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 September 27, 1996
                                      
                                     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 offices)          (Zip Code)
                                                       
                                                       
                                                       
                                      
     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) - 57,053,731 shares outstanding at October 28,
1996.

PAGE
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               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                             INDEX TO FORM 10-Q
                             SEPTEMBER 27, 1996

                                                             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 6 - Exhibits and Reports on Form 8-K               26


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<PAGE>
                                                                    Form 10-Q
                                                                       Page 3

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

                                                         09/27/96
                                                      (Unaudited)    12/29/95
                                                        ---------   ---------
ASSETS
Current assets:
 Cash, including cash equivalents                      $  282,907  $  264,502
 Short-term investments                                    87,017
 Accounts receivable, net                                 427,435     396,499
 Notes and installment receivables (Note 3)                 4,925      10,766
 Net investment in sales-type leases (Note 3)               5,275      88,668
 Inventories (Note 2)                                     263,174     214,553
                                                        ---------   ---------
    Total current assets                                1,070,733     974,988
Notes and installment receivables (Note 3)                  4,227      10,113
Net investment in sales-type leases (Note 3)                4,268     150,751
Equipment held for sale or lease, at cost (net)           117,434     139,629
Spare parts for field service, at cost (net)               30,863      29,468
Property, plant and equipment, at cost (net)              328,965     333,021
Deferred income tax assets, net                           111,039      74,902
Other assets                                              133,594     175,757
                                                        ---------   ---------
                                                       $1,801,123  $1,888,629
                                                        =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
 Nonrecourse borrowings secured by lease
   commitments (Note 3)                                            $   19,415
 Current portion of other long-term debt (Note 3)      $    5,628      65,844
 Accounts payable and accrued liabilities                 441,887     454,415
 Income taxes payable                                      63,639       9,963
                                                        ---------   ---------
    Total current liabilities                             511,154     549,637
7% Convertible subordinated debentures (Note 4)                       171,205
8% Convertible subordinated debentures                    145,620     145,645
Nonrecourse borrowings secured by lease
  commitments (Note 3)                                                 20,980
Other long-term debt                                       26,985      26,133
Deferred income tax liabilities                            15,177      12,196
                                                        ---------   ---------
     Total liabilities                                    698,936     925,796
                                                        ---------   ---------

Commitments and contingencies (Note 6)

STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000 shares
   authorized; 56,827,090 shares issued at
   September 27, 1996, and 53,352,087 shares
   issued at December 29, 1995 (Note 7)                     5,683       5,335
Capital in excess of par value                          1,435,490   1,414,551
Accumulated deficit                                      (333,277)   (445,761)
Treasury stock of 61,738 shares at September 27,
   1996, and 43,773 shares at December 29, 1995              (779)       (777)
Unearned compensation                                      (3,942)     (6,427)
Notes receivable from stockholders                           (988)     (4,088)
                                                        ---------   ---------
     Total stockholders' equity                         1,102,187     962,833
                                                        ---------   ---------
                                                       $1,801,123  $1,888,629
                                                        =========   =========
                                      
  The accompanying notes are an integral part of the consolidated financial
                                 statements.
                                      

PAGE
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                                                                    Form 10-Q
                                                                       Page 4
<TABLE>
                                      
                                      
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF OPERATIONS
                                 (Unaudited)
                  (In Thousands, Except Per Share Amounts)
                                      
<CAPTION>
                                          Quarter Ended           Nine Months Ended
                                      -----------------------------------------------
                                      09/27/96   09/29/95       09/27/96     09/29/95
                                       -------    -------      ---------    ---------
<S>                                   <C>        <C>          <C>          <C>
Sales                                 $348,122   $291,885     $1,006,202   $  927,716
Service and rental revenue             137,963    147,711        412,669      442,768
                                       -------    -------      ---------    ---------
  Total revenue                        486,085    439,596      1,418,871    1,370,484
                                       -------    -------      ---------    ---------

Cost of sales                          222,101    183,133        607,568      584,925
Cost of service and rental revenue      71,450     93,095        218,539      286,334
                                       -------    -------      ---------    ---------
  Total cost of revenue                293,551    276,228        826,107      871,259
                                       -------    -------      ---------    ---------

  Gross profit                         192,534    163,368        592,764      499,225

Research and product development
   costs                                36,898     42,414        135,515      135,797
Marketing, general, administrative
   and other income and expense, net   104,384     92,793        317,014      316,294
Merger expenses                                    30,680                      45,032
                                       -------    -------      ---------    ---------

  Operating profit (loss)               51,252     (2,519)       140,235        2,102

Interest income                          6,626      9,700         21,510       33,833
Interest expense                        (4,378)    (6,662)       (21,396)     (26,975)
                                       -------    -------      ---------    ---------

  Income before income taxes and
     extraordinary item                 53,500        519        140,349        8,960

Provision for income taxes             (14,000)    (7,500)       (37,400)     (13,000)
                                       -------    -------      ---------    ---------

  Income (loss) before
     extraordinary item                 39,500     (6,981)       102,949       (4,040)

Extraordinary gain on sale of
   lease assets, net of income
   taxes of $8,200 (Note 3)                                        9,535
                                       -------    -------      ---------    ---------

  Net income (loss)                     39,500     (6,981)       112,484       (4,040)

Preferred dividend requirement                     (3,018)                     (9,056)
                                       -------    -------      ---------    ---------

  Income (loss) applicable to
     common shares                    $ 39,500   $ (9,999)    $  112,484   $  (13,096)
                                       =======    =======      =========    =========

EARNINGS (LOSS) PER COMMON SHARE
   AND COMMON EQUIVALENTS (Note 9)
Primary:
Income (loss) before extraordinary
   item                               $   0.65   $  (0.19)    $     1.83   $    (0.25)
Extraordinary gain, net                                             0.17
                                       -------    -------      ---------    ---------
                                      $   0.65   $  (0.19)    $     2.00   $    (0.25)
                                       =======    =======      =========    =========

Fully Diluted:
Income before extraordinary item                              $     1.75
Extraordinary gain, net                                             0.15
                                       -------    -------      ---------    ---------
                                         N/A        N/A       $     1.90        N/A
                                       =======    =======      =========    =========


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

<TABLE>
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (Unaudited)
                          (In Thousands of Dollars)
<CAPTION>
                                                             Nine Months Ended
                                                       --------------------------
                                                            09/27/96     09/29/95
                                                          ----------   ----------
<S>                                                      <C>          <C>
OPERATING ACTIVITIES
Cash received from customers (Note 3)                    $ 1,657,036  $ 1,550,463
Cash paid to suppliers and employees                      (1,257,128)  (1,283,617)
Interest received                                             21,450       42,553
Interest paid                                                (16,093)     (24,908)
Income taxes paid, net                                       (24,570)     (35,400)
                                                          ----------   ----------
   Net cash from operating activities                        380,695      249,091
                                                          ----------   ----------
INVESTING ACTIVITIES
Purchase of property, plant and equipment                    (49,320)     (59,876)
Short-term investments, net                                  (87,017)       5,530
Merger expenses                                                           (10,647)
Other assets, net                                             12,825      (13,506)
                                                          ----------   ----------
   Net cash used in investing activities                    (123,512)     (78,499)
                                                          ----------   ----------
FINANCING ACTIVITIES
Proceeds from nonrecourse borrowings                           1,028        3,066
Repayments of nonrecourse borrowings (Note 3)                (34,058)    (145,711)
Proceeds from other debt                                          78          847
Repayments of other debt (Note 3)                            (64,139)     (52,630)
Proceeds from employee stock plans                            18,748        6,474
Payments for repurchase of common stock (Note 7)            (163,350)
Preferred stock dividend payments                                          (9,056)
                                                          ----------   ----------
   Net cash used in financing activities                    (241,693)    (197,010)
                                                          ----------   ----------
   Effect of exchange rate changes on cash                     2,915         (426)
                                                          ----------   ----------
Increase (decrease) in cash and cash equivalents              18,405      (26,844)
   Cash and cash equivalents - beginning
      of the period                                          264,502      228,081
                                                          ----------   ----------
Cash and cash equivalents - end of the period            $   282,907  $   201,237
                                                          ==========   ==========
RECONCILIATION OF NET INCOME TO NET CASH FROM
   OPERATING ACTIVITIES
Net income                                               $   112,484  $    (4,040)
Depreciation and amortization expense                        123,561      166,222
Translation (gain) loss                                        2,306       (4,035)
Other adjustments to income                                   16,109       24,236
(Increase) decrease in accounts receivable                   (15,944)      13,376
Decrease in notes receivable and sales-type
   leases (Note 3)                                           238,607      166,355
(Increase) decrease in inventories                           (48,724)       2,926
Increase in equipment held for sale or lease, net            (33,025)     (46,491)
Increase in spare parts, net                                  (6,085)      (7,046)
Increase in net deferred income tax asset                    (32,942)     (15,873)
Decrease in accounts payable and accrued
   liabilities                                               (29,624)     (40,012)
Increase (decrease) in income taxes payable                   53,972       (6,527)
                                                          ----------   ----------
   Net cash from operating activities                    $   380,695  $   249,091
                                                          ==========   ==========

                                      
  The accompanying notes are an integral part of the consolidated financial
                                 statements.
                                      
</TABLE>
PAGE
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                                                                    Form 10-Q
                                                                       Page 6
<TABLE>
                                      
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (Unaudited)
                          (In Thousands of Dollars)
                                      
                                      
<CAPTION>
                                                                                                            Notes
                                               Capital in                                                  Receivable
                                     Common     Excess of     Accumulated   Treasury        Unearned        From
                                      Stock     Par Value       Deficit     Stock       Compensation      Stockholders
                                   -------------------------------------------------------------------------------------  
                                                                                                                            
<C>                                 <C>        <C>            <C>           <C>         <C>               <C>         
Balances, December 29, 1995          $5,335    $1,414,551      $(445,761)     $(777)       $(6,427)         $(4,088)
                                                                                                                            
7% Convertible Subordinated 
  Debentures exchanged for                                                                        
  stock (7,282,536 shares)
   (Note 4)                             728       168,273
                                                                                                                            
Shares issued under stock 
  purchase plan and for 
  exercises of options 
  (691,098 shares)                       69        15,580                      
                                                                                                                            
Repurchase of common stock 
  (4,500,000 shares) (Note 7)          (450)     (162,900)
                                                                                                                            
Net income                                                       112,484                                  
                                                                                                                              
Other                                     1           (14)                       (2)         2,485            3,100
                                                                                                                              
                                      -----     ---------       --------       ----         ------           ------  
Balances, September 27, 1996         $5,683    $1,435,490      $(333,277)     $(779)       $(3,942)         $  (988)
                                      =====     =========       ========       ====         ======           ====== 
                                      
                                      
                                      
  The accompanying notes are an integral part of the consolidated financial
                                 statements.
</TABLE>                                      
PAGE
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                                                                    Form 10-Q
                                                                       Page 7
                                      
                                      
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


NOTE 1 - BASIS OF PREPARATION AND RECENTLY ISSUED ACCOUNTING STANDARDS
----------------------------------------------------------------------

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 29, 1995.

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  SFAS No.
125, which provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities, is
effective for transactions occurring after December 31, 1996.  The Company
does not anticipate that the adoption of SFAS No. 125 will have a material
effect on its consolidated financial position or results of operations.

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

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

                                    09/27/96        12/29/95
                                    --------        --------
     Raw Materials                  $ 97,633        $ 75,673
     Work-In-Process                 109,413          92,487
     Finished Goods                   56,128          46,393
                                     -------         -------
                                    $263,174        $214,553
                                     =======         =======


NOTE 3 - SALE OF LEASE ASSETS
-----------------------------

In March 1996, StorageTek sold all of the issued and outstanding stock of
its wholly owned lease financing subsidiary, StorageTek Financial Services
Corporation (SFSC), as well as the lease assets of certain of the Company's
foreign subsidiaries to Leasetec Corp. (Leasetec).  These transactions
resulted in the sale of substantially all of the Company's net investment in
sales-type leases, installment receivables, and equipment held subject to
operating leases.  Leasetec assumed approximately $6,000,000 of associated
nonrecourse borrowings and the Company used a portion of the cash proceeds
to retire its remaining nonrecourse borrowings and 9.53% Senior Secured
Notes.  The transactions resulted in an extraordinary gain of $9,535,000,
net of applicable taxes of $8,200,000, in the first quarter of 1996.  The
increase in net cash from operating activities on the Consolidated Statement
of Cash Flows during the nine months ending

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                                                                    Form 10-Q
                                                                       Page 8
                                      

September 27, 1996, as compared to the same period of 1995, is partially a
result of cash received from the sale of lease assets.


NOTE 4 - DEBT AND OTHER FINANCING ARRANGEMENTS
----------------------------------------------

On June 12, 1996, the Company called for redemption on July 12, 1996, all
outstanding 7% Convertible Subordinated Debentures due 2008 (7% Convertible
Debentures) in the principal amount of approximately $171,205,000.
Debentures in the principal amount of $171,140,000 were converted at a price
of $23.50 per share into 7,282,536 shares of common stock on or before July
12, 1996.  The remaining debentures were redeemed for cash on July 12, 1996.

On March 28, 1996, the Company entered into a $150,000,000 secured credit
agreement (the Revolver) which expires in May 1998.  The interest rates
available under the Revolver depend on the type of advance selected.  The
current primary advance rate is the agent bank's prime lending rate plus
0.125% (8.375% as of September 27, 1996).  Under the Revolver, the Company
is required to comply with certain financial and other covenants, including
restrictions on the payment of cash dividends on its common stock.  As of
September 27, 1996, the Company had issued letters of credit for
approximately $35,562,000 and had approximately $114,438,000 of available
credit under the Revolver.

On January 29, 1996, the Company entered into a financing agreement with a
bank which provides for the sale of certain U.S. and foreign based accounts
receivable on a recourse basis.  This agreement, which expires on January
31, 1998, allows for receivable sales of up to $40,000,000 at any one time
and the Company's obligations under the agreement are secured by a letter of
credit for the amount of the receivables sold.  The selling price of the
receivables is partially determined based upon foreign currency exchange
rates and any gains or losses on the sales are recognized within marketing,
general, administrative and other income and expense, net, in the
Consolidated Statement of Operations at the time the receivables are sold.
As of September 27, 1996, the Company had committed to future cumulative
sales of approximately $259,580,000.  Gains and losses associated with the
receivable sales are not expected to have a material effect on the Company's
reported financial results after taking into consideration other
transactions associated with the Company's international operations.  Based
upon the Company's past credit and collection experience with respect to the
receivables that it expects to sell, the Company believes that no material
credit risk exists under the recourse provisions of the agreement.


NOTE 5 - RESTRUCTURING
----------------------

During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and networking 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
accelerating the integration of Network Systems Corporation (Network
Systems).

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                                                                    Form 10-Q
                                                                       Page 9
                                      


The following table summarizes the activity associated with the Company's
restructuring reserves during the nine months of 1996 (in thousands of
dollars):

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

Balances, December 29,
   1995                       $ 42,688      $18,538     $10,172    $ 71,398

Cash payments                  (24,840)      (1,834)     (4,635)    (31,309)

Reclassifications                  301        (154)       1,222       1,369
                               -------       ------     -------     -------

Balances, September 27,
   1996                       $ 18,149      $16,550    $  6,759    $ 41,458
                               =======       ======     =======     =======


Cash payments during the nine months of 1996 are primarily the result of a
reduction in the number of employees of approximately 1,700 people.
Reclassifications consist principally of reclassifying a restructuring
accrual as other exit costs of approximately $1,400,000, which was
previously recorded as a direct write-off of a fixed asset.  The
reclassifications had no effect on the Company's reported results within the
Consolidated Statement of Operations during the nine months of 1996.  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 6 - LITIGATION
-------------------

On June 10, 1993, the Company filed suit against EMC Corp. in U.S. District
Court for the District of Colorado.  The suit alleged infringement by EMC
Corp. of a patent pertaining to the Company's disk storage technology.  The
complaint asked the court to impose injunctive relief, treble damages in an
unspecified amount, and an award of attorney fees and costs.  EMC Corp.
filed an answer and counterclaim on July 20, 1993, alleging, among other
things, patent misuse by StorageTek and seeking the invalidation of the
Company's patents, damages in an unspecified amount and an award of attorney
fees, costs and interest.

On September 23, 1994, EMC Corp. filed suit in U.S. District Court in
Wilmington, Delaware, alleging infringement of a patent pertaining to disk
storage technology.  The complaint asked the court to impose injunctive
relief, treble damages in an unspecified amount and an award of attorney
fees and costs.  On December 22, 1994, the Company filed a counterclaim for
infringement of one of its patents and, in November 1995, added a second
patent to its counterclaim.

On April 16, 1996, the Company and EMC Corp. settled the above suits filed
on June 10, 1993, and September 23, 1994, and each of the related
counterclaims.  The settlement includes a cross-licensing agreement limited
to patents covering rotating and solid-state direct access storage device
technologies.

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

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                                                                    Form 10-Q
                                                                      Page 10
                                      

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 has 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.

On February 15, 1994, the Company filed suit in Boulder County, Colorado,
District Court against Array Technology Corporation (Array) and Tandem
Computers Incorporated (Tandem).  The suit asked that the court order Array
and Tandem to either support certain disk drives purchased from them or
provide the Company with technical data necessary for StorageTek to provide
such customer support.  In March 1994, Array and Tandem filed their answer
and also filed counterclaims against the Company alleging breach of contract
and claiming damages.  On June 10, 1994, the court ordered Array and Tandem
to continue to provide support for these products and to maintain, in an
independent escrow account, the materials necessary to enable the Company to
support the products in the event Array and Tandem failed to provide such
services.  On May 30, 1995, the Company filed an amended complaint seeking
damages.  The case is in the discovery phase.  A trial date has been reset
for October 1997.

On June 29, 1995, Odetics, Inc. filed a patent infringement suit in the U.S.
District Court for the Eastern District of Virginia against the Company and
two of its customers 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 attorneys fees and
costs.  On February 1, 1996, a jury found that the Company's products did
not infringe the 151 Patent.  A notice of appeal to the U.S. Court of
Appeals for the Federal Circuit was filed by Odetics, Inc. on March 8, 1996.
Oral argument on the appeal of this suit is expected in January 1997.

On December 8, 1995, Odetics, Inc. 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 infringe the 151 Patent.  The
complaint seeks injunctive relief, treble damages in an unspecified amount,
and an award of attorneys fees and costs.  This case has been stayed pending
the outcome of any appeal to the U.S. Court of Appeals for the Federal
Circuit with respect to the case filed by Odetics, Inc. on June 29, 1995.

In addition, the Company is involved in various other less significant legal
proceedings.  The Company believes it has adequate legal defenses with
respect to each of the suits cited above and intends to vigorously defend
against these actions.  However, it is reasonably possible that these cases
could result in outcomes unfavorable to the Company.  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 litigation
is inherently difficult to predict.  In the event of an adverse outcome, the
ultimate potential loss could have a material effect on the Company's
financial position or reported results of operations in a particular
quarter.  An adverse 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.

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                                                                    Form 10-Q
                                                                      Page 11
                                      


NOTE 7 -  REPURCHASE OF COMMON STOCK
------------------------------------

On September 20, 1996, the Company repurchased and retired 4,500,000 shares
of its common stock for an initial purchase price of $163,350,000 through a
privately negotiated stock repurchase agreement.  The final purchase price
of the common stock is subject to adjustment, within certain limits, based
on the trading price of the stock during a defined period commencing
September 23, 1996.  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 in the fourth quarter of 1996.


NOTE 8 - IBM ORIGINAL EQUIPMENT MANUFACTURER (OEM) AGREEMENT
------------------------------------------------------------

On June 7, 1996, StorageTek entered into a worldwide non-exclusive OEM
agreement with International Business Machines Corporation (IBM) under which
the Company develops and manufactures mainframe online storage products for
IBM.  IBM serves as StorageTek's primary distribution channel for this
technology and StorageTek does not anticipate that it will continue to sell
this technology directly to end-user customers during the term of the
agreement.  The agreement, which expires in 1999, contains certain minimum
purchase commitments on behalf of IBM.  The agreement also contains
provisions including, among others, product quality, availability, supply,
delivery, and development milestones.  The Company's failure to achieve
these milestones may result in reduced purchase commitments, the imposition
of penalties and, under certain circumstances, IBM may terminate the
agreement.  StorageTek is required to perform, and IBM will fund, certain
research and development activities associated with the development of
enhancements to these products.  The technology which is developed will be
owned by IBM, subject to licensing rights by StorageTek.

Revenue on sales to IBM are recognized at the time of shipment in accordance
with the Company's revenue recognition policy for OEM sales.  Costs
associated with post-installation warranty obligations are estimated and
accrued at the time of revenue recognition.


NOTE 9 - EARNINGS PER COMMON SHARE
----------------------------------

Fully diluted earnings per common share for the nine months ended September
27, 1996, reflect the assumed conversion of the Company's remaining
outstanding 7% Convertible Debentures and the 8% Convertible Subordinated
Debentures, whereas these convertible securities were either not outstanding
or were not dilutive in all other periods presented.


PAGE
<PAGE>
                                                                    Form 10-Q
                                                                      Page 12
                                      

               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                             SEPTEMBER 27, 1996


CERTAIN STATEMENTS IN THE FOLLOWING DISCUSSION REGARDING THE COMPANY'S
FUTURE PRODUCTS AND BUSINESS PLANS, FINANCIAL RESULTS, PERFORMANCE AND
EVENTS ARE FORWARD-LOOKING STATEMENTS AND ARE BASED ON CURRENT EXPECTATIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY DUE TO A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING THE RISKS DISCUSSED UNDER THE HEADING "OTHER RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS REPORT.

GENERAL
-------

Storage Technology Corporation (StorageTek or the Company) reported net
income for the third quarter ended September 27, 1996, of $39.5 million on
revenue of $486.1 million, compared to a net loss for the third quarter
ended September 29, 1995, of $7.0 million on revenue of $439.6 million.  Net
income of $112.5 million was reported for the nine months of 1996 on revenue
of $1,418.9 million, compared to a net loss of $4.0 million for the nine
months of 1995 on revenue of $1,370.5 million.  The Company's reported net
income for the nine months of 1996 includes an extraordinary gain of $9.5
million, net of taxes, associated with the sale of substantially all of the
Company's lease assets.

Revenue increased 11% and 4% during the third quarter and nine months of
1996, respectively, as compared to the same periods in 1995.  During the
third quarter and nine months of 1996, the Company received significantly
increased revenue and gross profit contribution from TimberLine 9490
(TimberLine), a 36-track tape cartridge subsystem, over the same periods of
1995.  PowderHorn 9310 (PowderHorn), an Automated Cartridge System (ACS)
Library; and RedWood SD-3 (RedWood), a high-capacity cartridge subsystem,
also contributed to increased revenue during these periods as compared to
the same periods of 1995.  As anticipated, revenue from older generation
Nearline products decreased during the third quarter and nine months of
1996, compared to the same periods of 1995.  Revenue from mainframe online
products increased in the third quarter and nine months of 1996 as compared
to the same periods of 1995, as a result of initial sales  under the OEM
agreement with International Business Machines Corporation (IBM), coupled
with strong end-user sales of the Company's Iceberg 9200 Virtual Storage
Facility (Iceberg) in the third quarter of 1996.  While the gross margin
percentage associated with mainframe online products decreased during the
third quarter of 1996 due to lower OEM pricing and intense price
competition, the gross margin contribution associated with these products
increased due to the higher volume of sales.  Revenue contribution from
networking products decreased during the third quarter and nine months of
1996, compared to the same periods of 1995, primarily due to the continued
decline in revenue from a number of older networking products and the sale of 
a non-strategic network business during the third quarter of 1996.

The Company's future revenue and operating results are significantly
dependent upon sustained demand for TimberLine and PowderHorn; successfully
identifying and capitalizing on new emerging product and service markets
outside the Company's traditional marketplace, including solutions targeted
for the open-systems market; achieving the milestones and

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 13
                                      

reducing the operating expenses associated with the Company's manufacture of
mainframe online products pursuant to the OEM agreement with IBM; and the
effective implementation of significant business restructuring activities
initiated during the fourth quarter of 1995.   For discussion of these
factors and other risk factors, see "OTHER RISK FACTORS THAT MAY AFFECT
FUTURE RESULTS," below.

The Company's cash balances increased $18.4 million during the nine months
of 1996.  Net cash flows generated from the sale of substantially all of the
Company's lease assets, as well as cash flows generated from operations,
were partially offset by the repurchase of 4.5 million shares of the
Company's common stock for an initial purchase price of $163.4 million and
purchases of short-term investments of $87.0 million during the third
quarter of 1996.

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


                                  Quarter Ended      Nine Months Ended
                               ---------------------------------------
                               09/27/96 09/29/95     09/27/96 09/29/95
                               -------- --------     -------- --------
Revenue:
  Nearline products               61.7%     62.8%       65.0%    60.2%
  Online products                 25.1      19.5        20.4     19.0
  Networking products              9.2      12.0         9.5     11.5
  Other products                   4.0       5.7         5.1      9.3
                                 -----     -----       -----    -----
    Total revenue                100.0     100.0       100.0    100.0
Cost of revenue                   60.4      62.8        58.2     63.6
                                 -----     -----       -----    -----
    Gross profit                  39.6      37.2        41.8     36.4
Research and product 
  development costs                7.6       9.7         9.6      9.9
Marketing, general,
   administrative and other
   income and expense, net        21.5      21.1        22.3     23.1
Merger expenses                              7.0                  3.2
                                 -----     -----       -----    -----
    Operating profit (loss)       10.5      (0.6)        9.9      0.2
Interest income, net               0.5       0.7         0.0      0.5
                                 -----     -----       -----    -----
    Income before income taxes
      and extraordinary item      11.0       0.1         9.9      0.7
Provision for income taxes        (2.9)     (1.7)       (2.6)    (1.0)
                                 -----     -----       -----    -----
    Income (loss) before
      extraordinary item           8.1      (1.6)        7.3     (0.3)
Extraordinary gain on sale 
  of lease assets, net of 
  income taxes                                           0.6
                                 -----     -----       -----    -----
    Net income (loss)              8.1%     (1.6)%       7.9%    (0.3)%
                                 =====     =====       =====    =====


REVENUE
-------

NEARLINE PRODUCTS

Revenue from Nearline products increased 9% and 11% in the third quarter and
nine months of 1996, respectively, compared to the same periods in 1995,
primarily due to a significant increase in revenue from TimberLine.  Revenue
contribution from PowderHorn and RedWood,

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 14
                                      

also increased in the third quarter and nine months of 1996, compared to the
same periods in 1995.  As anticipated, revenue from older generation
Nearline products, such as 4480 18-Track Tape Cartridge Subsystem, and
Silverton 4490 36-Track Tape Cartridge Subsystem (Silverton), declined in
the third quarter and nine months of 1996, compared to the same periods in
1995.

Future results of the Nearline product line are significantly dependent upon
the continued demand for TimberLine and PowderHorn, and gaining market
acceptance for other new Nearline products, including products targeted for
the open-systems market.  During the third quarter of 1996 the Company
announced an OEM agreement with NCR Corporation for its open-systems
TimberWolf 9710 Automated Cartridge System.  Sales of TimberLine, PowderHorn
and other new Nearline products are expected to offset anticipated further
declines in revenue from older generation Nearline products. There can be no
assurance that TimberLine and PowderHorn will continue to sustain their
historical market growth or that other new Nearline products will gain
market acceptance in the future.

ONLINE PRODUCTS

Revenue from online products increased 42% and 11% in the third quarter and
nine months of 1996, respectively, as compared to the same periods in 1995.
This online revenue increase is primarily due to initial sales  under the
OEM agreement with IBM, coupled with strong end-user sales of Iceberg the
third quarter of 1996.  The end-user sales of Iceberg are anticipated to
significantly decline in the fourth quarter of 1996 as the Company completes
its transition to its role as serving primarily as an OEM supplier for
online mainframe products.  The increase in sales revenue contribution from
online products was partially offset by a decrease in service revenue
contribution from older online products.

On June 7, 1996, StorageTek entered into a worldwide non-exclusive OEM
agreement with IBM under which the Company develops and manufactures
mainframe online storage products for IBM.  IBM serves as StorageTek's
primary distribution channel for this technology and StorageTek does not
anticipate that it will continue to sell this technology directly to end-
user customers during the term of the agreement.  The agreement, which
expires in 1999, contains certain minimum purchase commitments on behalf of
IBM.  The agreement also contains provisions including, among others,
product quality, availability, supply, delivery, and development milestones.
The Company's failure to achieve these milestones may result in reduced
purchase commitments, the imposition of penalties and, under certain
circumstances, IBM may terminate the agreement.

The Company anticipates the OEM agreement with IBM will benefit the Company
through increased sales revenue contribution from the mainframe online
product line, due to increased market penetration.  Additionally, the OEM
arrangement is expected to allow the Company to redirect resources to other
products, as well as new, emerging products and services outside the
Company's traditional marketplace.  There can be no assurance that the
Company will achieve the milestones provided for in the OEM agreement or
that the Company will realize the anticipated benefits.

NETWORKING PRODUCTS

Revenue from networking products decreased 15% in the third quarter and nine
months of 1996, compared to the same periods in 1995.  These decreases are
due primarily to the

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 15
                                      

continued decline in revenue from a number of older networking products and the
sale of a non-strategic network business in the third quarter of 1996 as the
Company continued the implementation of restructuring actions aimed at
increasing the focus on core networking products for the information storage
and retrieval marketplace.  The Company's 1995 restructuring activities
resulted in the realization of cost savings associated with the manufacture
of networking products during the nine months of 1996.

Future revenue and operating results from the Company's networking products
are significantly dependent upon increasing the market penetration for
network security, channel extension, backup, retrieval, and migration
products; successfully expanding the networking product line; and developing
new market distribution channels.  There can be no assurance the Company's
networking products will generate any significant profits in the future or
that new products will be successfully and timely developed or gain market
acceptance.

OTHER PRODUCTS

Revenue from other products decreased 22% and 42% in the third quarter and
nine months of 1996, respectively, compared to the same periods in 1995.
These decreases are primarily the result of the Company's sale of its
midrange business during 1995.

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

Overall gross profit increased to 40% and 42% in the third quarter and nine
months of 1996, respectively, compared to 37% and 36% in the third quarter
and nine months of 1995.

Gross profit on product sales decreased to 36% in the third quarter of 1996,
compared to 37% in the third quarter of 1995.  The decrease in gross profit
percentage during the third quarter of 1996 is principally the result of the
increased volume of sales of lower margin mainframe online products.  While
the gross margin percentage associated with the mainframe online products
decreased, the gross margin contribution associated with these products
increased due to the higher volume of sales.

Gross profit on product sales increased to 40% for the nine months of 1996,
compared to 37% for the same period in 1995, principally as a result of cost
savings achieved in connection with the Company's 1995 restructuring,
increased manufacturing volumes, and lower purchase costs associated with
components for online and Nearline products.  This increase was partially
offset by the increased volume of sales of lower margin mainframe online
products.

Gross profit on service and rental revenue increased to 48% and 47% in the
third quarter and nine months of 1996, respectively, compared to 37% and 35%
for the third quarter and nine months of 1995.  These increases are
primarily due to cost savings associated with the 1995 restructuring and
reduced service revenue contribution from lower-margin midrange service as a
result of the sale of the midrange service business in the third quarter of
1995.

The Company's ability to sustain or improve product sales margins in the
fourth quarter of 1996 and during 1997 is significantly dependent upon the
Company's continued success in reducing manufacturing costs in all of its
product lines.  The Company anticipates that sales margins for its mainframe
online products will be pressured due to lower OEM pricing and scheduled
price reductions over the term of the OEM agreement with IBM.  While pricing
pressures are expected to

PAGE
<PAGE>
                                                                    Form 10-Q
                                                                      Page 16
                                      

partially offset by lower manufacturing costs resulting from increased 
volumes and operating expense savings, the Company must further reduce costs 
and expenses associated with manufacturing these products in order to achieve 
expected benefits.  Product sales margins also may be adversely affected by 
inventory writedowns resulting from rapid technological changes and delays in 
gaining market acceptance for new products.  Service margins may be adversely 
affected in the future by increased price competition.

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

Research and product development expenditures decreased 13% in the third
quarter and were unchanged during the nine months of 1996, compared to the
same periods of 1995.  The decrease in expenditures during the third quarter
of 1996 reflects IBM's agreement to finance the development of enhancements
to mainframe online products effective July 1, 1996, pursuant to the OEM
agreement.  The Company anticipates that in future periods it will increase
the amount of investment in research and development activities associated
with new products outside its traditional markets.

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

Marketing, general, administrative and other income and expense (MG&A and
Other) increased 12% in the third quarter and was unchanged for the nine
months of 1996, compared to the same periods of 1995.  MG&A and Other during
the third quarter of 1996 increased 3%, compared to the third quarter of
1995, after excluding the effects of a one-time gain of $8.8 million
realized on the sale of the IBM AS/400 and System 3X midrange service
business in the third quarter of 1995.

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

Interest income decreased 32% and 36% in the third quarter and nine months
of 1996, respectively, compared to the same periods of 1995, due primarily
to a reduction in the Company's net investment in sales-type lease balances.
Interest expense decreased 34% and 21% in the third quarter and nine months
of 1996, respectively, as compared to the same periods of 1995, due
primarily to a reduction in nonrecourse borrowings and other long-term debt.
These decreases were partially offset during the first six months of 1996 by
incremental interest expense associated with the exchange of the Company's
7% Convertible Subordinated Debentures for its $3.50 Convertible
Exchangeable Preferred Stock in the fourth quarter of 1995.  As further
discussed in Note 4 to the Notes to Consolidated Financial Statements, the
7% Convertible Subordinated Debentures were called for redemption on June
12, 1996, and were either converted into shares of the Company's common
stock or redeemed for cash as of July 12, 1996.

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

Statement of Financial Accounting Standards (SFAS) No. 109 requires that
deferred income tax assets be recognized to the extent realization of such
assets is more likely than not.  Based on the currently available
information, management has determined that the Company will more likely
than not realize $111.0 million of deferred income tax assets as of
September 27, 1996.  The Company's valuation allowance of approximately
$137.8 million on a gross deferred tax

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 17
                                      
asset of approximately $248.8 million as of September 27, 1996, was
established based upon the consideration of a variety of factors, including
the fact that the Company has a cumulative net loss in recent years, as well
as uncertainties associated with the successful completion of its recent
restructuring activities and the possible impact of adjustments by the
Internal Revenue Service to the Company's previously filed federal income
tax returns. The Company's effective tax rate can be subject to significant
fluctuations due to dynamics associated with the mix of its U.S. and
international taxable earnings.

EXTRAORDINARY GAIN
------------------

As more fully discussed in Note 3 of Notes to Consolidated Financial
Statements, in March 1996, StorageTek sold substantially all of the
Company's net investment in sales-type leases, installment receivables, and
equipment held subject to operating leases to Leasetec Corporation
(Leasetec).  The sale was a result of the Company's efforts to focus on the
core businesses and outsource its capital intensive lease financing
business.  Leasetec assumed approximately $6.0 million of associated
nonrecourse borrowings and the Company used a portion of the cash proceeds
to retire its remaining nonrecourse borrowings and 9.53% Senior Secured
Notes.  The transactions resulted in an extraordinary gain of $9.5 million,
net of applicable taxes of $8.2 million, in the first quarter of 1996.

RESTRUCTURINGS
--------------

During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and networking 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, outsourcing non-
strategic activities, rearchitecting its distribution processes and
accelerating the integration of Network Systems.

The following table summarizes the activity associated with the Company's
restructuring reserves during the nine months of 1996 (in thousands of
dollars):


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

Balances, December 29,
   1995                       $ 42,688      $18,538     $10,172    $ 71,398

Cash payments                  (24,840)      (1,834)     (4,635)    (31,309)

Reclassifications                  301        (154)       1,222       1,369
                               -------       ------     -------     -------

Balances, September 27,
   1996                       $ 18,149      $16,550    $  6,759    $ 41,458
                               =======       ======     =======     =======


Cash payments during the nine months of 1996 are primarily the result of a
reduction in the number of employees of approximately 1,700 people.
Reclassifications consist principally of reclassifying a restructuring
accrual as other exit costs of approximately $1.4 million, which was
previously recorded as a direct write-off of a fixed asset.  The
reclassifications had no effect on

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 18
                                      

the Company's reported results within the Consolidated Statement of
Operations during the nine months of 1996.  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 elimination of recurring costs associated with the restructuring was
expected to yield expense reductions on an annual basis of approximately
$125 million at the time of the restructuring.  Based upon all currently
available information, the Company anticipates that it is on track with this
estimate.  The Company does not expect to realize the full benefit of the
expense reductions until the second half of 1997 when all associated
restructuring activities are expected to be completed.  While the Company is
evaluating various outsourcing and automation projects in order to gain
further improvements in operating efficiencies, the Company does not
anticipate that any material incremental costs have been or will be incurred
as part of the restructuring which would offset the anticipated expense
reductions.

The Company believes that its restructuring programs have eliminated certain
non-essential functions and excess costs.  Based on current short- and long-
term forecasts, the Company believes that such cost reductions will benefit
future operations.  While the Company does not currently foresee any
significant additional restructuring charges in the near future, the
successful implementation of the action plans associated with the Company's
1995 restructuring is critical to achieving improved operating results in
future periods.  There can be no assurance that the anticipated expense
reductions will be achieved, or that the Company's restructuring activities
will otherwise be successful or sufficient to allow the Company to generate
improved operating results in future periods.  It is possible that changes
in the Company's business or in its industry may necessitate future
restructuring charges, which may be significant.

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

WORKING CAPITAL

The Company's cash and cash equivalents balance increased $18.4 million from
December 29, 1995, to September 27, 1996.  The increase in cash and cash
equivalents during the nine months of 1996 primarily resulted from cash
generated from operations of $380.7 million which was offset by net
repayments of nonrecourse borrowings and other debt of $98.2 million, the
Company's repurchase of 4.5 million shares of common stock for an initial
purchase price of approximately $163.4 million, and an increase of short-
term investments of $87.0 million.  The cash from operating activities
during the nine months of 1996 includes cash received from the sale of lease
assets and cash payments of approximately $31.3 million associated with the
1995 restructuring.  In connection with the sale of lease assets, the
Company used a portion of the cash proceeds to retire its remaining
nonrecourse borrowings and its 9.53% Senior Secured Notes.  Net cash from
operating activities of $249.1 million during the nine months of 1995
included cash generated from the sale of midrange lease assets,
collections of income tax refunds and associated interest by Network Systems
from the Internal Revenue Service of $17.8 million, and a one-time payment
associated with the settlement of shareholder litigation of approximately
$30.7 million.

The current ratio increased to 2.1 as of September 27, 1996, from 1.8 as of
December 29, 1995.  Accounts receivable increased from $396.5 million as of
December 29, 1995, to $427.4 million as of September 27, 1996.  Inventories
increased from $214.6 million as of December

PAGE
<PAGE>
                                                                    Form 10-Q
                                                                      Page 19
                                      

29, 1995, to $263.2 million as of September 27, 1996, in anticipation of
higher sales volumes of online and Nearline products.

COMMON STOCK REPURCHASE

On September 20, 1996, the Company repurchased and retired 4.5 million
shares of its common stock for an initial purchase price of $163.4 million
through a privately negotiated stock repurchase agreement.  The final
purchase price of the common stock is subject to adjustment, within certain
limits, based on the trading price of the common stock during a defined
period commencing September 23, 1996.  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 in the fourth
quarter of 1996.  The Company does not anticipate that the price adjustment
will have a material adverse effect on the Company's liquidity or financial
position.

AVAILABLE FINANCING LINES

On March 28, 1996, the Company entered into a $150 million secured credit
agreement (the Revolver) which expires in May 1998.  The interest rates
available under the Revolver depend on the type of advance selected.  The
current primary advance rate is the agent bank's prime lending rate plus
0.125% (8.375% as of September 27, 1996).  Under the Revolver, the Company
is required to comply with certain financial and other covenants, including
restrictions on the payment of cash dividends on its common stock.  As of
September 27, 1996, the Company had issued letters of credit for
approximately $35.6 million and had approximately $114.4 million of
available credit under the Revolver.

On January 29, 1996, the Company entered into a financing agreement with a
bank which provides for the sale of certain U.S. and foreign based accounts
receivable on a recourse basis.  This agreement, which expires on January
31, 1998, allows for receivable sales of up to $40 million at any one time
and StorageTek's obligations under the agreement are secured by a letter of
credit for the amount of the receivables sold.  The selling price of the
receivables is partially determined based upon foreign currency exchange
rates and any gains or losses on the sales are recognized within MG&A and
Other in the Consolidated Statement of Operations at the time the
receivables are sold.  As of September 27, 1996, the Company had committed
to future cumulative sales of approximately $259.6 million.  Gains and
losses associated with the receivable sales are not expected to have a
material  effect on the Company's reported financial results after taking
into consideration other transactions associated with the Company's
international operations.

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 intends to continue
to commit substantial amounts of its 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 may seek to fund these activities or possible
transactions through the issuance of additional equity or debt.  The
issuance of equity or convertible debt securities could result in dilution
to the Company's stockholders.  There can be no assurance that such
additional financing, if required, can be completed on terms acceptable to
the Company.


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<PAGE>
                                                                    Form 10-Q
                                                                      Page 20
                                      

TOTAL DEBT-TO-CAPITALIZATION

The Company's total debt-to-capitalization ratio decreased from 32% as of
December 29, 1995, to 14% as of September 27, 1996.  This decrease resulted
from the repayment of nonrecourse borrowings and certain other debt
associated with the sale of lease assets to Leasetec during the first
quarter of 1996, as well as the conversion of 7% Convertible Subordinated
Debentures in the principal amount of $171 million into 7.3 million shares
of the Company's common stock during the nine months of 1996.  This decrease
in the debt-to-capitalization ratio was partially offset by the Company's
repurchase of 4.5 million shares of its common stock during the third
quarter of 1996.

REPAYMENT OBLIGATIONS AND CONVERSION FEATURES

Pursuant to the indenture for the Company's 8% Convertible Subordinated
Debentures due 2015 (8% Convertible Debentures), the Company is required to
make semiannual interest payments on November 30 and May 31 on the $145.6
million principal amount of the 8% Convertible Debentures outstanding.  The
8% Convertible Debentures are unsecured, subordinated obligations of the
Company and are currently convertible at the option of the holder into
common stock at a price of $35.25 per share.  The 8% Convertible Debentures
are currently redeemable at the option of the Company at a premium of 3.2%,
and are redeemable at decreasing premiums through May 30, 2000.  The Company
is required to make annual principal payments of $8 million, plus accrued
interest, into a sinking fund beginning May 31, 2000, to provide for the
retirement of 75% of the 8% Convertible Debentures prior to their maturity
on May 31, 2015.  8% Convertible Debentures purchased by the Company in the
open market and 8% Convertible Debentures converted to common stock may be
applied to the sinking fund requirements.  As of September 27, 1996, the
Company has repurchased 8% Convertible Debentures in the principal amount of
$14.4 million available for sinking fund payments.

On June 12, 1996, the Company called for redemption on July 12, 1996, all
outstanding 7% Convertible Subordinated Debentures due 2008 (7% Convertible
Debentures) in the principal amount of approximately $171 million.
Debentures in the principal amount of $171 million were converted at a price
of $23.50 per share into 7.3 million shares of common stock on or before
July 12, 1996.  The remaining debentures were redeemed for cash on July 12,
1996.

INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES
-----------------------------------------------

During the third quarter and nine months of 1996, approximately 39% and 42%,
respectively, of the Company's revenue was generated by its international
operations, and 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 operations and financial results can
be materially affected by changes in foreign currency exchange rates.

In an attempt to mitigate the impact of foreign currency fluctuations, the
Company employs a hedging program which takes into account operating and
financing activities to reduce

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 21
                                      

exposures and utilizes foreign currency options and forward exchange
contracts to further reduce exposures.  The Company 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 on
the options are deferred and recognized as an adjustment to the hedged
revenue.  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 net monetary assets held in foreign
currencies.  The forward contracts are marked-to-market each month with any
gains or losses recognized within MG&A and Other as an adjustment to the
foreign exchange gains and losses on the translation of net monetary assets.

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

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

NEW PRODUCTS, SERVICES AND DISTRIBUTION CHANNELS

The successful and timely development of new products, software applications
and enhancements play a key role in determining the Company's results of
operations and competitive strength.  The market for the Company's products
is characterized by rapid technological advances and changes in customer
demand which necessitate frequent product introductions and enhancements.
These factors can result in unpredictable product transitions, shortened
product life cycles, and can render existing products obsolete or
unmarketable.  The Company must make significant investments in research and
product development and successfully introduce competitive new products and
enhancements on a timely basis.  The success of new product introductions is
dependent on a number of factors including market acceptance and effectively
managing the risks associated with product transitions.  The development of
new technology, products, and enhancements is complex and involves
uncertainties, which may result in delays in the introduction of new
products and enhancements, and the manufacture of existing products.  From
time to time the Company has encountered delays that have adversely affected
the Company's financial results and competitive position in the market.
There can be no assurances that the Company will not encounter development
or production delays, or that despite intensive testing by the Company,
flaws in design or production will not occur in the future.  Design flaws
could result in the Company experiencing a rate of failure in its products
that delay the shipment or sale of its products, trigger substantial repair
or replacement costs, excessive warranty claims and damage to the Company's
reputation and have a material adverse effect upon the Company's financial
results.

The Company has historically generated a significant portion of its revenue
and operating profits from the sale and service of information storage and
retrieval products in the mainframe marketplace.  The Company is currently
engaged in a variety of initiatives targeted at growing

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 22
                                      

revenue outside its traditional marketplace and is committing substantial
resources to these initiatives.  These initiatives include developing new
products for the open-systems marketplace; developing network-attached
storage solutions; establishing a consulting services business to capitalize
on the Company's expertise in computer data storage; and developing new
channels for the distribution of products.  There can be no assurances that
the Company will be successful in expanding into these new marketplaces.

DEPENDENCE ON IBM

Many of the Company's products are designed to be compatible with certain
IBM operating systems and many of its products function like IBM equipment
due to the significance of the IBM computer operating environments.  Future
revenue from products and services is therefore dependent on the
marketplace's continued widespread acceptance of, and IBM's continued
support of, these products.

OEM SUPPLIER

In June 1996, the Company entered into a worldwide non-exclusive OEM
agreement with IBM under which StorageTek develops and manufactures
mainframe online storage products for IBM.  IBM serves as StorageTek's
primary distribution channel for these products.  This OEM arrangement
represents a significant change from the Company's past business model.  The
Company's success in its mainframe online storage business is now
significantly dependent upon managing this transition and IBM's continuous
support for and success in marketing these products to end-user customers.
Because of lower OEM pricing and scheduled price reductions, the Company
must achieve cost-savings associated with the manufacture of these online
products in order to maintain its profit margins.  In addition, subject to
required lead times and minimum purchase commitment terms, the OEM business
model arrangement may cause the Company to incur additional costs associated
with unanticipated increases or decreases in manufacturing volumes.

INTENSE COMPETITION; PRICING PRESSURES

The Company competes with a number of large multinational companies in the
mainframe information storage and retrieval marketplace that have
substantially greater resources than the Company's, including IBM, Fujitsu
Ltd., and Hitachi, Ltd., as well as similarly sized companies, including
Amdahl Corp. and EMC Corp.  The Company also competes with a number of
companies in the networking marketplace that have a greater market presence,
including 3Com Corp., Cisco Systems, Inc., Cabletron Systems, Inc. and Bay
Networks, Inc.  In addition, the Company may encounter competition from a
variety of companies with greater market presence as it enters into new
emerging product and service markets outside the Company's traditional
marketplace; such as the market for open-systems storage solutions, network-
attached storage solutions, and consulting services. The Company's
competitiveness could be affected by cooperative alliances and other
relationships that may emerge and rapidly acquire market share.  These
alliances may result in other companies being at various times,
collaborators, competitors and customers in different markets.  Increased
competition may result in price reductions, reduced margins and declining
market share, which may have a material adverse effect on the Company's
business and financial results.


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<PAGE>
                                                                    Form 10-Q
                                                                      Page 23
                                      


INTELLECTUAL PROPERTY

The Company's competitive strength is affected by its ability to protect its
proprietary information.  StorageTek protects its intellectual property
rights 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 when it develops new or improved
technology that is important to its business.  Such protection, however, may
not preclude competitors from developing products similar to the Company's
products.  In addition, competitors may attempt to restrict the Company's
ability to compete by advancing various intellectual property law theories
which could, if enforced by the courts, restrict the Company's ability to
develop and manufacture interoperable products.  Also, the laws of certain
foreign countries do not protect the Company's intellectual property rights
to the same extent as the laws of the United States.  The Company also
relies on certain technology that is licensed from others.  The Company is
unable to predict whether these license arrangements can be renewed on terms
acceptable to the Company.  The Company's intellectual property rights are
material to the Company's business, and the failure to successfully protect
its intellectual property rights or obtain licenses from others as needed
could have a material adverse effect on the Company's business and financial
results.

The high technology industry is characterized by vigorous pursuit and
protection of intellectual property rights or positions, which in some
instances has resulted in significant litigation that is often protracted
and expensive.  Litigation by or against the Company could result in
significant expense and divert the efforts of the Company's technical and
management personnel, whether or not such litigation results in any
determination unfavorable to the Company.  In the event of an adverse result
in any such litigation, 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; discontinue the
use of certain processes; enter into royalty arrangements; or obtain
licenses to the infringing technology.  There can be no assurances that the
Company would be successful in such development or that such license or
royalty arrangements would be available on reasonable terms, or at all, and
any such development or license could require expenditures by the Company of
substantial time and other resources.  The Company has, from time to time,
commenced actions against other companies to protect or enforce its
intellectual property rights.  Similarly, the Company has, from time to
time, been notified that it may be infringing certain patent or other
intellectual property rights of others.  See Note 6 of Notes to Consolidated
Financial Statements for additional information with respect to the
Company's legal proceedings.

INFORMATION SYSTEMS

The Company is currently in the process of replacing its existing
transaction systems (including order management, distribution, and finance
systems) with integrated systems as part of its ongoing effort to increase
operational efficiencies.  The Company's future operating results and
financial condition could be adversely affected if the Company is unable to
implement and effectively manage the transition to this new integrated
system.

MANUFACTURING RISKS; DEPENDENCE ON 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

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<PAGE>
                                                                    Form 10-Q
                                                                      Page 24
                                      

components.  However, the Company purchases certain important components and
products 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.  In addition, the
Company manufactures some key components, or its products include
components, for which alternative sources of supply are not readily
available.  In the past, certain of the Company's suppliers have experienced
occasional technical, financial or other problems that have delayed
deliveries, 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 of the Company's ability to secure
comparable components, could have a material adverse effect on its revenue
and results of operations.  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.

EARNINGS FLUCTUATIONS

The Company's reported earnings have fluctuated significantly and may
continue to fluctuate significantly from quarter to quarter due to a variety
of factors including, among others, the effects of (i) customers' historical
tendencies to make purchase decisions near the end of the calendar year,
(ii) the timing of the announcement and availability of products and product
enhancements by the Company and its competitors, (iii) fluctuating foreign
currency exchange rates, (iv) changes in the mix of products sold, and (v)
variations in customer acceptance periods for the Company's products.

VOLATILITY OF STOCK PRICE

The trading price of the Company's common stock has fluctuated and in the
future may fluctuate substantially in response to reported earnings,
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, general market and economic conditions,
international currency fluctuations and other events or factors.  Further,
the volatility of the stock markets in recent years has caused wide
fluctuations in trading prices of stocks of high technology companies
independent of their individual operating results.  In the future, the
Company's reported earnings may be below the expectations of stock market
analysts and investors, and in such events, there could be an immediate and
significant adverse effect on the trading price of the Company's common
stock.


PAGE
<PAGE>
                                                                    Form 10-Q
                                                                      Page 25
                                      
                                      
                                      
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                         PART II - OTHER INFORMATION

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

See Part II, Item 1 - Legal Proceedings, of the Company's Form 10-Q for the
periods ended March 29, 1996, and June 28, 1996, electronically filed with
the Commission on May 10, 1996, and August 12, 1996, respectively.

On February 15, 1994, the Company filed suit in Boulder County, Colorado,
District Court against Array Technology Corporation (Array) and Tandem
Computers Incorporated (Tandem).  The suit asked that the court order Array
and Tandem to either support certain disk drives purchased from them or
provide the Company with technical data necessary for StorageTek to provide
such customer support.  In March 1994, Array and Tandem filed their answer
and also filed counterclaims against the Company alleging breach of contract
and claiming damages.  On June 10, 1994, the court ordered Array and Tandem
to continue to provide support for these products and to maintain, in an
independent escrow account, the materials necessary to enable the Company to
support the products in the event Array and Tandem failed to provide such
services.  On May 30, 1995, the Company filed an amended complaint seeking
damages.  The case is in the discovery phase.  A trial date has been reset
for October 1997.

On June 29, 1995, Odetics, Inc. filed a patent infringement suit in the U.S.
District Court for the Eastern District of Virginia against the Company and
two of its customers 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 attorneys fees and
costs.  On February 1, 1996, a jury found that the Company's products did
not infringe the 151 Patent.  A notice of appeal to the U.S. Court of
Appeals for the Federal Circuit was filed by Odetics, Inc. on March 8, 1996.
Oral argument on the appeal of this suit is expected in January 1997.

On July 30, 1996, the Company received Civil Investigative Demands (CID)
from the U.S. Department of Justice Antitrust Division.  The Company
received two additional CIDs in October 1996.  The CIDs requested production
of documents and testimony in connection with a review, for compliance with
the Sherman Act, of the OEM Agreement with International Business Machines
Corporation concerning storage subsystems.

Information concerning legal proceedings is also contained in Note 6 to the
consolidated financial statements identified in Part I of this Form 10-Q.

In addition, the Company is involved in various other less significant legal
proceedings.  The Company believes it has adequate legal defenses with
respect to each of the suits cited above and intends to vigorously defend
against these actions.  However, it is reasonably possible that these cases
could result in outcomes unfavorable to the Company.  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 litigation
is inherently difficult to predict.  In the event of an adverse outcome, the
ultimate potential loss could have a material effect on the Company's
financial position or reported results of operations in a particular
quarter.  An adverse 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
<PAGE>
                                                                    Form 10-Q
                                                                      Page 26
                                      

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

          (a)  Exhibits

     10.1*     Amendment dated July 26, 1996, to Multicurrency
               Receivables Transfer Agreement dated January 29, 1996.
               
     10.2*     Amendment dated August 26, 1996, to Multicurrency
               Receivables Transfer Agreement dated January 29, 1996.
               
     10.3*/**  Storage Technology Corporation 1995 Equity Participation 
               Plan as amended September 1996.
               
     11.0*     Computation of Earnings (Loss) Per Common Share.
               
     27.0*     Financial Data Schedule.


          (b)  Reports on Form 8-K

               No Current Reports on Form 8-K were filed during the quarter
               ended September 27, 1996.











------------------

     *    Indicates Exhibits filed with this Quarterly Report on Form 10-Q.
     **   Contract or compensation plan or arrangement in which directors
          and/or officers participate.









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<PAGE>
                                                                    Form 10-Q
                                                                      Page 27
                                      



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)
                      
                      
November 8, 1996                     /s/ DAVID E. WEISS
----------------            ------------------------------------
     (Date)                            David E. Weiss
                              Chairman of the Board, President
                                and Chief Executive Officer
                               (Principal Executive Officer)
                                      
                      
                      
November 8, 1996                     /s/ DAVID E. LACEY
----------------            ------------------------------------
     (Date)                            David E. Lacey
                                  Chief Financial Officer
                              (Principal Financial Officer and
                               Principal Accounting Officer)
                                      
                                      

PAGE
<PAGE>
                                EXHIBITS INDEX
                                --------------

          (a)  Exhibits

     10.1      Amendment dated July 26, 1996, to Multicurrency
               Receivables Transfer Agreement dated January 29, 1996.
               
     10.2      Amendment dated August 26, 1996, to Multicurrency
               Receivables Transfer Agreement dated January 29, 1996.
               
     10.3      Storage Technology Corporation 1995 Equity Participation 
               Plan as amended September 1996.
               
     11.0      Computation of Earnings (Loss) Per Common Share.
               
     27.0      Financial Data Schedule.