not reflected in the change in guidance for EPS. The question is why? What, all else being equal, has effectively gotten worse that didn’t give you the confidence to raise EPS guidance commensurate with the share repurchases. My suspicion is potential pressure on gross margins, but if you could address it, I would appreciate it.

[William Teuber:]

Tony, it’s Bill. Your assumptions must be a little different than mine, I did not say we were going to go out and spend the additional $2.5 billion tomorrow, we’re going to do it throughout the year. In my analysis, I don’t get the $0.05 that you see. It could be helpful in Q4 depending on the timing and what we pay for the stock, but I certainly don’t see the $0.05 that you see.

[Tony Sacconaghi, Sanford Bernstein:]

I mean, it’s just $2.5 billion divided by a $15 stock price, which is 166 million shares, even with options issuance. You’re probably looking at about 120 million shares on a base of $2.4 billion, that’s 5%.

[William Teuber:]

Right, but you know, it’s not going to be there for the whole year. You’ve got to weight the average and you’ve got to obviously think about what else is coming into the pool of shares. There’s a whole host of other ins and outs on our options, depending on where the price goes. It’s not quite that clear.

[Joseph Tucci:]

Tony, this is Joe, did you include the interest income in that? Loss, because on incremental, in this day and age you can make over 4%…

[Tony Sacconaghi, Sanford Bernstein:]

Nonetheless, there should be some impact in terms of a lower share count and you’re…

[Joseph Tucci:]

The potential is, but it’s much lower than you have. You know, if you didn’t take out the interest income, Tony. If you look at the incremental money, you can get over 4% now, Tony, so if you knock that out and then you look at it for the year and say even if we do it fairly aggressively or say evenly over the next three quarters – let’s just do that for an assumption – it’s probably closer to a penny than $0.05. We felt the penny was kind of in the range that we gave you. We’re not forecasting anything draconian in margins or expense or anything else that you mentioned, OK? It really is around interest income and we just assumed a third, a third, a third in the math that we did, and it’s much closer to a penny. I look forward to your renewed math and your response.

[Tony Sacconaghi, Sanford Bernstein:]

Thanks for the clarification

[Tony Takazawa:]

Next question please?

[Operator:]

Aaron Rakers, of AG Edwards, you may ask your question.

[Aaron Rakers, AG Edwards:]

Yes, thanks a lot for taking the question. I guess a question on the backlog. One, you entered the quarter, I noted last quarter that you entered into the March quarter with a nice backlog on the Symmetrix product. How much of an impact was the realization or recognition of that backlog for your Symmetrix growth this quarter? Then also, if you could even be a little bit more qualitative or quantitative in terms of how much backlog you believe is appropriate for yourself, looking out over the next few quarters – thanks.

[Joseph Tucci:]

I’ll start and then I’ll turn it to Bill, Aaron. Obviously in Q4 we always build an immense backlog and then Q1 always eats some backlog, OK? But we do always put a plan together for what we think we want to exit Q1 with. We always try to exit every quarter with some backlog, obviously, A because it’s just the way business falls and B because it’s good form. All I’ve said is that if you look at our range we gave you in the midst, it was well covered within the backlog that we actually ended up with, which was over and above what we projected. Basically, what’s happening is we get these quarters more back-end loaded, it’s just costing us too much money to put that many people in factories, there’s too much cost that we’re putting into the entire system. So we just think we need to keep a little more backlog in the system going forward than we would have modeled at the beginning of the year. Obviously, once you do that it kind of flows through, so it’s not a hit every quarter. But it was factored into the fact that we gave you the guidance of $2.66 billion for Q2. As far as the absolute number, we’re probably not going to give that to you. But I’ll turn it to Bill. Maybe he’s more kind.

[William Teuber:]

The way I look at it Aaron, we had a flat Q4 in terms of Sym but we had some backlog for the DMX-3. In Q1 we were up 10%, neither one of those is the right amount of growth between the quarters, so it helped us a little bit, but I’m not going to say how much.

[Aaron Rakers:]

Thank you.

[William Teuber:]

We did run out of DMX-3s again, so the DMX-3 is doing very well. Again it’s factored in to all the guidance we’ve given you.

[Tony Takazawa:]

Thanks, Aaron. Next question please?

[Operator:]

Daniel Renouard of Robert Baird, you may ask your question.

[Daniel Renouard, Robert W. Baird & Co.:]

Sure, thanks. Just getting to the backup area, maybe you could give us a little more detail. Do you think it’s a product issue, do you need to invest more in R&D or is it purely a sales and execution issue?

[Joseph Tucci:]

Dan, let me do it this way. If you looked at last year, we grew the backup and archive business 27%. I think one year ago this quarter, we actually grew it 36% if memory serves me right. My accounting team are shaking their heads to say I was right. If all of a sudden, after every quarter growing it well over 40, all four quarters last year, then we changed the sales force, we combined the sales force, what you have is incredibly hot. So now the sales force can sell backup and archive and/or content management, and then you have content management as hot as it is. We had too much migration there and we lost focus. As we changed management, reduced some levels, I think we lost a little bit of focus there, too. This is correct for why I absolutely, positively believe we did it to ourselves. Not that it was a bad move, we just didn’t execute it properly and we can get that fixed.

[Tony Takazawa:]

Thanks, Dan. Next question please?

[Operator:]

Keith Bachman, of Bank of America.

[Keith Bachman, Bank of America:]

Hi guys, I wanted to follow up on the software side. In the mix between DMX and CLARiiON, with DMX actually showing pretty good strength here, even with your comments previously that there’s a little bit of backlog carry over, I would have thought the EMC software pool would have been more positive given the mix. Can you help us understand?

[Joseph Tucci:]

More positive to what, the DMX?

[Keith Bachman, Bank of America:]

Yes, if DMX was strengthened, DMX, I would have though EMC’s platform software would have been stronger because DMX was a higher percent of sales with CLARiiON being relatively weak and DMX being fairly strong?

[Joseph Tucci:]

The two things that happen in software, Bill mentioned them – let me start with the CLARiiON line. If you look at the CLARiiON line, the lower end of the CLARiiON line continued to rock and roll, if you will, and did extremely well. Where we stalled is was in the bigger and the higher end of the CLARiiON line and that’s where the base is much more attuned to what you might do in terms of new products. As Bill said, we did not do our normal good job of kind of keeping it pretty quite when new product announcements would come. Obviously, we have always said that the high end of CLARiiON has software content very similar to Sym and the low end of CLARiiON is substantially less. That’s kind of one thing that did it to us. The second thing is on Symmetrix, with these big, big, big DMX-3s that we shipped this quarter. Most of them were the big DMX-3s. We did a lot of consolidations, and of course we run a perpetual model with software, where you buy the license and then you pay a percentage of that in maintenance and maintenance was up very nicely. Of course, what happens is when we consolidate a lot of these frames, customers had most of the licenses in place and they only had to pay for the incremental capacity. Rather than get a whole new license, what we ended up doing on most of these deals was incremental capacity. What happens with incremental capacity is maybe, well – I can think of several deals where we actually replaced some of the remaining Sym 4s that were there, all of the Sym 5s, even one or two Sym 6s, the first DMXs, plus a couple of competitors and the only basic increase we got was the increase in terabytes we shipped and for the competitor equipment we replaced. That’s a whole lot different. That’s what’s happening with the big Syms. In other words, terabytes were up, revenue was up, actually units were down because of shipping less bigger units, and the way we had our bands and our pricing set up it actually hurts us. That’s why we tried to bring you to the point where you’ve got to look at our whole storage business together, and why hardware grew 20% and software grew so much slower to bring the average to 13%. Customers are really buying these collections together, we’re competitive in the market out there at these kinds of prices, so it’s not that we’re leaving money on the table so this isn’t something we can go out and fix. As the lower Syms kick in - we just announced them in I think February – as these lower Syms kick in, then hopefully volume will kick up and that could get us more license growth.

[Keith Bachman, Bank of America:]

OK. Thanks.

[Tony Takazawa:]

Thanks. Next question please?

[Operator:]

Harry Blount, of Lehman Brothers.

[Harry Blount, Lehman Brothers:]

It’s a question on sales force growth and productivity. Dell continues to grow the percentage of overall revenue in the last few quarters and also I know you guys have fully integrated the software team now in terms of assigning accounts and channels. Looking for some broad commentary on how you’ve used the sales force productivity over the last several quarters, how that’s trending and within that context, you did not mention this quarter that Dell accounted for a third of CLARiiON. They are growing the percentage of Symmetrix. I’m trying to understand, as you look at the broad scope of go to market, internal and external, how has that changed and where do you see that going?

[Joseph Tucci:]

It’s actually changed quite a bit, Harry. That’s a good question and a complex question. In our commercial end of our business, where we’re having a big sales force build up, we’re working there, you know, in kind of a mode that a company like Microsoft and Cisco has been very accustomed to working in, where our sales forces doesn’t end up taking less and less orders. What they’re doing is leveraging partners, whether it be Dell or Fujitsu Siemens on the large side, or whether it be a cadre of hundred and hundreds of smaller partners we have. Our sales force now is helping generate deals, helping generate bigger deals, and are working with partners. It’s really a leverage model and our sales force gets quota on that basis. If you look at productivity for sales reps it is absolutely increasing, and increasing nicely. On the Symmetrix side, we basically do most of the lifting there. What we’ll do is we’ll partner where it makes sense, or Dell has a frame contract in place or we can work better together or we’re competing against say an HP which is combining storage and servers, and if it does that it usually ends up on Dell paper, but I assure you we’re 100% involved in all of those sales. Our partnership with Dell is fantastic and I think getting better every day. But our productivity is going up.

[Harry Blount, Lehman Brothers:]

OK. Thank you.

[Tony Takazawa:]

Thanks. Next question please?

[Operator:]

Paul Mansky, of Citigroup.

[Paul Mansky, Citigroup:]

Great, thank you. Joe, just going back quickly to the new incentivization structure if I may, which I assume considers GAAP earnings, what is the compound annual earnings growth rate required to achieve 100% of the board’s three year accumulative target?

[Joseph Tucci:]

We don’t devolve the metrics used in this plan. (inaudible) looked at a number of factors, including the outlooks that many of you out there have had out there for us. I can assure you it requires significant performance over the period. It does have all of the components I mentioned and it does look at competitive benchmarks and believes its fair and reasonable and in the best interests of our shareholders.

[Paul Mansky, Citigroup:]

Is GAAP EPS the primary metric?

[Joseph Tucci:]

EPS is definitely a metric.

[Paul Mansky, Citigroup:]

A key metric? And that’s GAAP, right?

[Joseph Tucci:]

It starts with GAAP. Just internally, it’s an important thing. Bill and I obviously, and everybody, we’re very much aware of GAAP as the rules change. Internally, we don’t run the business to GAAP and we don’t push down GAAP to any of our business units. We don’t push down amortization, we don’t push down restricted stock, we keep that up at corporate. The businesses are running on a kind of a cash EPS basis. Obviously, because we’ve been acquisitive, and because we didn’t restate the previous year’s periods – I think it’s really interesting. If we expensed last year, our stock options, the change year on year would have been 50% because we had $0.04 per share stock option expense last quarter. So it’s $0.50 if you do it that way. If you took them out of both periods it’s $0.25, you know, we think the fairest way to look at it is $0.28. So we’ve give you all of it, so pick and match. But it’s fairest because we used different – the GAAP last year and the GAAP this year is not the same GAAP. But that’s a ridiculous comparison, so you’ve got to use $0.50, $0.28 or $0.25, they all make sense. You pick. We happen to think that $0.28 is fairest, that’s kind of the way we drive the business internally.

[Paul Mansky:]

OK. Thank you.

[Joseph Tucci:]

But what isn’t a measurement is the restricted stock, OK? I assure you, in the measurement that the board gave us is the restricted stock, so we’ve got to pay for this plan.

[Paul Mansky:]

OK. Thank you.

[Tony Takazawa:]

Thanks, Paul, next question please?

[Operator:]

Laura Conigliaro, from Goldman Sachs, you may ask your question.

[Laura Conigliaro:]

Yes, thanks. So you went into this year with the idea that you could have actually even more upside than normal, and already of course after just the first quarter you’re going to the lower end of the target. What is that telling us in general, since you’ve already commented at the end of this call about the robust environment and the fact that you felt very confident in new products, etc. Is it a comment on that, or is it a comment on the competitive environment, or what?

[Joseph Tucci:]

Well Laura, I mean, even at your conference Laura, I’ve said it many times probably, I know I said it on stage with you at your conference, that because of the way our product cycles are flowing, I felt that there was potential for upside, but I said a bunch of times that the potential for upside is in the second half of the year. If you look at this quarter, we gave you a range of 2570 – 2590, we came in 0.0075% light. I said that more than that – and I mean more than that – we left in unplanned excess backlog. We did the $0.14 and I’ve been pretty consistent in saying that I do think there’s potential for upside, I don’t see anything happening in the market that we didn’t plan for, but I have been consistent and I’m going to be consistent again I think. We had the potential, the potential because of the product cycle is going to be the second half of the year.

[Tony Takazawa:]

Thank you. Next question please.

[Operator:]

Brian Freed, of Morgan Keegan, you may ask your question.

[Brian Freed, Morgan, Keegan & Company:]

Thanks for taking my call. Could you update us on the progress you’ve made with respect to the restructuring you announced last quarter? And also if you continue to plan to re-hire all the heads that you’re going to let go?

[Joseph Tucci:]

Brian, we’re about half way through the restructure that we talked about. As you know, I’m sure, the international side of this always takes longer and so we’re continuing to work on it. What was the second half of your question?

[Brian Freed, Morgan, Keegan & Company:]

Do you still continue to plan to rehire the thousand heads and redeploy them?

[Joseph Tucci:]

Yes. Our headcount is up a little bit from the end of last year and it’s all in the sales and service areas. We’re very focused on the opportunity that we see out there, and as we said, this was not about a headcount reduction, it was not about cost reduction, it was all about getting at the opportunity that was out there. We’re trying to go aggressively for it.

[Brian Freed, Morgan, Keegan & Company:]

OK, thanks.

[Tony Takazawa:]

Thanks, Brian. Next question please.

[Operator:]

Rebecca Runkle, of Morgan Stanley, you may ask your question.

[Rebecca Runkle, Morgan Stanley:]

Hi, good morning, thank you. I’m curious, did some of the high-end CLARiiON, maybe your high-end CLARiiON customers, opt for the low-end DMX at the end of the quarter? Or was this strictly a push out from the second quarter launch? And then, as it relates to the launch, I’m hearing that CLARiiON will be introduced sooner rather than later. Can you just confirm that it will ship for the majority of Q2?

[Joseph Tucci:]

I do not believe – if you look at the size of the Syms that we sold, the DMX-3s that we’ve sold, these were big, really big. I find it hard to believe that they sold a lot of high-end CLARiiON, so I do think that it DSOs(?). Customers are figuring out now that this is not just a refresh, this is a new product cycle starting on CLARiiON. By new product cycle, what I mean is what you do is every couple of years or so you bring out a whole new design, then you do midlife kickers on that design, so to speak. This is one of those periods, where this is substantially in the design, customers do know this and I think that’s why I said the real performance and the higher ends are what stalled. If you look at the middle, the lower middle and the lower end of CLARiiON, they’re just fine. That would tell me that a lot of this is around the new product launch. You want to know if it would be the first half?

[Rebecca Runkle, Morgan Stanley:]

First half or second quarter or not?

[Joseph Tucci:]

I really, for a number of reasons, can’t give you a date. But you’re not going to be disappointed.

[Rebecca Runkle:]

Great. Thank you very much.

[Tony Takazawa:]

Thanks Rebecca. Next question please.

[Operator:]

Bill Shope, at JP Morgan, you may ask your question

[Bill Shope, JP Morgan:]

Great, thanks. Looking at your goals to maintain higher levels of backlog and potentially reduce the back-end loaded nature of the quarters, first of all I certainly think it makes sense, but can you help us understand how you’re going to implement this? I’d imagine sales and customer behavior won’t change that quickly, it’s fairly entrenched and it’s been part of your model for quite some time now. Are you making any immediate changes to comp or discounting policies? Could you just give us some color here?

[Joseph Tucci:]

We try a lot of those, and you’re right, Bill, I haven’t found a secret formula and I’ve been facing this problem for a lot of years. Obviously, we do try to pay even a higher commission if you bring in the order, we try to do hard cut-offs, and say look, if you’re international and you don’t bring the order in by XX week in the third month of the quarter – it’s just around reinforcing that and just not having the capability. If you don’t build the inventory levels or you don’t build the capabilities in the factory, then the sales force and the customers have got to understand that this is not a good practice. In truth, even though customers think they get much better discounts in the end, it’s really not true. We’ve just got to get that message out there, because it’s really costing us a tremendous amount of money and in my estimation it’s for nothing. There really is no benefit, it’s just a dis-benefit. As you know, Bill, a lot of companies face this issue and there’s no magic once-over bullet, it’s just keep going at it. Once of the things we’re going to do is build into our plan that we’re going to carry each quarter with probably the exception of Q4, higher inventory levels than were in our original plan.

[Bill Shope, JP Morgan:]

But there’s no changes to sales force comp, though, at this time?

[Joseph Tucci:]

Well, we put those things, they just haven’t worked. One quarter doesn’t make a year, but it obviously didn’t work. All those things I talked to you about are in the plan. You do make more money if you bring it in earlier. We do have part cut-offs. We’ve got most of the things that you would think about, but if you have some good ideas I’d love to hear them.

[Bill Shope, JP Morgan:]

OK, great. Thanks.

[Tony Takazawa:]

Thanks, Bill, Our next question, please.

[Operator:]

Kevin Hunt, of Thomas Weisel Partners, you may ask your question.

[Kevin Hunt, Thomas Weisel Partners:]

Thank you. I just wanted to get some clarification on the go to market strategy and on the mid-range, and on a couple of aspects. It seems like the softness in the quarter was in mid-range and was in Asia. Given Dell was your major partner on the mid-range, are they not as good a partner in Asia? Maybe if you could clarify how you go to market in Asia on the mid-range. Then also, with this Intel relationship you announced, how does that then impact your other existing relationships on the mid-range?

[Joseph Tucci:]

There’s a number of questions in there, Kevin. Let me say Dell did fine in Asia. This was us. Dell also drives a disproportionate number of the smaller end of the CLARiiON line. They do very, very well down there. This is really EMC and some of its other channels, which is where the mist is. None of this mists on Dell. Dell did great. You mentioned about the deals we’ve done with NEC and Intel and how would that potentially disrupt Dell, I think that’s what you’re asking me. First, I don’t think it will. We are tremendously, tremendously – I’ll add another one – tremendously under-penetrated with these product lines in Asia. So there’s ample opportunity out there. If we were anywhere near adequately penetrated, maybe there’d be an issue, but there’s not. I think it’s fine. Dell knows what we’re doing. Dell uniquely has the manufacturing rights and we do a lot of product planning together. I don’t believe this will impact Dell, the fault is squarely us. Again, it’s partly go to market and partly where we’ve just dropped the ball. And partly, you know, we need this refresh. It’s overdue and it’s going to be a good on. It’s going to be a good one.

[Tony Takazawa:]

Thanks, next question please?

[Operator:]

Tom Curlin, of RBC Capital Markets, you may ask your question.

[Thomas Curlin, RBC Capital Markets:]

Hi, good morning. Just sticking with the Intel topic, can you walk us through how that Intel relationship is going to be structured in terms of who builds the AX line related to the Intel effort? Also, of course, the distribution strategy, but especially the after-sales support. Is that primarily EMC, or third party? How does this work?

[Joseph Tucci:]

Our operating system on CLARiiON is Flare. You can actually run Flare, if you wanted to, on a PC. We’ve got it to work at that level. Basically, we’ll cooperate in the designs and then basically we’re licensing our software, is a way you could look at it.

[Thomas Curlin, RBC Capital Markets:]

So there’s no after-sales support from EMC? Or how is that structured?

[Howard Elias, Executive Vice President, Global Marketing and Corporate:]

It’s Howard, this is all Intel distribution through their model.

[Thomas Curlin, RBC Capital Markets:]

Thank you.

[Tony Takazawa:]

Thanks. We have time for one more question.

[Operator:]

Our last question comes from Ben Reitzes from UBS.

[Ben Reitzes, UBS Warburg:]

Well thanks for fitting me in. I guess with a lot of the questions asked, what does it say – the increased buybacks – what does it say about your acquisition strategy, Joe, I mean we constantly get asked about EMC doing some kind of big deal that’s going to either rock the boat or what. Or are you just going to do small, targeted acquisitions? Thank you.

[Joseph Tucci:]

My statement for a long time, and I continue to believe that, is I’m against big deals. Now you can get into it on what’s the definition of a big deal. The biggest software company we bought from a revenue point of view was actually Legato, which was I think $315 million in revenues. At an $11 billion+ dollar company, we can certainly do something north of $300 million, but I’m not going to do anything that’s even close to shattering – we’re significantly bigger and we understand how to do it, it’s in our wheelhouse. I continue to prefer what I call ‘string of pearls’, you can look forward to that. I don’t think you’ll see anything bigger. You could see significantly – not significantly, but bigger than $300 million, OK? But certainly nothing that comes near to approach something that would disrupt our company in terms of making the integration so tough that you lose track of what you need to do on a daily basis. That’s still our thing. Will we do some of those? Yes we will. You can bet that besides this $3 billion, we will spend – we still have a rich balance sheet. We will use some of that to help our software assets and look for assets that have good growth and can support our ILM model and support our trust and security resource management and things around VMware. Think of areas, those are the areas where we’re active and I think we have to make good shareholder value. Cash will be lower than what Bill would forecast, just using up the $3 billion from where we’ll be.

[Ben Reitzes:]

Thanks.

[Joseph Tucci:]

Just in closing, we think these new product cycles are going to help us. We have a lot of interest, the enthusiasm of our people and our customers is fantastic, so nobody’s got their head hung a little bit low. We are obviously disappointed that we didn’t do that extra $20-40 million of revenue so that we could have said hey, it’s the first time we missed even a piece of our guidance in a long time. So we’re obviously not pleased about that, but the business was there and we will get it. I do believe that as we get up these products and crisp up our execution, there is ample opportunity for upside in the second half of the year. Thank you again for your attention and joining us today. I do appreciate it. Bye bye.