Dell Technologies Inc.
Q3 2006 Earnings Call Transcript

Published: 17 Oct 2006

[Operator:]

Welcome, and thank you for standing by. (Operator Instructions) I would now like to turn the meeting over to Mr. Tony Takazawa, Vice President of Global Investor Relations. Sir, you may begin.

[Tony Takazawa:]

Thank you, Kerri. Good morning. Welcome to EMC's call to discuss our financial results for the third quarter of 2006. On today’s call, David Goulden, EMC’s EVP and CFO will kick things off and walk you through our results for the quarter. We will then be joined by Joe Tucci, EMC's Chairman, President, and CEO. Joe will spend some time discussing how EMC’s strategy is coming together, and his observations on the market environment going forward. After the prepared remarks, we will then open up the line to take your questions. We will be joined at that time by Bill Teuber, EMC’s Vice Chairman; and Frank Hough, EMC EVP of Global Marketing and Customer Quality. 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. As always, the call this morning will contain forward-looking statements and information concerning factors that could cause actual results to differ can be found in EMC's filings with the U.S. Securities and Exchange Commission. In addition, all of the numbers we discuss today will be presented on a GAAP basis, unless otherwise indicated. We are focusing on the GAAP numbers in an effort to simplify the discussion for you. For those of you interested in analyzing the non-GAAP numbers, we continue to provide a schedule in the press release that will help you adjust the GAAP results for stock options, restricted stock, and amortization expenses. With that, it is now my pleasure to introduce David Goulden.

[David Goulden:]

Thanks, Tony. Good morning and thank you for joining us today. As Tony mentioned, I am going to walk you through our Q3 results and Q4 outlook. Looking across our business, we are pleased with how we performed in Q3. Let me dive straight into the numbers. Q3 revenues were a record $2.815 billion, up 19% from last year. This includes approximately $38 million from our new security division. Without security, Q3 revenues were $2.778 billion, up 17% over Q3 of last year and also a record quarter. Q3 GAAP EPS were $0.13. This includes slightly less than a $0.01 from our new security division, principally due to a $23 million IT R&D charge. Without security, EPS for the quarter was also $0.13. EPS was up 30% over last year on a comparable basis. This growth compares GAAP EPS of $0.13 for Q3 this year against $0.10 last year after adjusting Q3 2005 EPS of $0.17 by $0.03 had we expensed stock options; and by $0.04 had we eliminated a one-time tax benefit. Revenue growth of 17% for the quarter was clearly very strong, but we did benefit from the unusually high backlog levels we had at the end of Q2. As we finished Q3, we were able to take advantage of having completed our major product transitions, and of higher inventory levels, and of a Saturday quarter end to drive Q3 backlog to more seasonal levels. If we look at the first nine months of 2006 for a more normalized view of growth, on a YTD basis total revenues are up 14% over last year, excluding security, supporting our view that EMC’s growth profile is strong. Looking at our corporate revenue mix in Q3, our systems revenues were up 19%, software revenues were up 25%, and services revenue were up 7%. Year-to-date, systems revenues were up 15%, software was up 17%, and services were up 7%, highlighting the strength of our product business and of our business model. Turning to our geographic results for Q3, North America revenues were very strong, up 21% year-over-year. The environment in North America continues to be good, especially in the commercial marketplace and for high-end systems. EMEA revenues were up 19%, with good balance across the countries and regions. We also saw strong demand for our mid-tier CLARiiON systems in EMEA. APJ revenues were up 7% from last year, and 8% from Q2, representing a modest improvement in growth. We continue to strengthen our management team in this region, and I am very pleased to announce that during the quarter, we hired Dennis Yip, a seasoned executive, to head up our Greater China region. Finally, Latin America revenues were up 80%; Argentina and Venezuela were strong performers this quarter. Now let’s move from the geographic conversation to the revenue results from our content management, VMware and security and represent the solution sets we take to market. First, let’s take a look at our storage business, which consists of our storage hardware products and the software that runs on them, including Symmetrix, CLARiiON, Centera, Celerra, Invista, and Connectrix; plus, our storage software including Back-up, Recovery, Rainfinity, Power Path and resource management and our storage-related professional and customer services. Total storage revenues for Q3 were $2.45 billion, up 14% over last year and up 10% on a year-to-date basis. We believe we continue to gain share in our core storage business. Symmetrix revenues were up 21% over Q3 last year. Of the Symmetrix systems sold in the third quarter, 90% of the terabytes shipped were DMX-3 technology. Last quarter we explained we didn’t have enough product to meet the surge of DMX-3 orders at the end of the quarter, resulting in lower than expected Sym revenue growth. You can see that the strong bounce-back in Symmetrix growth this quarter and the 10% year-to-date growth of Sym revenues confirms the demand for our DMX-3 systems is strong, and we are gaining share in the high-end markets. Turning to CLARiiON, CLARiiON revenues were up 18% over Q3 last year. Looking at those products that offer the new CX-3 platform, 85% of the terabytes shipped in Q3 were on CX-3 technology. Last quarter we explained to you that the major transition from CX-2 to CX-3 midway through the quarter impacted CLARiiON growth. The strong bounceback from Q4 growth last quarter to 18% growth this quarter confirms the demand for our new CX-3 products is strong, and returns us back to share gains in the mid-tier storage. You can also see that our major Sym and CLARiiON transitions are behind us. Staying within the storage business, resource management software license revenues were up 17%, led by SMARTs licensed revenue growth of over 100%. SMARTs license growth is also up 100% year-to-date on an apples-to-apples basis, and we are very pleased with this growing customer adoption of model-based resource management. Finally, within the storage business, network license revenues were up double-digits again in Q3. Turning to our content management business, which consists of our content management software products and related professional and custom services, total revenues for Q3 were $138 million, up 25% over last year and up 44% on a YTD basis. During Q3, we announced our 15,000th content management customer, reflecting the strong share gains we have made in this market. Additionally, just a few weeks ago we announced our new enterprise content management alliance with Microsoft. Through this partnership, we will bring to market new solutions that integrate the EMC Documentum platform with multiple Microsoft technologies. Content management license growth for the quarter was up only 11%. As you know, within the content management business, we win a large number of mid-sized transactions and a few very large orders each quarter. A single large order can represent a 5% to 10% swing in licensed growth rates, making licensed growth quite lumpy. In Q3, a couple of the large orders we were chasing did not close at the end of the quarter, impacting Q3 licensed growth rates. We have not lost any of these transactions, and when we look at our Q4 pipeline, we are confident we will have a strong Q4 and a strong 2006 in content management. It is also worth noting that on a year-to-date basis, content management licensed revenues were up nearly 50%. Obviously Captiva was a strong contributor to this growth, but on an apples-to-apples basis, content management software license revenues were up over 20% year-to-date; clearly we are gaining share here as well. VMware had another tremendous quarter. Total revenues were up 86% to $189 million in Q3, continuing VMware’s position as one of the fastest-growing software businesses. Of note this quarter, VMware’s X86 virtualization technology was named one of the 25 most influential products of the last 25 years by eWEEK Labs. This ranked VMware above the Apple Macintosh, Lotus 123, the Palm Pilot and Microsoft Office. I am sure you will agree that this is pretty impressive, especially considering that VMware has been around for only a few years. Now let me turn to our new security division. We obviously reported only a partial quarter’s revenue in Q3. For the full quarter, these companies reported an impressive 30% year-on-year revenue growth. Also, each of RSA and Network Intelligence had record quarterly revenues. Given the fact that customers knew about the pending merger, RSA’s record quarter is an indicator of how excited the customer base is about the combination with EMC. So hopefully you can see why we are very enthusiastic about the product potential here as well. Finally, Dell was 15% of our total revenues and one-third of CLARiiON revenues this quarter. Turning to the rest of the income statement, consolidated gross margin for the quarter was 52.7%, the same as Q2. The higher mix of systems revenue in the quarter had an unfavorable impact on margins of 50 basis points. Operating income margin for the quarter was 12.9%, excluding both the $23 million IT R&D charge and a $3 million restructuring reversal. This is up 220 basis points sequentially. The tax rate for the quarter was slightly north of 26%, and we expect the tax rate for Q4 to be approximately 26% as well. Turning to the balance sheet, cash and investments came in at $5.5 billion, compared to $6.3 billion in Q2. During the quarter, we accelerated our buybacks using approximately $1.1 billion to purchase 102 million shares. This is a 30% increase from the number of shares we purchased in Q2. YTD, we have spent approximately $2.6 billion to repurchase 208 million shares and to retire $125 million of convertible debt. We remain on target to spend at least $3 billion repurchasing EMC shares during 2006. Additionally, we spent approximately $2.2 billion net on acquisitions this quarter. We funded these acquisitions via a $2.2 billion short-term, unsecured credit facility. DSOs came in at 47 days, however this was skewed due to the timing of the security acquisitions. Excluding these acquisitions, DSOs were 45 days, the same as Q2. Inventory was $895 million, up about $130 million from Q2. We used the strength of our balance sheet to ensure that we have sufficient quantities of inventories to meet customer demand in Q3, and to be in a good position to meet anticipated fourth quarter demands. The significant majority of this inventory has been new generation products. Looking ahead into Q4, we are working on an accelerated integration plan for EMC and the 21 companies we have acquired over the last three years. When this plan is complete, we expect to book a restructuring charge of between $150 million to $175 million, or approximately $0.06 per share. We intend to complete this plan over the next several weeks, and book a charge later this quarter. This integration plan will reduce costs and improve efficiencies, while helping us to present a more unified EMC experience to our customers. We expect the restructuring to impact approximately 1,250 employees with a heavy emphasis on management layers and non-customer facing and non-core R&D activities. As we sit here today, EMC has nearly 31,000 employees. We also expect to include the rationalization of many non-employee related expenses, including temporary labor, contractors, real estate and other assets. VMware will continue to operate as a subsidiary of EMC and is not part of this restructuring. Turning to Q4 guidance, we continue to expect normal seasonality in Q4 demand, and our revenue and earning expectations for Q4, excluding the security business, are largely unchanged from the expectations we provided on the Q2 earnings call. We expect Q4 revenues, excluding the security business, to be at or exceed $3.05 billion, GAAP EPS to be $0.16. For the new security business, we expect revenues to be at or exceed $110 million, with a GAAP EPS loss of $0.01, primarily due to loan interest for the RSA acquisition. Therefore, we expect total Q4 revenues to be at or exceed $3.16 billion and EPS to be $0.15, excluding the restructuring charge I just mentioned. Including the restructuring charge, we expect Q4 GAAP EPS to be $0.09. With that, I will now turn the call over to Joe.

[Joe Tucci:]

Thanks, David. I was pleased with EMC’s overall performance in Q3. It reflected our strong heritage of crisp execution and operational excellence. Very importantly, as David pointed out, when you examine the first three quarters of 2006 as a whole, we have grown 14% year-over-year as EMC continues to lead and take share in our chosen markets. I firmly believe that EMC has built a solid strategic and competitive advantage that will help us continue our double-digit growth rate trajectory. Also, we are seeing that the global economic and IT spending environment for the basket of products and services that we sell is plenty robust enough for us to achieve our goals. What I would like to do now is answer the question I am most frequently asked, and that is about EMC strategy and how all of the pieces fit together. Today I will spend the vast majority of the time I have for my formal remarks taking you through EMC strategy, and why we believe it will give us a sustained competitive advantage. As you know, we have replaced storage as the core of our universe with information. To focus ourselves and sharpen our message, we have declared that EMC’s entire focus is on and in the infrastructure space. Thus, we call our new core strategy Information Infrastructure. As I talk about our Information Infrastructure strategy, I will also comment on the underlying EMC technology and discuss how and where the technologies of our acquired companies fit in. There is a massive and growing amount of digital information. We can show you that over the last ten years, information stored on disk arrays has grown at a compounded rate of 60%. This digital information is a physical place to live and since we live in an on-demand, on-command global, connected world, the only rational place for that information to live is on storage arrays. So obviously, our heritage is alive and well and the first tenant of our core information strategy is storage. It is all high quality, it is all reliable, fast millisecond response times; we have different tiers and that is probably the number one aspect we are pushing, is tiering your storage. With these tiers, we can create 10

[Tony Takazawa:]

Thanks, Joe. Before we open up the lines for your questions, as usual, we ask you to try to limit yourself to one question, including clarifications. This will enable us to take as many questions as possible. Thank you all for your cooperation with this matter. Please, Carrie, can we open up the lines for questions.

[Operator:]

(Operator Instructions) Aaron Rakers of A.G. Edwards, you may ask your question.

[Aaron Rakers:]

Thanks, guys. Just a question, I guess, in regard to clarification on the headcount reductions. I know you talked about the charges that you expect to take, but can you give any color in terms of what type of synergies you expect to derive as we look into 2007? Also, last quarter you provided comments in regard to a focus on sales force integration and the next level of G&A integration for the company. Maybe you could just give a quick update on that and where that stands over the next quarter or two.

[Joseph M. Tucci:]

The first thing I want to point out is that what I care about mostly at this juncture is our employees. A lot of our employees are hearing this now for the first time, so we -- and as David said, we still have some more planning to do so I owe it to our employees to make sure they know why and what we are doing everything first, so I will not be as specific as you would probably like. But suffice it to say, I talked about when you buy, when you do a new acquisition, they have finance departments, they have order and cash process, they have IT, et cetera, et cetera, et cetera -- HR -- there is just a lot of opportunities, some of which will go into the share centers, which I talked about, some of which we will do some consolidation. You end up with a lot of vice presidents, a lot of senior vice presidents, and there is a lot of opportunity here for us, without affecting -- matter of fact, we want to increase the number of people that are calling on customers, so without affecting that and make sure we have appropriate numbers on research and development. There is a lot of other areas that we are really going to focus. The most sacrosanct will be customers, you know, people who -- the customer-facing individuals within the combined EMC and our individuals that really produce this great technology. Everything up, we want to be the most efficient company we absolutely can. Obviously want to be efficient in our go-to-market and our development also, but that is where mostly it will be, in those areas outside of those customer-facing areas and development.

[Tony Takazawa:]

Thanks, Aaron. Next question, please.

[Operator:]

Harry Blount with Lehman Brothers, you may ask your question.

[Harry Blount:]

Joe, you obviously have highlighted on one of the earlier slides the investments you guys have made to position the company for the vision. It looks like, if I go back to the analyst day, you put a lot of the building blocks in place for these billion dollar businesses you are targeting. At what point are we going to really see the acquisition pipeline slow down and really put more of an emphasis back on just the straight organic growth side of the equation? Thanks.

[Joe Tucci:]

I think you can see that now. We have the vast majority of the pieces that we -- actually, we have all the major categories we want. Will we do things like network intelligence continue going forward? Absolutely. Where we felt okay we have a lot of things. We do not have any way to really make sure that we are assuring compliance and keeping track and rationalizing all these log events that happen all over the place, so we will do things like that, but I think we have a lot of the pieces, Harry, and I think we have great synergies. Even the early signs of the EMC sales force and the RSA sales force working together to create a richer pipeline just in the month of September became incredibly evident. There is a lot of excitement. We think we have pretty much what we need and we are going to concentrate on organic growth and efficiency.

[Tony Takazawa:]

Thanks, Harry. Next question, please.

[Operator:]

Benjamin Reitzes with UBS, you may ask your question.

[Benjamin Reitzes:]

Could you talk about Symmetrix versus CLARiiON, just into year-end and next year? What kind of growth is Symmetrix? Is it a 10% growth business like it was over the nine months, I believe you said? How should we be looking at that and where are we in the cycle? Maybe tell us what you think CLARiiON is as a business as well.

[Joe Tucci:]

Well you just saw us come out with the lower end Symmetrix and we are not going to ever be done with the Symmetrix family. We are going to continue to push it up and down a little bit. You do not want to leave any seams. Of course, the CX80 is way up there in what used to be high-end storage not too long ago in terms of performance and capabilities and reliability. Those two product lines overlap and I think that is very healthy. Then, of course, on top of those product lines, we will make sure we have all the proper connectivities -- San, Nas, et cetera. So it is really hard to say but I believe that for a long period to come, the CX should continue to grow at or even a little bit, hopefully a little bit faster than where we have been. Symmetrix, three quarters in a row now it is basically average. If you just do the adjustment for what I said we had and missed in Q2, which is now beyond a shadow of a doubt that we are telling you the truth, we really had three quarters of 10%, so it is doing quite well. Again, we just extended that down market and we will do that again, so I thin there is both good things ahead for both lines of products.

[Tony Takazawa:]

Thanks, Ben. Next question, please.

[Operator:]

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

[Laura Conigliaro:]

Great. A question about Q4 into Q1. What specific metrics do you and actually do we need to see exiting Q4 in order to feel more secure about either no worse than normal seasonality in Q1, or maybe even better than normal seasonality in the March quarter?

[Joe Tucci:]

I think it is important that we get our efficiencies in line. In the next call we will give you guidance for what we think we are going to do in Q1. We just gave you guidance for Q4. We are obviously going to work hard to try to not only not disappoint but actually, hopefully, continue to post positive results; more positive than even we said. So we are going to work very hard to do that, but there is no commitment on that, but obviously that’s what everyone is geared at here. On the storage side all-in, we continue to grow at 10% like we said. I believe the answer is yes. We grow on our other assets significantly faster; and they are realizing the EMC effect. I think those are the things you have to look at.

[Operator:]

Your next question comes from Antonio Antezano– Sanford Bernstein.

[Antonio Antezano:]

Thank you. I just wanted to revisit the consolidation restructuring efforts. You talked about 1,250 people; you had noted that many of them would be managers. Typically there is about $100,000 a year savings associated with workforce reduction. Given that there is associated IT and real estate here, that number could be conservative. That works out to about a $0.04 to $0.05 annual run rate savings. One question around that

[David Goulden:]

First of all, as Joe said, we don’t have a precise number right now because we haven’t finalized our planning. We will factor those savings into the guidance we give you at the beginning of 2007 for 2007. So let us finish our plans and come back to you on that one.

[Operator:]

Your next question comes from Bill Shope – JP Morgan.

[Bill Shope:]

Thanks. Can you please give us some color on bookings growth this quarter, as well as the margins on those bookings, as you did last quarter?

[David Goulden:]

On bookings, we are not talking about specific bookings levels. We typically don’t do that. I think the important things to notice for the business are that total revenues were up 14% year-to-date and total storage revenues were up 10%. We gave you bookings information last quarter to show you the health of the business, and I think you see the health of the business is confirmed by today’s results.

[Operator:]

Your next question comes from Dan Renouard – Robert Baird.

[Dan Renouard:]

Thanks. Just high level, when you look at the RSA, Joe, you talked a little bit about some of the field synergies and some of the sales people working together. Can you talk on the technology side, when or if we should be expecting to see some of that encryption technology make its way into your core storage products? Is there going to be some sort of a timeline, or how are you going to roll that out? Thanks.

[Joe Tucci:]

The answer is yes, we do have firm plans. We have not announced any of those firm plans yet, but yes I can guarantee you they will make our way – as I said, we will have these products, as they do today, work in an appliance. We will have these products, as some of them do today, work actually in network switches. We will have these products working on our storage arrays and other combinations. So yes, we are going to do that. We have not announced any timeframe, as you know, we try not to announce products before their time here. We have a good heritage of when we announce a product, it is commercially ready and available and ready for primetime. So I think we are going to stick with that policy. That is something we are definitely focused on.

[Operator:]

Your next question comes from Tom Curlin – RBC Capital Markets.

[Tom Curlin:]

Good morning. From a free cash flow perspective, a couple of items. CapEx has been growing significantly year-over-year. Can you comment on what is driving that and what you see on a go-forward basis? And then the cash tax rate also continues to increase. It is up to the high 30s now. Where does that end? What should we use for planning purposes on a cash basis for tax rate?

[David Goulden:]

Well we gave you some guidance on Q4, let me talk a little bit about CapEx. The big drivers there, the two biggest drivers, really, would be our IT investment in synergy projects and also some of our real estate developments out on the West Coast, those are driving CapEx right now. On the tax rate, the reason why you saw little uptick in tax rate in Q3, the IT R&D charge had a factor there, there is no tax benefit on that so that is driving our rates up a little bit in Q3, and we’ll give you more guidance on 2007 when we get into next quarter’s earnings.

[Joe Tucci:]

As you can expect – and I am not giving any numbers to this, but our full expectation and planning is as we go into ’07, we’ll actually bring down our CapEx rate. We spent a lot, we are building a brand new campus on the West Coast for VMware, and the big, big investments have been on the system which we nicknamed Synergy, which is actually a set of systems, so that we could really consolidate everything. Those are pretty much complete now, so we will be definitely easing off CapEx going into next year. And on next quarter guidance, as we always do, we will give you that number. But it will be down, I can guarantee you that.

[Operator:]

Your next question comes from Andrew Neff – Bear Stearns.

[Andrew Neff:]

Sure. Two things, if I could. Joe, if you could just give us a sense of your, when you talk to executives, what their perspective is in terms of spending, what their optimism is, as they look out, for not just the fourth quarter but just in general, and I guess just a question, a financial question. I just want to clarify. Previously, you had talked about 20% operating margin as a target. That changed, obviously at some point, but is there a new operating margin target that you have?

[David Goulden:]

Let me take the second one first. Obviously what we talked about in terms of operating margin targets were on a cash EBIT basis. Those are the numbers that Bill talked about. If you actually look at Q3, our cash EBIT operating margin was 17% compared to the 12.9% number I talked about earlier on a GAAP, we’re excluding one-time basis items. So the 20% number we spoke about some time ago was a cash EBIT margin goal for exiting Q4 2006. Obviously when we look at our Q3 guidance, we expect the cash EBIT margins to be higher than they were in Q3. In terms of a longer-term target, we will give you more information on that when we talk about our ’07 results.

[Joe Tucci:]

The answer to your question is I think relating to our business, I think the biggies that have been pretty consistent are things around compliance, around consolidation, and customers have really bought off on this tiering of storage. Those things are really big, and of course, that tiering does apply to archiving and all those aspects of archiving I talked about. I think the two I would highlight additionally is there is a lot more focus now on new apps to help business process than I have seen in a while, which I think bodes well. Also, one which I did not see coming into the year, but there is an incredible focus now on what I call the environmentals. I mentioned it about VMware, also mentioned it about our tiered storage. A tremendous focus on environmentals. You know, data center space is getting incredibly precious. Watching the power consumptions and how you dissipate heat are all just incredibly important to customers and have increased far more than what I would have expected them coming into the year, so maybe the apps and the environmentals are the two new ones that I see coming on, and then the other things are pretty consistent that we have been capitalizing on all year, and I think are going to continue. I know are going to continue.

[Andrew Neff:]

Do you think spending intentions are increasing, decreasing, staying the same? How would you talk about that?

[Joe Tucci:]

I think they are still in line with what we have talked about. I mean, I think you are still seeing a healthy year. I think there is a great deal of confidence out there in the business community and they are going to spend to create business advantage and they are going spend to, like we are, like we did with Synergy, they are going to spend to help them get more cost efficient. I think it is a healthy environment out there, Andy. I really do.

[Tony Takazawa:]

Thanks, Andy. Next question, please.

[Operator:]

Chris Whitmore with Deutsche Bank, you may ask your question.

[Chris Whitmore:]

Thanks. I wanted to understand product gross margins a little bit better. Despite the acceleration in top-line growth, margins declined -- product margins declined both on a sequential and year-on-year basis. Can you talk about either mix drivers or pricing actions taken during the quarter that may have affected margins? Thanks.

[David Goulden:]

Certainly. In my remarks, I commented that we had a 50 basis point negative impact of a higher percentage of systems or product revenue during the quarter, so that was a factor. In fact, if you exclude security, that mix impact headwind was actually 80 basis points. From a pricing point of view, we saw a very normal pricing environment in the quarter in terms of normal annual declines of both Sym and CLARiiON, so those are the major factors impacting margin.

[Tony Takazawa:]

Thanks, Chris. Next question, please.

[Operator:]

William Fearnley with FTN Midwest, you may ask your question.

[William Fearnley:]

Yes, good morning. Could you guys comment on your efforts to establish more linearity of orders during the quarter? How did it work out for you this quarter versus your expectations after your commentary in the second quarter earnings call? Thanks.

[Joe Tucci:]

It is interesting. I mean, there was a slight improvement in linearity, but the quarter felt better. I do not know why that -- how those two things jive. All quarter there seemed to be a better rhythm, but if you looked at the actual calendarization, while slightly better, we still do more than 60% of our revenue in the last month, and a good piece of that falls to the last two weeks, so we are putting in incentives to book early. Sales reps can make more if they do not book on those last two weeks, or three weeks. There is a lot of plans that we continue to implement and we will continue to fight with that formula. So we saw a slight improvement, and I think our -- but our new system is being in place and obviously we took on a little extra inventory, which we do not want to do as a systemic answer, just helped the quarter feel better and the commits from the field are stronger this quarter all through, so it was good.

[Tony Takazawa:]

Thanks, Bill. We have time for one more question, and then Joe will have concluding comments.

[Operator:]

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

[Brian Freed:]

Thanks, guys. A few months back you guys announced a relationship with Intel on the low end. Can you update us on the progress or the status of that relationship?

[Joe Tucci:]

We think it will be important as we go attack that low end SNB market where you have more kind of a serve storage affinity. The white box market is a robust marketplace. It is going very well with Intel. We will talk more about it next quarter. In closing, I want to thank you as always for joining us. As I said, I think overall the quarter was quite healthy. We obviously had less than our normal performance last quarter. I think the reasons we did give you, and we do not like to use excuses, but we gave you the real reasons of what did happen. We have corrected them this quarter. We think we are on track for a good year. I absolutely believe, as we create this one EMC plus VMware, we will be well-positioned, assuming we -- not assuming, we will get also the cost efficiencies we talked about. I believe we will be very well-positioned for next year and the future, and I am quite excited looking forward. So again, thank you for being with us and we will keep in touch.