FORM 10-Q
===============================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

          [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 26, 1998
                                       OR
        [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
               For the transition period from         to
                                             ---------  ---------

                         -----------------------------
                         COMMISSION FILE NUMBER 1-7534
                         -----------------------------

                         STORAGE TECHNOLOGY CORPORATION
             (Exact name of registrant as specified in its charter)

            Delaware                              84-0593263
(State or other jurisdiction of                (I.R.S. Employer
 incorporation or organization)                 Identification
                                                    Number)

    2270 South 88th Street,
      Louisville, Colorado                        80028-4309
(Address of principal executive                   (Zip Code)
            offices)



Registrant's Telephone Number, including area code:  (303)  673-5151




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.  /X/ YES  /  /  NO
                                    --       --

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Common stock ($.10 Par Value) - 101,181,471 shares outstanding at July 31, 1998.



<PAGE>
                                                                       Form 10-Q
                                                                          Page 2



                STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                               INDEX TO FORM 10-Q
                                 JUNE 26, 1998

                                                                          PAGE
                                                                          ----

PART I - FINANCIAL INFORMATION

      Item 1 - Financial Statements

              Consolidated Balance Sheet                                    3

              Consolidated Statement of Operations                          4

              Consolidated Statement of Cash Flows                          5

              Consolidated Statement of Changes in
                 Stockholders' Equity                                       6

              Notes to Consolidated Financial Statements                    7

      Item 2 - Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                       12

PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings                                           25

      Item 4 - Submission of Matters to a Vote of Security Holders         26

      Item 6 - Exhibits and Reports on Form 8-K                            27



<PAGE>
                                                                       Form 10-Q
                                                                          Page 3


                 STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                           (In Thousands of Dollars)


                                                         06/26/98
                                                       (Unaudited)    12/26/97
                                                       -----------------------
ASSETS
Current assets:
 Cash, including cash equivalents                       $  247,550  $  256,319
 Short-term investments                                     21,004      77,275
 Accounts receivable                                       570,623     627,981
 Inventories (Note 2)                                      249,093     205,461
 Deferred income tax assets                                101,655     102,575
                                                         ---------   ---------
     Total current assets                                1,189,925   1,269,611
Property, plant and equipment, at cost                     301,094     305,122
Spare parts for maintenance, at cost                        29,328      27,523
Deferred income tax assets                                  24,007      37,468
Other assets                                                96,869     100,293
                                                         ---------   ---------
                                                        $1,641,223  $1,740,017
                                                         =========   =========


LIABILITIES
Current liabilities:
 Current portion of other long-term debt                $    2,327  $    3,282
 Accounts payable                                          104,231     103,483
 Accrued liabilities                                       348,265     406,384
 Income taxes payable                                       55,456      95,256
                                                         ---------   ---------
     Total current liabilities                             510,279     608,405
Other long-term debt                                        17,302      19,109
                                                         ---------   ---------
     Total liabilities                                     527,581     627,514
                                                         ---------   ---------

Commitments and contingencies (Note 5)

STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000 shares 
 authorized; 107,533,458 shares issued at 
 June 26, 1998, and 108,008,082 shares issued at 
 December 26, 1997 (Note 7)                                 10,753      10,800
Capital in excess of par value                           1,051,523   1,161,997
Retained earnings (accumulated deficit)                     56,006     (39,017)
Treasury stock of 117,240 shares at June 26, 1998,
 and 918,896 shares at December 26, 1997                    (2,408)    (18,874)
Unearned compensation                                       (2,232)     (2,403)
                                                         ---------   ---------
     Total stockholders' equity                          1,113,642   1,112,503
                                                         ---------   ---------
                                                        $1,641,223  $1,740,017
                                                         =========   =========



   The accompanying notes are an integral part of the consolidated financial
                                  statements.
<PAGE>
                                                                       Form 10-Q
                                                                          Page 4


                  STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF OPERATIONS
                                    (Unaudited)
                      (In Thousands, Except Per Share Amounts)


                                        Quarter Ended        Six Months Ended
                                   --------------------------------------------
                                    06/26/98   06/27/97     06/26/98   06/27/97
                                   --------------------------------------------

Sales revenue                       $384,579   $369,859   $  721,993   $667,529
Maintenance revenue                  157,727    147,165      305,204    288,090
                                     -------    -------    ---------    -------
    Total revenue                    542,306    517,024    1,027,197    955,619
                                     -------    -------    ---------    -------

Cost of sales                        194,003    199,793      363,102    365,198
Cost of maintenance                   90,743     83,491      175,033    159,758
                                     -------    -------    ---------    -------
    Total cost of revenue            284,746    283,284      538,135    524,956
                                     -------    -------    ---------    -------

    Gross profit                     257,560    233,740      489,062    430,663

Research and product
   development costs                  54,947     51,259      110,920     96,958
Marketing, general, administrative 
   and other income and expense, 
   net                               118,041    115,116      232,863    217,654
                                     -------    -------    ---------    -------

    Operating profit                  84,572     67,365      145,279    116,051

Interest income                        4,578      7,924       10,370     14,886
Interest expense                      (1,320)    (1,305)      (2,449)    (2,664)
                                     -------    -------    ---------    -------

    Income before income taxes        87,830     73,984      153,200    128,273

Provision for income taxes           (33,400)   (20,000)     (58,200)   (34,700)
                                     -------    -------    ---------    -------

    Net income                      $ 54,430   $ 53,984   $   95,000   $ 93,573
                                     =======    =======    =========    =======


EARNINGS PER COMMON SHARE (NOTE 7)

Basic earnings per share            $   0.51   $   0.44   $     0.89   $   0.76
                                     =======    =======    =========    =======
Weighted-average shares              106,945    123,035      106,777    122,740
                                     =======    =======    =========    =======


Diluted earnings per share          $   0.50   $   0.43   $     0.87   $   0.75
                                     =======    =======    =========    =======
Weighted-average and dilutive
   potential shares                  109,939    124,507      109,650    125,057
                                     =======    =======    =========    =======



    The accompanying notes are an integral part of the consolidated financial
                                  statements.
<PAGE>
                                                                       Form 10-Q
                                                                          Page 5


               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (Unaudited)
                          (In Thousands of Dollars)


                                                        Six Months Ended
                                                    -----------------------
                                                       06/26/98    06/27/97
                                                    -----------------------

OPERATING ACTIVITIES
Cash received from customers                         $1,065,374  $1,010,947
Cash paid to suppliers and employees                   (907,386)   (766,739)
Interest received                                        10,370      14,151
Interest paid                                            (1,878)     (2,458)
Income taxes paid                                       (81,379)    (36,285)
                                                      ---------   ---------
   Net cash from operating activities                    85,101     219,616
                                                      ---------   ---------

INVESTING ACTIVITIES
Short-term investments, net                              56,271     (98,742)
Purchase of property, plant and equipment, net          (44,140)    (21,023)
Other assets                                             (3,541)      8,052
                                                      ---------   ---------
   Net cash provided by (used in) investing
      activities                                          8,590    (111,713)
                                                      ---------   ---------

FINANCING ACTIVITIES
Repurchases of common stock (Note 7)                   (118,561)    (26,108)
Repayments of other debt                                 (2,841)     (2,988)
Proceeds from employee stock plans                       21,713      15,015
                                                      ---------   ---------
   Net cash used in financing activities                (99,689)    (14,081)
                                                      ---------   ---------
   Effect of exchange rate changes on cash               (2,771)     (8,865)
                                                      ---------   ---------
Increase (decrease) in cash and cash
   equivalents                                           (8,769)     84,957
   Cash and cash equivalents - beginning of
      the period                                        256,319     388,401
                                                      ---------   ---------
Cash and cash equivalents - end of the period        $  247,550  $  473,358
                                                      =========   =========


RECONCILIATION OF NET INCOME TO NET CASH
   FROM OPERATING ACTIVITIES
Net income                                           $   95,000  $   93,573
Depreciation and amortization expense                    62,016      56,542
Translation loss                                          5,178      13,888
Other adjustments to income                              (3,922)      5,314
Decrease in accounts receivable                          38,799      43,232
(Increase) decrease in inventories                      (43,517)     26,650
Increase in spare parts for maintenance, net            (10,593)     (2,168)
Decrease in net deferred income tax asset                14,091       8,589
Decrease in accounts payable and accrued
   liabilities                                          (32,181)    (15,830)
Decrease in income taxes payable                        (39,770)    (10,174)
                                                      ---------   ---------
   Net cash from operating activities                $   85,101  $  219,616
                                                      =========   =========



   The accompanying notes are an integral part of the consolidated financial
                                  statements.
<PAGE>
                                                            Form 10-Q
                                                               Page 6


<TABLE>
<CAPTION>

                                    STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                               CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                      (Unaudited)
                                              (In Thousands of Dollars)


                                                                    Retained
                                                    Capital in      Earnings
                                         Common     Excess of    (Accumulated     Treasury      Unearned
                                          Stock     Par Value       Deficit)       Stock      Compensation          Total
                                       ------------------------------------------------------------------------------------
<S>                                      <C>          <C>              <C>           <C>          <C>                <C>   
Balances, December 26, 1997, as
   previously reported                   $ 5,400    $1,161,997       $(33,617)   $(18,874)      $(2,403)         $1,112,503
2-for-1 stock split in the form of a
   stock dividend (Note 7)                 5,400                       (5,400)
                                          ------     ---------        -------     -------        ------           ---------
Balances, December 26, 1997,
   as restated                            10,800     1,161,997        (39,017)    (18,874)       (2,403)          1,112,503
Shares issued under stock purchase
   plan, and for exercises of options
   (1,240,462 shares, including
   808,254 shares issued from
   treasury)                                  43         7,849                     16,601                            24,493
Repurchases of common stock
   (900,000 shares) (Note 7)                 (90)      (31,486)                                                     (31,576)
Final price adjustment for common stock
   repurchased in October 1997 (Note 7)                (87,030)                                                     (87,030)
Net income                                                             95,000                                        95,000
Other                                                      193             23        (135)          171                 252
                                          ------     ---------        -------     -------        ------           ---------
Balances, June 26, 1998                  $10,753    $1,051,523       $ 56,006    $ (2,408)      $(2,232)         $1,113,642
                                          ======     =========        =======     =======        ======           =========



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

</TABLE>
<PAGE>
                                                                    Form 10-Q
                                                                       Page 7
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


NOTE 1 - BASIS OF PREPARATION
-----------------------------

The accompanying consolidated financial statements of Storage Technology
Corporation and its subsidiaries (StorageTek or the Company) have been
prepared in accordance with the Securities and Exchange Commission
requirements for Form 10-Q.  In the opinion of management, these statements
reflect all adjustments necessary for the fair presentation of results for
the periods presented, and such adjustments are of a normal, recurring
nature.  For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 26, 1997.

NOTE 2 - INVENTORIES
--------------------

Inventories consist of the following (in thousands of dollars):

                                             06/26/98           12/26/97
                                           -----------------------------

      Raw materials                          $ 47,731           $ 32,607
      Work-in-process                          77,522             57,235
      Finished goods                          123,840            115,619
                                              -------            -------
                                             $249,093           $205,461
                                              =======            =======

NOTE 3 - DEBT AND FINANCING ARRANGEMENTS
----------------------------------------

The Company has a $350,000,000 unsecured credit agreement (the Revolver)
which expires in October 2001.  The credit limit available under the Revolver
will be reduced by $12,500,000 on the last day of each calendar quarter
beginning December 31, 1998.  The interest rates under the Revolver depend on
the type of advance selected.  The basic advance rate is not less than the
London Interbank Offered Rate (LIBOR) plus 0.625% (6.3125% as of June 26,
1998). The Revolver contains certain financial and other covenants, including
restrictions on the Company's payment of cash dividends on its common stock.
As of June 26, 1998, the Company had issued letters of credit for
approximately $100,000 under the Revolver and had approximately $349,900,000
of available credit.

The Company has a financing agreement with a bank which provides for the sale
of promissory notes in the principal amount of up to $140,000,000 at any one
time.  The agreement, which expires in January 2000, provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies.  The notes must be repaid only to the extent of future revenue of
the Company and obligations under the agreement are not cancelable by the
Company or the bank.  Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment.  The promissory notes, together with accrued interest, are payable
in U.S. dollars within 40 days from the date of
<PAGE>
                                                                    Form 10-Q
                                                                       Page 8

issuance and bear interest at rates no less than the LIBOR rate plus 0.35%
(6.0375% as of June 26, 1998).  Under the terms of the agreement, the Company
is required to comply with certain covenants and, under certain
circumstances, may be required to maintain a collateral account, including
cash and qualifying investments, in an amount of no less than the outstanding
promissory notes.  As of June 26, 1998, the Company had no outstanding
borrowings and had committed to borrowings between July 1998 and December
1998 in the cumulative principal amount of approximately $195,596,000.

NOTE 4 - RESTRUCTURING RESERVES
-------------------------------

During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and network businesses.  The restructuring
was adopted in an effort to establish a more cost efficient business
structure in response to competition.  Elements of the Company's
restructuring plan included focusing on its core businesses, outsourcing non-
strategic activities, rearchitecting its distribution processes and channels,
and accelerating the integration of Network Systems Corporation.

The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 26, 1998 (in
thousands of dollars):

                             Employee       Lease        Other
                            Severance   Abandonments  Exit Costs     Total
                            -------------------------------------------------

Balances, December 26, 1997  $14,994       $12,069       $ 229      $27,292

Cash payments                 (7,434)         (782)       (128)      (8,344)
                              ------       -------        ----       ------

Balances, June 26, 1998      $ 7,560       $11,287       $ 101      $18,948
                              ======        ======        ====       ======

Substantially all of the remaining restructuring reserves represent costs to
be incurred under contractual agreements which will not provide the Company
with any future economic benefit.  While the majority of these remaining
accruals are expected to result in future cash outflows, these outflows are
not expected to have a material effect on the Company's liquidity.

NOTE 5 - LITIGATION
-------------------

In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court against the
Company and certain subsidiaries.  The suit alleged that the Company breached
a 1990 settlement agreement that had resolved earlier litigation between the
parties.  The suit sought injunctive relief and damages in the amount of
$2,400,000,000.  On December 28, 1995, the court dismissed the complaint.
Stuff appealed the dismissal to the Colorado Court of Appeals.  In April
1996, the trial court stayed discovery on the Company's counterclaim for
breach of the covenant not to sue pending resolution of the appeal.  In March
1997, the Court of Appeals reversed the District Court's judgment and
remanded the case to the District Court for further proceedings.  In December
1997, the Colorado Supreme Court rejected the Company's petition seeking a
reversal of this decision.  A new trial date has not been set.  The case is
in the discovery phase.
<PAGE>
                                                                    Form 10-Q
                                                                       Page 9

On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company alleging that the "pass-through" port in certain of the Company's
tape library products infringed U.S. Patent No. 4,779,151 (the "151 Patent").
The complaint asked the court to impose injunctive relief, treble damages in
an unspecified amount, and an award of attorney's fees and costs.  In
February 1996, a jury found that the Company's products did not infringe the
151 Patent.  Odetics appealed and in June 1997, the U.S. Court of Appeals for
the Federal Circuit reversed the District Court's ruling and remanded the
case back to the District Court for further proceedings.  On March 27, 1998,
a second trial was held and a jury found that a pass-through port in certain
of the Company's tape library products willfully infringed the 151 Patent and
awarded actual damages to Odetics of $70,600,000.  On July 31, 1998, the
Court granted the Company's motion for judgment as a matter of law,
overturning the jury's verdict, and entered judgment in favor of the Company.

On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent.  The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorney's fees and costs.  This case has been stayed.

On October 3, 1995, certain former employees of the Company filed suit in the
U.S. District Court for the District of Colorado against the Company.  The
amended suit alleges violations of the Age Discrimination in Employment Act
(ADEA) and the Employee Retirement Income Security Act (ERISA) between the
period of April 13, 1993, and December 31, 1996.  On November 26, 1997, the
Court granted the plaintiffs' request to proceed as a collective action on
the ADEA claims and denied the plaintiffs' request to proceed as a class on
the ERISA claims.  The period for joining the ADEA class action suit
terminated in March 1998.  Approximately 400 persons elected to join the ADEA
class.  The plaintiffs seek, among other things, compensatory damages in an
unspecified amount, including the value of back pay and benefits;
reinstatement as employees or alternatively the value of future earnings and
benefits; and exemplary or liquidated damages.  The Company has filed an
answer denying both the ADEA and ERISA claims.  In March 1998, the plaintiffs
filed a second request to proceed as a collective action on the ERISA claims.
The Court has not ruled on this request.  A trial date has been set for
October 1999.

The Company believes it has adequate legal defenses with respect to each of
the actions cited above and intends to vigorously defend against these
actions.  However, it is reasonably possible that these actions could result
in outcomes unfavorable to the Company.  The Company is also involved in
various other less significant legal actions.  While the Company currently
believes that the amount of the ultimate potential loss would not be material
to the Company's financial position, the outcome of these actions is
inherently difficult to predict.  In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on the Company's
financial position or reported results of operations in a particular quarter.
An unfavorable decision, particularly in patent litigation, could require
material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 10

NOTE 6 - RECENTLY ISSUED ACCOUNTING STANDARDS
---------------------------------------------

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131, which is
effective for fiscal years beginning after December 15, 1997, establishes new
disclosure requirements for operating segments, including products, services,
geographic areas, and major customers.  The Company will adopt SFAS No. 131
for the 1998 fiscal year, but does not expect the new accounting standard to
have a material impact on the Company's reported financial results.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1, which is
effective for transactions in fiscal years beginning after December 15, 1998,
provides guidance on accounting for the costs of computer software developed
or obtained for internal use.  The Company will adopt SOP 98-1 for the 1999
fiscal year, but does not expect the new SOP to have a material effect on its
reported financial results.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
periods beginning after June 15, 1999, with earlier adoption encouraged.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities and requires all derivatives to be
recognized as either assets or liabilities in the consolidated balance sheet,
measured at fair value.  The corresponding change in fair value of the
derivative will be recorded in the earnings of the Company net of related
change in fair value of the hedged item or as a component of comprehensive
income depending upon the intended use and designation.  The Company is
currently evaluating the impact of SFAS No. 133 on its financial statements
and its plans for adoption.

NOTE 7 - COMMON STOCK
---------------------

In May 1998, the Company's board of directors authorized a two-for-one stock
split to be effected in the form of a 100% stock dividend payable at the
close of business June 26, 1998, to shareholders of record on June 5, 1998.
All earnings per common share amounts, references to common stock, and
stockholders equity amounts have been restated as if the stock dividend had
occurred as of the earliest period presented.

During the first six months of 1998, the Company repurchased 900,000 shares
of common stock at a cost of $31,531,000 under its existing stock repurchase
program.

In April 1998, the Company paid $87,030,000 as a final price adjustment for
the repurchase and retirement of 16,000,000 shares of its common stock in a
privately negotiated transaction executed in October 1997.  The additional
payments were reflected as an adjustment to capital in excess of par value in
the Consolidated Statement of Changes in Stockholders' Equity.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 11

NOTE 8 - SUBSEQUENT EVENTS
--------------------------

In July 1998, the Company repurchased and retired 5,500,000 shares of its
common stock in a privately negotiated transaction for an initial price of
$263,313,000.  This transaction was partially funded by an advance of
$150,000,000 under the Company's $350,000,000 unsecured credit agreement.
The final purchase price of the common stock is subject to adjustment based
on the trading price of the common stock during a defined period.  Any price
adjustment will be reflected as an adjustment to capital in excess of par
value on the Consolidated Statement of Changes in Stockholders' Equity.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 12
                 STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                JUNE 26, 1998


ALL ASSUMPTIONS, ANTICIPATIONS, EXPECTATIONS AND FORECASTS CONTAINED IN THE
FOLLOWING DISCUSSION REGARDING THE COMPANY'S PRODUCT AND BUSINESS PLANS,
FINANCIAL RESULTS, PERFORMANCE AND EVENTS ARE FORWARD-LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY BECAUSE OF A NUMBER OF
RISKS AND UNCERTAINTIES, SOME OF THESE RISKS ARE DETAILED BELOW IN "RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS FORM 10-Q.


STATEMENTS MADE HEREIN ARE ACCURATE ONLY AS OF THE DATE OF FILING THIS FORM
10-Q WITH THE SECURITIES AND EXCHANGE COMMISSION AND MAY ONLY BE RELIED UPON
AS OF THAT DATE.  THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE INFORMATION
ON FORECASTS CONTAINED HEREIN, EXCEPT AS MAY BE OTHERWISE REQUIRED BY LAW.

GENERAL
-------

The Company reported net income for the second quarter ended June 26, 1998 of
$54.4 million on revenue of $542.3 million, compared to net income for the
second quarter in 1997 of $54.0 million on revenue of $517.0 million.  Net
income of $95.0 million was reported for the six months of 1998 on revenue of
$1.03 billion, compared to net income of $93.6 million for the six months of
1997 on revenue of $955.6 million.

Revenue increased 5% and 7% during the second quarter and six months of 1998
compared to the same periods in 1997.  The increase in revenue is primarily a
result of increased sales of tape products for the client-server market and
online mainframe products, as well as increased revenue from consulting
services.  The increase was partially offset by declines in sales revenue of
mainframe Nearline(R) products and the effects of unfavorable foreign
currency exchange rate movements.  Overall gross profit margin increased to
47% and 48% during the second quarter and six months of 1998, respectively,
compared to 45% for the same periods in 1997.  This increase was principally
due to cost reductions associated with increased manufacturing volumes of
mainframe online products, increased sales of higher-margin software
products, and other cost reductions achieved in the Company's manufacturing
processes.

The Company's future revenue and operating results are significantly
dependent upon the continued demand for mainframe Nearline and online
products in their traditional markets; effectively managing the transition to
new technologies; expanding the market for information storage systems in the
client-server environment and network products designed for the storage area
network and network-attached storage environments; developing new
applications for its products; expanding its distribution channels; and
successfully expanding the consulting services business.  For discussion of
these and other risk factors, see "Risk Factors That May Affect Future
Results" below.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 13

The Company's cash and short-term investment balances decreased $65.0 million
during the six months of 1998 primarily due to cash payments of $118.6
million associated with the Company's common stock repurchase programs and
net investments in property, plant and equipment of $44.1 million.  These
repurchases and investments were partially funded through cash generated from
operating activities of $85.1 million and a reduction of short-term
investments of $56.3 million.

The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by product line,
which includes both product sales and maintenance revenue.

                                  Quarter Ended          Six Months Ended
                              --------------------------------------------
                                 06/26/98  06/27/97     06/26/98  06/27/97
                                 -----------------------------------------
Revenue:
  Nearline products                 61.0%     65.7%        63.3%     65.1%
  Online products                   26.9      22.9         25.4      23.2
  Network and other products        12.1      11.4         11.3      11.7
                                   -----     -----        -----     -----
     Total revenue                 100.0     100.0        100.0     100.0
Cost of revenue                     52.5      54.8         52.4      54.9
                                   -----     -----        -----     -----
     Gross profit                   47.5      45.2         47.6      45.1
Research and product development
  costs                             10.1       9.9         10.8      10.2
Marketing, general, administrative
  and other income and expense, net 21.8      22.3         22.7      22.8
                                   -----     -----        -----     -----
     Operating profit               15.6      13.0         14.1      12.1
Interest income, net                 0.6       1.3          0.8       1.3
                                   -----     -----        -----     -----
     Income before income taxes     16.2      14.3         14.9      13.4
Provision for income taxes          (6.2)     (3.9)        (5.7)     (3.6)
                                   -----     -----        -----     -----
     Net income                     10.0%     10.4%         9.2%      9.8%
                                   =====     =====        =====     =====

REVENUE
-------

NEARLINE PRODUCTS

Revenue from Nearline products decreased 3% in the second quarter of 1998,
but increased 4% for the six months of 1998, as compared to the same periods
in 1997.  The revenue decrease in the second quarter of 1998, as compared to
1997, was primarily due to decreased sales of earlier generation Nearline
products and a decline in sales of the TimberLine(R) 9490, a 36-track
cartridge subsystem.  This decrease was partially offset by increased sales
of TimberWolf(TM), a family of OPENstorage(TM) tape libraries designed for
client-server attachment.  The revenue increase in the six months of 1998, as
compared to 1997, was influenced by these same factors, as the increase in
sales of TimberWolf, as well as an increase in sales of the PowderHorn(R)
9310, a large-scale automated cartridge system library, more than offset the
decreases.  The decrease in TimberLine sales revenue was primarily due to
delays in customer purchase decisions and pricing pressures associated with
the evaluation of new tape solutions currently under development by the
Company.  The increase in TimberWolf sales revenue was primarily as a result
of market acceptance in the client-server market.  The Company's initiative
to develop new applications for its Nearline products continues to be a
significant contributor to
<PAGE>
                                                                    Form 10-Q
                                                                      Page 14

Nearline revenue in 1998, driving demand for PowderHorn and the RedWood(R)
SD-3, a high-capacity cartridge subsystem.

The rate of revenue growth in the Company's mainframe tape products has
slowed as customers shift their storage requirements from the
mainframe to the client-server environment.  Future revenue growth for
Nearline products is dependent upon the continued success of TimberWolf in
the client-server market and the timely development and transition to new
mainframe tape solutions.  The Company is currently developing Virtual
Storage Manager (VSM), a mainframe data storage management solution designed
to improve performance, cartridge utilization, and overall storage
management; and the 9840, a high-performance tape drive.  The Company expects
that these products will be key components of its growth initiative.  The
Company anticipates Nearline sales will continue to be impacted during the
transition period to the VSM and 9840 products.  There can be no assurance
that TimberWolf will continue to gain market acceptance, that the new
applications development activities will generate significant revenue, or
that the Company will timely develop new mainframe tape solutions.

ONLINE PRODUCTS

Revenue from online products increased 23% and 18% in the second quarter and
six months of 1998, respectively, compared to the same periods in 1997, due
to increased sales of mainframe online products under the Company's OEM
agreement with IBM.  Sales of the Company's online products targeted for the
client-server market also increased in the second quarter and six months of
1998.

Approximately 22% and 20% of the Company's total revenue during the second
quarter and six months of 1998, respectively, was derived from the Company's
worldwide non-exclusive OEM agreement with IBM under which the Company
develops and manufactures mainframe online storage products.  In December
1997, the Company entered into a new OEM agreement with IBM which expires in
December 2000.  IBM may elect to terminate this agreement for convenience or
for cause, or upon certain instances of change in control or the occurrence
of certain other conditions.  The Company may elect to terminate the
agreement for cause.  IBM is not subject to any long-term volume purchase
commitments. The Company anticipates that it will experience pricing pressure
under this agreement for the remainder of 1998 due to volume-purchase
discounts and price reductions associated with new technologies. There can be
no assurance that the Company will continue to realize benefits associated
with the agreement.  See "Risk Factors That May Affect Future Results -
Dependence on IBM," for further discussion of the risks associated with the
OEM agreement.

Success in the client-server disk market is significant to the Company's plans
to grow revenue in the future.  While sales of client-server disk products
have increased in 1998, the Company must gain further acceptance for its disk
products in an intensely competitive market and successfully develop cost-
effective, high-volume distribution channels for these products in order to
accelerate the rate of revenue growth in this market.  There can be no
assurance that the Company will be successful in its client-server disk
initiative.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 15

NETWORK AND OTHER PRODUCTS

Revenue from network and other products increased 12% and 4% in the second
quarter and six months of 1998, respectively, compared to the same periods in
1997, primarily due to an increase in consulting services revenue.  Revenue
from network products was unchanged in the second quarter and decreased
slightly in the six months of 1998, as compared to the same periods in 1997.

Future revenue growth from network products is dependent upon the timely
development and successful introduction of integrated storage area network
and network-attached storage solutions currently in development.  The
successful development of the consulting services business is also an
important element of the Company's future revenue growth.  There can be no
assurance that the Company will be successful in developing, distributing and
managing the introduction of new network products or that it will be
successful in developing the consulting services business.

GROSS PROFIT
------------

Overall gross profit margins increased to 47% and 48% in the second quarter
and six months of 1998, respectively, compared to 45% for the same periods in
1997.

Gross profit on product sales increased to 50% in the second quarter and six
months of 1998, compared to 46% and 45% for the second quarter and six months
of 1997, respectively.  This increase is primarily a result of cost
reductions associated with increased manufacturing volumes of mainframe
online products, increased sales of higher-margin software products and other
cost reductions achieved in the Company's manufacturing processes.  The
increase in gross profit as a percent of sales was partially offset by
increased sales of lower-margin client-server tape products and increased
sales through lower-margin indirect sales channels.

Gross profit on maintenance revenue decreased to 42% and 43% in the second
quarter and six months of 1998, respectively, compared to 43% and 45% for the
same periods in 1997.  The decline is principally attributable to lower
margins associated with the Company's consulting services business.

The markets for most of the Company's products are subject to intense price
competition.  The Company anticipates that price competition for its tape
products will continue to be a major factor as it expands its presence in the
client-server storage market and as customers evaluate new tape solutions
currently under development.  The Company anticipates that the product sales
margins for its mainframe online products will decline during the remainder
of 1998 due to price reductions of online products as a result of volume-
purchase discounts associated with sales under the OEM agreement with IBM and
price reductions associated with new technologies.  The Company's ability to
sustain or improve product sales margins is significantly dependent upon
continued success in reducing manufacturing costs in all of its product
lines.  Product sales margins also may be affected by inventory reserves and
writedowns resulting from rapid technological changes and delays in gaining
market acceptance for new products.  Maintenance margins may be adversely
affected in the future as a result of increased competition and lower margins
associated with the Company's consulting services business.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 16

RESEARCH AND PRODUCT DEVELOPMENT
--------------------------------

Research and product development expenditures increased 7% and 14% in the
second quarter and six months of 1998, respectively, compared to the same
periods in 1997.  The increased investment in new product development
activities during the second quarter and six months of 1998 was partially
offset by funding received from Compaq for certain research and development
activities for client-server data storage solutions and networking products,
and from IBM for enhancements to the Company's mainframe online products.
The Company's research and development expenditures are expected to increase
through the remainder of 1998 and will be affected by the level of funding
received from partners such as Compaq and IBM for the development of new
products.

MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
--------------------------------------------

Marketing, general, administrative and other income and expense (MG&A)
increased 3% and 7% in the second quarter and six months of 1998,
respectively, compared to the same periods in 1997.  The increase is
primarily a result of increased investment in internal business and financial
information systems and increased marketing expenses associated with the
Company's client-server storage and new applications initiatives.  These
increases were partially offset by reductions in accruals for employee bonus
and profit-sharing payments in 1998, as compared to 1997, as the Company did
not attain certain goals in the first six months of 1998.  MG&A for the
second quarter and six months of 1997 also included gains realized on the
sale of accounts receivable of approximately $7.2 million and $12.1 million,
respectively.

INTEREST INCOME AND EXPENSE
---------------------------

Interest income decreased 42% and 30% in the second quarter and six months of
1998, respectively, compared to the same periods in 1997, primarily because
of a decrease in cash available for investment.  Interest expense increased
1% in the second quarter of 1998, and decreased 8% for the six months of
1998, as compared to the same periods in 1997.  The decrease in the six
months of 1998 is due to the redemption of all of the Company's outstanding
8% Convertible Subordinated Debentures in January 1997.

INCOME TAXES
------------

The Company's effective tax rate increased from 27% for the second quarter of
1997 to 38% for the second quarter of 1998 as the Company has recognized
substantially all of its remaining net deductible temporary differences, tax
credit carryforwards and net operating loss carryforwards in the United
States.  The Company's remaining valuation allowance of approximately $22.2
million as of June 26, 1998, relates principally to net deductible temporary
differences and net operating loss carryforwards associated with the
Company's foreign subsidiaries.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 17


RESTRUCTURING
-------------

During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and network businesses.  The restructuring
was adopted in an effort to establish a more cost efficient business
structure in response to competition.  Elements of the Company's
restructuring plan included focusing on core businesses and outsourcing non-
strategic activities, rearchitecting its distribution processes and channels,
and accelerating the integration of Network Systems Corporation.

The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 26, 1998 (in
thousands of dollars):

                             Employee       Lease       Other
                            Severance   Abandonments  Exit Costs     Total
                            -------------------------------------------------

Balances, December 26, 1997  $14,994       $12,069       $ 229      $27,292

Cash payments                 (7,434)         (782)       (128)      (8,344)
                              ------        ------        ----       ------

Balances, June 26, 1998      $ 7,560       $11,287       $ 101      $18,948
                              ======        ======        ====       ======

Substantially all of the remaining restructuring reserves represent costs to
be incurred under contractual agreements which will not provide the Company
with any future economic benefit.  While the majority of these remaining
accruals are expected to result in future cash outflows, these outflows are
not expected to have a material effect on the Company's liquidity.

The Company believes that its restructuring programs have eliminated certain
non-essential functions and excess costs.  There can be no assurance,
however, that the Company's restructuring activities will be successful or
sufficient to allow the Company to continue to generate improved operating
results in future periods.  It is possible that changes in the Company's
business or in its industry may necessitate restructuring charges in the
future.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

WORKING CAPITAL

The Company's cash and short-term investments balances decreased $65.0
million during the six months of 1998 primarily due to cash payments of
$118.6 million associated with the Company's common stock repurchase programs
and net investments in property, plant and equipment of $44.1 million.  These
repurchases and investments were partially funded through cash generated from
operating activities of $85.1 million and a reduction of short-term
investments of $56.3 million.

In July 1998, the Company repurchased and retired 5,500,000 shares of its
common stock in a privately negotiated transaction for an initial price of
$263.3 million.  This transaction was partially funded by an advance of $150
million under the Company's $350 million unsecured credit agreement.  The
final purchase price of the common stock is subject to price adjustment based
on the trading price of the common stock during a defined period.  Any price
adjustment
<PAGE>
                                                                    Form 10-Q
                                                                      Page 18

will be reflected as an adjustment to capital in excess of par value on the
Consolidated Statement of Changes in Stockholders' Equity.  See Note 7 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion of the
Company's common stock repurchase programs.

The current ratio increased to 2.3 as of June 26, 1998, from 2.1 as of
December 26, 1997, primarily due to a decrease in accrued liabilities and
income taxes payable and an increase in inventory.  This increase was
partially offset by a decrease in cash and cash equivalents, short-term
investments and accounts receivable.  Inventory increased from $205.5 million
as of December 27, 1997, to $249.1 million as of June 26, 1998 primarily due
to increased inventory levels for Nearline and online products.  Accounts
receivable decreased from $628.0 million as of December 26, 1997, to $570.6
million as of June 26, 1998, primarily as a result of reduced sales revenue 
in the second quarter of 1998, as compared to the fourth quarter of 1997.

AVAILABLE FINANCING LINES

The Company has a $350 million unsecured credit agreement (the Revolver)
which expires in October 2001.  The credit limit available under the Revolver
will be reduced by $12.5 million on the last day of each calendar quarter
beginning December 31, 1998.  The interest rates under the Revolver depend on
the type of advance selected.  The basic advance rate is not less than the
London Interbank Offered Rate (LIBOR) plus 0.625% (6.3125% as of June 26,
1998). The Revolver contains certain financial and other covenants, including
restrictions on the Company's payment of cash dividends on its common stock.
As of June 26, 1998, the Company had issued letters of credit for
approximately $100,000 under the Revolver and had approximately $349.9
million of available credit.

The Company has a financing agreement with a bank which provides for the sale
of promissory notes in the principal amount of up to $140 million at any one
time.  The agreement, which expires in January 2000, provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies.  The notes must be repaid only to the extent of future revenue of
the Company and obligations under the agreement are not cancelable by the
Company or the bank.  Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment.  The promissory notes, together with accrued interest, are payable
in U.S. dollars within 40 days from the date of issuance and bear interest at
rates no less than the LIBOR rate plus 0.35% (6.0375% as of June 26, 1998).
Under the terms of the agreement, the Company is required to comply with
certain covenants and, under certain circumstances, may be required to
maintain a collateral account, including cash and qualifying investments, in
an amount of no less than the outstanding promissory notes.  As of June 26,
1998, the Company had no outstanding borrowings and had committed to
borrowings between July 1998 and December 1998 in the cumulative principal
amount of approximately $195.6 million.

The Company intends to continue to commit substantial resources to research
and development projects and may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products
or technologies.  The Company believes it has adequate working capital and
financing capabilities to meet its anticipated operating and capital
requirements for the next 12 months.  Over the longer term, the Company may
choose to fund these activities through the issuance of additional equity or
debt financing.  The issuance of equity or convertible debt securities could
result in dilution to the Company's
<PAGE>
                                                                    Form 10-Q
                                                                      Page 19

stockholders.  There can be no assurance that such additional financing, if
required, can be completed on terms acceptable to the Company.

INTERNATIONAL OPERATIONS
------------------------

During the second quarter and six months of 1998, approximately 36% of the
Company's revenue was generated from international operations, as compared to
approximately 34% and 35% for the second quarter and six months of 1997,
respectively.  The Company also sells its products through certain domestic
indirect distribution channels that have end-user customers located outside
the U.S.  The Company expects that it will generate a significant portion of
its revenue from international operations in the future.  The majority of the
Company's international operations involve transactions denominated in the
local currencies of countries within Western Europe; principally Germany,
France and the United Kingdom; Japan; Canada and Australia.  An increase in
the exchange value of the U.S. dollar reduces the value of revenue and
profits generated by the Company's international operations.  As a result,
the Company's operating and financial results can be materially affected by
fluctuations in foreign currency exchange rates.  In an attempt to mitigate
the impact of foreign currency fluctuations, the Company employs a hedging
program which utilizes foreign currency options and forward exchange
contracts.  See "Market Risk Management/Foreign Currency Exchange Risk"
below.

The Company's international business may be affected by changes in demand
resulting from localized economic, political and market conditions.  For
example, in the past, the Company's business has been adversely affected by
weak economic conditions in Europe.

The Company is subject to the risks of conducting business outside the United
States, including changes in, or impositions of, legislative or regulatory
requirements, tariffs, quotas, difficulty in obtaining export licenses,
potentially adverse taxes, the burdens of complying with a variety of foreign
laws and other factors outside the Company's control.  There can be no
assurances that one or more of the foregoing factors will not have a material
adverse effect on the Company's business or financial results in the future.

MARKET RISK MANAGEMENT/FOREIGN CURRENCY EXCHANGE RISK
-----------------------------------------------------

The market risk inherent in the Company's financial instruments relates
primarily to changes in foreign currency exchange rates.  To mitigate the
impact of foreign currency fluctuations, the Company seeks opportunities to
reduce exposures through financing activities and utilizes foreign currency
options and forward exchange contracts to further reduce any remaining
exposures.  All foreign currency options and forward exchange contracts are
authorized and executed pursuant to the Company's policies.  Foreign currency
options and forward exchange contracts that are designated as, and qualify
as, hedging transactions are subject to hedge accounting treatment.  The
Company does not hold or issue financial instruments, foreign currency
options or forward exchange contracts for trading purposes.

The Company has a financing agreement with a bank which provides for
commitments by the bank to purchase promissory notes denominated in a number
of foreign currencies.  Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment.  See "Available Financing Lines" above for further discussions of
the financing agreement.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 20

The Company periodically utilizes foreign currency options, generally with
maturities of less than one year, to hedge a portion of its exposure to
exchange-rate fluctuations in connection with anticipated revenue from its
international operations.  Gains and losses associated with the options are
deferred and recognized as an adjustment to the underlying revenue
transactions.  To the extent an option is terminated or ceases to be
effective as a hedge, any gains and losses as of that date are deferred and
recognized as an adjustment to the underlying revenue transaction.

The Company also utilizes forward exchange contracts, generally with
maturities of less than two months, to hedge its exposure to exchange-rate
fluctuations in connection with anticipated monetary assets and liabilities
held in foreign currencies and anticipated revenues from its international
operations.  The carrying amounts of these forward foreign exchange contracts
equal their fair value as the contracts are adjusted at each balance sheet
date for changes in exchange rates.  Gains and losses on the forward
contracts used to hedge monetary assets and liabilities are recognized as
incurred within MG&A on the Consolidated Statement of Operations as
adjustments to the foreign exchange gains and losses on the translation of
net monetary assets.

A hypothetical 10% adverse movement in foreign exchange rates applied to the
Company's foreign currency exchange rate sensitive instruments held as of
December 26, 1997, and as of June 26, 1998, would result in a hypothetical
loss of approximately $26.6 million and $32.7 million, respectively.  The
increase in the hypothetical loss during the six months of 1998 is primarily
due to the use of additional forward exchange contracts to hedge exchange-
rate exposure associated with monetary assets and liabilities held in foreign
currencies.  These hypothetical losses do not take into consideration the
Company's underlying international operations.  The Company anticipates that
any hypothetical loss associated with the Company's foreign currency exchange
rate sensitive instruments would be offset by gains associated with its
underlying international operations.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
-------------------------------------------

NEW PRODUCTS, MARKETS AND DISTRIBUTION CHANNELS

The Company's results of operations and competitive strength depend upon its
ability to successfully develop, manufacture, market and deliver innovative
new products and product enhancements.  Short product life cycles are
inherent to the high-technology market.  The Company must devote significant
resources to research and product development projects and effectively manage
the risks inherent in new product transitions.  Developing new products and
product enhancements is complex and involves uncertainties.  Delays in
product development, manufacturing, or in customer purchasing decisions can
make product transitions difficult.  In addition, product transitions make
the process of production and inventory planning more difficult as the
Company must accurately anticipate product mix and configuration demands, and
accurately forecast inventory levels.   The Company has experienced product
development delays in the past that adversely affected the Company's
financial results and competitive position.  There can be no assurances that
the Company will be able to successfully manage the development and
transition to of new products and product enhancements in the future.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 21

The Company is currently developing several new mainframe Nearline products
planned for availability in the fourth quarter of 1998.  The Company expects
that these products will be key components of its growth initiative and
failure to timely develop and distribute these new mainframe Nearline
products may negatively impact the Company's results in the remainder of 1998
and 1999.

The Company historically has generated a significant portion of its revenue
and operating profits from mainframe products.  The rate of revenue growth in
the Company's mainframe tape products has slowed as customers shift
their storage requirements from the mainframe to the client-server
environment.  The Company's future financial results are significantly
dependent upon the continued success of the TimberWolf tape family in the
client-server market and significantly increasing the Company's presence in
the client-server disk market.  The Company must also establish new cost-
effective, high-volume distribution channels in order to be successful in
this market.  There can be no assurances that the Company will be successful
in these activities.

The Company is expanding the market for its products and services through new
applications which address customer needs for information.  The new
applications initiative was successful in developing new markets for the
Company's products and services during the second quarter and six months of
1998.  However, there can be no assurances that the Company's applications
development activities will result in increased revenue and profitability in
the future.

The Company's increasing dependence on indirect distribution channels, such
as OEMs, value-added resellers and value-added distributors, will make
production and inventory planning more complex.  In the event an indirect
partner establishes a new relationship with a competitor or experiences
financial difficulties, the Company's operating and financial results may be
adversely affected.  See "Dependence on IBM," below, for a discussion of
issues associated with the Company's distribution channels for its mainframe
online products.

DEPENDENCE ON IBM

Approximately 22% and 20% of the Company's total revenue during the second
quarter and six months of 1998, respectively, was derived from OEM sales of
mainframe online products to IBM.  The Company currently anticipates that it
will derive a significant portion of its sales revenue during the remainder
of 1998 from product sales to IBM.  Under the worldwide, non-exclusive OEM
agreement entered into during December 1997, IBM is not subject to any long-
term volume purchase commitments.  IBM may terminate the agreement for
convenience or for cause, or upon certain instances of change in control or
the occurrence of certain other conditions.  The Company anticipates that it
will experience pricing pressures under the agreement for the remainder of
1998 due to volume-purchase discounts and price reductions associated with
new technologies.  The Company's success under the OEM agreement is
significantly dependent upon achieving certain product development, delivery
and performance milestones.  The Company's success is also dependent upon IBM
continuing to successfully market the mainframe online products, and
developing and delivering to the Company disk drives for inclusion in the
products.  Because of the volume-purchase discounts and pricing of new
technology included in the OEM agreement, the Company must continue to reduce
costs and expenses associated with manufacturing the products in order to
achieve the expected benefits during the remaining term of the agreement.
The OEM relationship may also cause the Company to incur additional costs
associated with unanticipated increases or decreases in <PAGE>
                                                                    Form 10-Q
                                                                      Page 22

manufacturing and inventory volumes.  There can be no assurances that the 
Company will achieve the milestones contained in the OEM agreement or that 
IBM will successfully market these products in the future.

In December 1997, the Company and IBM agreed to a settlement with the United
States Department of Justice (DOJ) concerning the Company's OEM relationship
with IBM.  The terms of the settlement are contained in a consent decree
which was approved by the U.S. District Court for the District of Columbia on
March 20, 1998.  Under the terms of the consent decree, which expires in
December 2002, the Company must develop complementary distribution channels
for delivery of its online products in 1999 or the Company could be subject
to limitations on its sales to IBM in the future.  The Company's current OEM
agreement with IBM expires in December 2000 and IBM has indicated that it is
currently developing a competitive online product.  Failure to develop new
distribution channels for the Company's mainframe online products could
adversely affect the Company's ability to sell its mainframe online products
in future periods.

COMPETITION

The markets for the Company's products and services are intensely
competitive.  In the mainframe market, the Company's traditional competitors
include IBM, EMC, Fujitsu and Hitachi.  Competition in the client-server
market comes from the Company's traditional rivals in the mainframe market,
in addition to companies focused on the client-server industry, such as Sun
Microsystems, Compaq and Hewlett-Packard.  A number of the Company's
competitors have significantly greater market presence and financial
resources than the Company.  In addition, many of the Company's potential
customers in the client-server market purchase their storage requirements as
part of a packaged server and storage product, which may provide a
competitive advantage to the Company's rivals.  The Company expects to
address this issue by providing superior storage area network and network-
attached storage solutions that operate across multiple computer platforms
and by establishing distribution relationships with these competitors.  The 
Company currently has relationships with some of its competitors, including 
Compaq, IBM, Hewlett Packard, NCR, Groupe Bull, and Siemens Nixdorf 
Informationssysteme.  There can be no assurances that the Company will be able
to successfully compete against other companies in the mainframe and 
client-server market.

PATENTS AND LICENSES

The Company's patents and other proprietary rights are material assets and
key elements of the business and competitive strength.  The Company protects
its proprietary information through a combination of patents, trademarks,
copyrights, confidentiality procedures, trade secret laws and licensing
arrangements.  The Company's policy is to apply for patents, or other
appropriate proprietary or statutory protection in the United States and
other selected countries to establish its proprietary rights in new and
improved technology.  There can be no assurances, however, that these
arrangements will successfully preclude competitors from developing products
similar to the Company's products, or that the Company's proprietary rights
will not be challenged, invalidated, or circumvented, or that these rights
will provide significant competitive advantages.  The Company also relies on
technology that is licensed from others, such as IBM.  The Company is unable
to predict whether its licensing arrangements can be renewed in the future on
terms acceptable to the Company.

<PAGE>
                                                                    Form 10-Q
                                                                      Page 23

In order to protect and enforce its proprietary rights, from time to time the
Company has commenced legal actions against other companies.  Similarly,
other companies have brought legal actions against the Company claiming
infringement of patent or other proprietary rights.  Licenses or royalty
arrangements are generally offered in these situations.  However, any
litigation by or against the Company, with or without merit, may result in
significant expense and divert the efforts of the Company's technical and
management personnel.  In the event of a successful claim of infringement
against the Company, the Company could be required to pay substantial
damages; cease the manufacture, use and sale of infringing products; expend
significant resources to develop non-infringing technology; or discontinue
the use of certain processes if the Company is unable to enter into royalty
arrangements.  As a result of an increasingly complex and diverse competitive
environment, the Company anticipates that the volume of proprietary rights
claims will grow.  There can be no assurances that litigation will not be
commenced against the Company in the future involving patents, copyrights,
trademarks or trade secrets, or that the Company will be able to obtain any
licensing, royalty or other rights on acceptable terms.  The Company
currently is involved in several legal proceedings involving its proprietary
rights and alleging patent infringement.  See Note 5 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS and "Odetics Litigation" above for additional
information with respect to certain of these legal proceedings.

VOLATILITY OF STOCK PRICE; EARNINGS FLUCTUATIONS

The trading price of the Company's common stock has fluctuated significantly
in the past and may fluctuate significantly in the future.  Industry
conditions, new product or product development announcements by the Company
or its competitors, announced acquisitions and joint ventures by the Company
or its competitors, broad market trends unrelated to the Company's
performance, changes in revenue or earnings estimates by the investment
community, global economic conditions and foreign currency exchange rate
fluctuations are among the factors that can affect the Company's stock price.
In addition, if the Company's reported operating results are below the
expectations of stock market analysts and investors, there could be an
immediate and significant adverse effect on the trading price of the
Company's common stock.

The Company's financial and operating results have fluctuated significantly
in the past and may continue to fluctuate in the future.  Fluctuations are
caused by factors such as customers' historical tendencies to make purchase
decisions near the end of the calendar year, the timing of the announcement
and availability of new products by the Company and its competitors,
fluctuating foreign currency exchange rates, changes in the mix and
configuration of products sold, rapid price erosion, the purchasing patterns
of the Company's OEM partners and global economic conditions.

SOLE SOURCE SUPPLIERS

The Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components.  Certain of the Company's key
components and products are purchased from single suppliers that the Company
believes are currently the only manufacturers of the particular components
that meet the Company's qualification requirements and other specifications
or for which alternative sources of supply are not readily available.  In
particular, a key component of the Company's tape drive heads is supplied by
Sumitomo Corporation on a sole source basis and the Company is dependent on
IBM for disk drives used in products manufactured for IBM under an 
<PAGE>
                                                                    Form 10-Q
                                                                      Page 24

OEM agreement.  Certain of the Company's suppliers have experienced occasional
technical, financial or other problems in the past that have delayed
deliveries, but without significant effect on the Company.  An unanticipated
failure of any sole source supplier to meet the Company's requirements for an
extended period, or an interruption in the Company's ability to secure
comparable components, could have a material adverse effect on the Company's
revenue and operating results.  In the event a sole source supplier was
unable or unwilling to continue to supply components, the Company would have
to identify and qualify other acceptable suppliers.  This process could take
an extended period, and no assurance can be given that any additional source
would become available or would be able to satisfy the Company's production
requirements on a timely basis.

RISKS ASSOCIATED WITH THE YEAR 2000

The Company's product lines include information storage systems and network
products which store, retrieve and transmit data.  In order to properly
process data, the Company's products must manage and manipulate data that
includes both 20th and 21st century dates (Year 2000 Compliant).  The Company
believes its current products are Year 2000 Compliant provided they have been
upgraded to include all recommended engineering changes.  There can be no
assurance that the Company's current products will be Year 2000 Compliant.
In addition, the Company does not currently intend to develop modifications
to certain of its older products to make them Year 2000 Compliant and plans
to notify the affected maintenance customers of this plan.  The Company's
inability to effectively manage the year 2000 risks associated with its
current and older product lines could have material adverse effects,
including increased warranty costs, customer satisfaction issues and
potential lawsuits.

The Company is currently in the process of replacing many of its internal
business and financial information systems.  These systems are being replaced
by new systems which are believed to be Year 2000 Compliant.  The Company is
also identifying and implementing changes to other information systems which
are not being replaced in order to make them Year 2000 Compliant.  The Company
anticipates that the installation of its new information systems and changes
to its remaining information systems in order to make them Year 2000 Compliant
will be substantially completed by the first half of 1999.  The Company 
currently does not expect that the year 2000 will cause operational problems
or result in the Company incurring material costs incremental to the cost of
the information systems projects currently underway.  Delays in implementing
these internal information systems or a failure to fully identify all year
2000 dependencies in the Company's internal information systems could have
material adverse consequences, including delays in the delivery or sale of
the Company's products, or cause the Company to incur increased costs.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 25
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                         PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS
--------------------------

See Part I, Item 3 - Legal Proceedings, of the Company's Form 10-K for the
fiscal year ended December 26, 1997, filed with the Commission on March 6,
1998.

On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company alleging that the  "pass-through" port in certain of the Company's
tape library products infringed U.S. Patent No. 4,779,151 (the "151 Patent").
The complaint asked the court to impose injunctive relief, treble damages in
an unspecified amount, and an award of attorney's fees and costs.  In
February 1996, a jury found that the Company's products did not infringe the
151 Patent.  Odetics appealed and in June 1997, the U.S. Court of Appeals for
the Federal Circuit reversed the District Court's ruling and remanded the
case back to the District Court for further proceedings.  On March 27, 1998,
a second trial was held and a jury found that a pass-through port in certain
of the Company's tape library products willfully infringed the 151 Patent and
awarded actual damages to Odetics of $70.6 million.  On July 31, 1998, the
Court granted the Company's motion for judgment as a matter of law,
overturning the jury's verdict, and entered judgment in favor of the Company.

On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent.  The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorney's fees and costs.  This case has been stayed.

The Company believes it has adequate legal defenses with respect to each of
the actions cited above and intends to vigorously defend against these
actions.  However, it is reasonably possible that these actions could result
in outcomes unfavorable to the Company.  The Company is also involved in
various other less significant legal actions.  While the Company currently
believes that the amount of the ultimate potential loss would not be material
to the Company's financial position, the outcome of these actions is
inherently difficult to predict.  In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on the Company's
financial position or reported results of operations in a particular quarter.
An unfavorable decision, particularly in patent litigation, could require
material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.

Information concerning these legal proceedings is also contained in Note 5 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in Part I of this Form
10-Q.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 26

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

The annual meeting of stockholders of the Company was held on May 21, 1998.
A quorum of stockholders was represented at the meeting in person or by
proxy.

A board of ten directors was to be elected at the meeting.  All of
management's nominees as listed in the Company's proxy statement were
elected.  The following directors were elected at the meeting:

                                                          FOR      WITHHELD
                                                      ----------   --------
David E. Weiss                                        48,512,448    203,677
William L. Armstrong                                  48,507,271    208,854
J. Harold Chandler                                    48,512,249    203,876
William R. Hoover                                     48,489,112    227,013
Stephen J. Keane                                      48,512,072    204,053
William T. Kerr                                       48,512,568    203,557
Robert E. La Blanc                                    48,512,336    203,789
Robert E. Lee                                         48,510,788    205,337
Harrison Shull                                        48,511,564    204,561
Richard C. Steadman                                   48,512,246    203,879

At the annual meeting, the stockholders approved amendments to the Company's
Amended and Restated 1987 Employee Stock Purchase Plan and the reservation of
an additional 1,400,000 shares of Common Stock for issuance under the plan,
by a vote of 45,643,950 in favor to 1,237,133 against, with 1,835,042
abstentions.  The stockholders also approved amendments to the Company's
Amended and Restated Stock Option Plan for Nonemployee Directors and the
reservation of an additional 250,000 shares of Common Stock for issuance
under this plan, by a vote of 44,811,484 in favor to 3,451,129 against, with
453,512 abstentions.  Also, the stockholders also ratified the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
current fiscal year, by a vote of 48,576,568 in favor to 50,449 against, with
89,108 abstentions.  There were no broker non-votes for any of these
proposals.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 27


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

      (a) Exhibits

      10.1        First Amendment to the Second Amended and Restated
                  Contingent Multicurrency Note Purchase Commitment
                  Agreement, dated as of May 28, 1998, between the Company
                  and Bank of America National Trust and Savings.
      10.2        Third Amendment to the Restated Bylaws.
      10.3(1)     1995 Equity Participation Plan as amended March 1998.
      11.0        Computation of Earnings Per Common Share.
      27.0        Financial Data Schedule for six months ended June 26, 1998.
      27.0        Financial Data Schedule for the three months ended
                  March 27, 1998.
      27.0        Financial Data Schedule for the year ended
                  December 26, 1997.
      27.0        Financial Data Schedule for nine months ended
                  September 26, 1997.
      27.0        Financial Data Schedule for six months ended June 27, 1997.
      27.0        Financial Data Schedule for the three months ended
                  March 28, 1997.
      27.0        Financial Data Schedule for the year ended
                  December 27, 1996.
      27.0        Financial Data Schedule for nine months ended
                  September 27, 1996
      27.0        Financial Data Schedule for six months ended June 28, 1996.
      27.0        Financial Data Schedule for the three months ended
                  March 29, 1996.
      27.0        Financial Data Schedule for the year ended
                  December 29, 1995.


     (b)       Reports on Form 8-K

          On May 27, 1998, the Company filed a Current Report on Form 8-K
          dated May 21, 1998, disclosing that on May 21, 1998, the
          Registrant's board of directors had approved a two-for-one split of
          its common stock, to be effected in the form of a stock dividend.
          The stock split entitled shareholders to receive one additional
          share of common stock for each outstanding share of common stock
          held of record as of the close of business on June 5, 1998 and was
          distributed on June 26, 1998.








     (1)  Contract or  compensation plan  or arrangement  in which  directors
          and/or officers participate.

<PAGE>
                                                                    Form 10-Q
                                                                      Page 28

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.


                                 STORAGE TECHNOLOGY CORPORATION
                                          (Registrant)




     August 7, 1998                    /s/ DAVID E. LACEY
-----------------------      ------------------------------------------
         (Date)                            David E. Lacey
                                      Executive Vice President
                                     and Chief Financial Officer
                                    (Principal Financial Officer)






     August 7, 1998                   /s/ THOMAS G. ARNOLD
-----------------------      ------------------------------------------
         (Date)                           Thomas G. Arnold
                               Vice President and Corporate Controller
                                   (Principal Accounting Officer)