Form 10-Q
===============================================================================



                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

       [ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                For the Quarterly Period Ended June 27, 1997
                                     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,                 80028-4309
                 Colorado                              (Zip Code)
 (Address of principal executive offices)



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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  /X/ YES  / /  NO
                                                --       --

                    APPLICABLE ONLY TO CORPORATE ISSUERS

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

COMMON STOCK ($.10 PAR VALUE) - 61,637,296 SHARES OUTSTANDING AT 
AUGUST 1, 1997.
<PAGE>
               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                             INDEX TO FORM 10-Q
                                JUNE 27, 1997

                                                                          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                       11

PART II - OTHER INFORMATION

      Item 1 - Legal Proceedings                                           24

      Item 4 - Submission of Matters to a Vote of Security Holders         25

      Item 6 - Exhibits and Reports on Form 8-K                            26
<PAGE>
                                                                    Form 10-Q
                                                                       Page 3

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

                                                         06/27/97
                                                       (Unaudited)    12/27/96
                                                       -----------------------
ASSETS
Current assets:
 Cash, including cash equivalents                       $  473,358  $  388,401
 Short-term investments                                    127,918      29,176
 Accounts receivable, net                                  496,402     554,159
 Inventories (Note 2)                                      263,698     288,615
                                                         ---------   ---------
    Total current assets                                 1,361,376   1,260,351
Spare parts for maintenance, at cost (net)                  26,295      29,625
Property, plant and equipment, at cost (net)               310,776     327,534
Deferred income tax assets, net                            133,866     122,190
Other assets                                               114,488     144,576
                                                         ---------   ---------
                                                        $1,946,801  $1,884,276
                                                         =========   =========


LIABILITIES
Current liabilities:
 Current portion of other long-term debt                $    3,623  $    4,451
 Accounts payable                                           85,030      82,949
 Accrued liabilities                                       342,251     369,309
 Income taxes payable                                       68,912      79,471
                                                         ---------   ---------
    Total current liabilities                              499,816     536,180
8% Convertible subordinated debentures (Note 4)                        125,677
Other long-term debt                                        21,455      25,129
Deferred income tax liabilities                             27,746      16,307
                                                         ---------   ---------
     Total liabilities                                     549,017     703,293
                                                         ---------   ---------

Commitments and contingencies (Note 6)

STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000
  shares authorized; 62,265,901 shares issued at
  June 27, 1997, and 58,175,120 shares issued at
  December 27, 1996                                          6,227       5,818
Capital in excess of par value                           1,592,918   1,444,939
Accumulated deficit                                       (171,861)   (265,434)
Treasury stock of 698,140 shares at June 27, 1997,
 and 62,514 shares at December 27, 1996                    (26,374)       (790)
Unearned compensation                                       (3,126)     (3,550)
                                                         ---------   ---------
     Total stockholders' equity                          1,397,784   1,180,983
                                                         ---------   ---------
                                                        $1,946,801  $1,884,276
                                                         =========   =========

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

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

                                       Quarter Ended        Six Months Ended
                                   --------------------------------------------
                                   06/27/97   06/28/96     06/27/97   06/28/96
                                   --------------------------------------------
Sales revenue                      $369,859   $340,782     $667,529   $658,080
Maintenance revenue                 147,165    138,523      288,090    274,706
                                    -------    -------      -------    -------
  Total revenue                     517,024    479,305      955,619    932,786
                                    -------    -------      -------    -------

Cost of sales                       199,793    198,421      365,198    385,467
Cost of maintenance                  83,491     74,568      159,758    147,089
                                    -------    -------      -------    -------
  Total cost of revenue             283,284    272,989      524,956    532,556
                                    -------    -------      -------    -------
  Gross profit                      233,740    206,316      430,663    400,230

Research and product
 development costs                   51,259     48,995       96,958     98,617
Marketing, general,
 administrative and other
 income and expense, net            115,116    104,516      217,654    212,630
                                    -------    -------      -------    -------
  Operating profit                   67,365     52,805      116,051     88,983

Interest income                       7,924      6,644       14,886     14,884
Interest expense                     (1,305)    (7,589)      (2,664)   (17,018)
                                    -------    -------      -------    -------
  Income before income taxes
   and extraordinary item            73,984     51,860      128,273     86,849

Provision for income taxes          (20,000)   (14,000)     (34,700)   (23,400)
                                    -------    -------      -------    -------
  Income before extraordinary
   item                              53,984     37,860       93,573     63,449

Extraordinary gain on sale of
 lease assets, net of income
 taxes of $8,200 (Note 3)                                                9,535
                                    -------    -------      -------    -------
  Net income                       $ 53,984   $ 37,860     $ 93,573   $ 72,984
                                    =======    =======      =======    =======


EARNINGS PER COMMON SHARE
   AND COMMON EQUIVALENTS (Note 8)
Primary:
  Income before extraordinary
   item                            $   0.87   $   0.70     $   1.50   $   1.18
  Extraordinary gain, net                                                 0.17
                                     ------     ------       ------     ------
                                   $   0.87   $   0.70     $   1.50   $   1.35
                                     ======     ======       ======     ======

  Weighted average common shares
   and equivalents                   62,253     54,417       62,240     53,943
                                     ======     ======       ======     ======

Fully Diluted:
  Income before extraordinary item            $   0.65                $   1.11
  Extraordinary gain, net                                                 0.15
                                                 -----                  ------
                                              $   0.65                $   1.26
                                                ======                  ======

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

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

                                                            Six Months Ended
                                                        ----------------------
                                                          06/27/97    06/28/96
                                                        ----------------------
OPERATING ACTIVITIES
Cash received from customers                            $1,010,947  $1,194,900
Cash paid to suppliers and employees                      (766,739)   (848,444)
Interest received                                           14,151      14,884
Interest paid                                               (2,458)    (14,855)
Income taxes paid, net                                     (36,285)    (16,651)
                                                         ---------   ---------
   Net cash from operating activities                      219,616     329,834
                                                         ---------   ---------
INVESTING ACTIVITIES
Short-term investments, net                                (98,742)
Purchase of property, plant and equipment, net             (21,023)    (24,046)
Other assets, net                                            8,052      (1,882)
                                                         ---------   ---------
   Net cash used in investing activities                  (111,713)    (25,928)
                                                         ---------   ---------
FINANCING ACTIVITIES
Repurchases of common stock (Note 7)                       (26,108)
Repayments of nonrecourse borrowings (Note 3)                          (33,753)
Repayments of other debt (Note 3)                           (2,988)    (63,128)
Proceeds from employee stock plans                          15,015      14,987
                                                         ---------   ---------
   Net cash used in financing activities                   (14,081)    (81,894)
                                                         ---------   ---------
   Effect of exchange rate changes on cash                  (8,865)      3,266
                                                         ---------   ---------
Increase in cash and cash equivalents                       84,957     225,278
   Cash and cash equivalents - beginning
    of the period                                          388,401     264,502
                                                         ---------   ---------
Cash and cash equivalents - end of the period           $  473,358  $  489,780
                                                         =========   =========
RECONCILIATION OF NET INCOME TO NET CASH
   FROM OPERATING ACTIVITIES
Net income                                              $   93,573  $   72,984
Depreciation and amortization expense                       56,542      77,936
Translation loss                                            13,888       2,212
Other adjustments to income                                  5,314      10,142
Decrease in accounts receivable                             43,232       6,282
Decrease in notes receivable and sales-
 type leases (Note 3)                                                  237,188
(Increase) decrease in inventories                          26,650     (60,262)
Increase in equipment held for sale
 or lease, net                                                         (26,799)
Increase in spare parts for maintenance, net                (2,168)     (8,701)
(Increase) decrease in net deferred income
 tax asset                                                   8,589      (4,610)
Increase (decrease) in accounts payable
 and accrued liabilities                                   (15,830)      3,903
Increase (decrease) in income taxes payable                (10,174)     19,559
                                                         ---------   ---------
   Net cash from operating activities                   $  219,616  $  329,834
                                                         =========   =========

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

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

<TABLE>
<CAPTION>
                                                                   Capital in
                                                     Common        Excess of       Accumulated         Treasury         Unearned
                                                     Stock         Par Value         Deficit             Stock      Compensation
                                                     ---------------------------------------------------------------------------
<S>                                                  <C>           <C>             <C>                  <C>             <C>     
Balances, December 27, 1996                          $5,818        $1,444,939      $(265,434)           $   (790)       $(3,550)

Shares issued in exchange for 8% Convertible
 Subordinated Debentures (3,553,204 shares)
 (Note 4)                                               355           123,560
Shares issued under stock purchase plan and for
 exercises of stock options (551,464 shares,
 including 13,878 shares of treasury stock)              54            24,407                                524
Repurchases of common stock
 (649,500 shares) (Note 7)                                                                               (26,108)

Net income                                                                            93,573

Other                                                                      12                                               424
                                                      -----         ---------       --------             -------         ------
Balances, June 27, 1997                              $6,227        $1,592,918      $(171,861)           $(26,374)       $(3,126)
                                                      =====         =========       ========             =======         ======

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

</TABLE>
<PAGE>
                                                                    Form 10-Q
                                                                       Page 7

               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (Unaudited)


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

The accompanying consolidated financial statements of Storage Technology
Corporation and its subsidiaries (StorageTek or the Company) have been
prepared in accordance with the Securities and Exchange Commission
requirements for Form 10-Q.  In the opinion of management, these statements
reflect all adjustments necessary for the fair presentation of results for
the periods presented, and such adjustments are of a normal, recurring
nature.  For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 27, 1996.

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

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

                                             06/27/97           12/27/96
                                           -----------------------------

      Raw Materials                          $ 56,404           $ 76,152
      Work-In-Process                          76,371             78,834
      Finished Goods                          130,923            133,629
                                              -------            -------
                                             $263,698           $288,615
                                              =======            =======

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

In March 1996, StorageTek sold substantially all of its investment in sales-
type leases, installment receivables, and equipment held subject to operating
leases.  The Company used a portion of the cash proceeds to retire its
remaining nonrecourse borrowings and 9.53% Senior Secured Notes.  This sale
resulted in an extraordinary gain of $9,535,000, net of applicable taxes of
$8,200,000, in the first quarter of 1996.

NOTE 4 - DEBT AND CREDIT AGREEMENT
----------------------------------

In December 1996, the Company called for redemption on January 13, 1997, all
outstanding 8% Convertible Subordinated Debentures due 2015 (8% Convertible
Debentures).  During January 1997, 8% Convertible Debentures in the principal
amount of $125,258,000 were converted at a price of $35.25 per share into
3,553,204 shares of common stock.  The remaining 8% Convertible Debentures
were redeemed for cash.

On April 9, 1997, the Company's $150,000,000 secured credit agreement was
replaced with a new $150,000,000 unsecured credit agreement (the Revolver)
which expires in May 2000.  The interest rates under the Revolver depend on
the type of advance selected.  The primary advance rate is the agent bank's
prime lending rate (8.5% as of June 27, 1997).  Under the
<PAGE>
                                                                    Form 10-Q
                                                                       Page 8

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 June 27, 1997, the Company had issued letters of credit
for approximately $36,913,000 and had approximately $113,087,000 of available
credit under the Revolver.

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

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

The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 27, 1997 (in
thousands of dollars):

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

Balances, December 27, 1996     $16,152       $15,477       $1,980     $33,609

Cash payments                    (1,743)         (941)        (479)     (3,163)
                                 ------        ------        -----      ------

Balances, June 27, 1997         $14,409       $14,536       $1,501     $30,446
                                 ======        ======        =====      ======

The remaining restructuring reserves relate principally to the Company's
plans to further integrate its sales administration organization and
rearchitect its distribution processes in the United States and Europe.
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
-------------------

In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court against the
Company and certain subsidiaries.  The suit alleged that the Company breached
a 1990 settlement agreement that had resolved earlier litigation between the
parties.  The suit sought injunctive relief and damages in the amount of
$2,400,000,000.  On December 28, 1995, the court dismissed the complaint.
Stuff appealed the dismissal to the Colorado Court of Appeals. In March 1997,
the Court of Appeals reversed the District Court's judgment and remanded the
case back to the District Court for further proceedings.  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
<PAGE>
                                                                    Form 10-Q
                                                                       Page 9

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 set for
October 1997.

On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company 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.  In February 1996, a jury found that the Company's
products did not infringe the 151 Patent.  Odetics appealed and in June 1997,
the U.S. Court of Appeals for the Federal Circuit reversed the district
court's ruling and remanded the case back to the district court for further
proceedings.  The Company has requested a rehearing.  A ruling is expected in
the third quarter.

On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent.  The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorneys fees and costs.  This case has been stayed pending the
outcome of the case filed by Odetics, Inc. on June 29, 1995, which is further
described above.

On July 30, 1996, the Company received Civil Investigative Demands (CIDs)
from the U.S. Department of Justice Antitrust Division concerning the
original equipment manufacturer (OEM) agreement with IBM for mainframe online
storage subsystems.  The Company received  additional CIDs in October 1996,
February 1997, May 1997, and June 1997.  The CIDs requested production of
documents and testimony in connection with a review of the agreement for
compliance with the Sherman Act.  In July 1997, the Department of Justice
requested the Company to provide it with further information.  The Company
has provided information and has engaged in discussions with the
Department of Justice regarding the resolution of the investigation.  In the
event of an unfavorable outcome, the Company could be required to pay
penalties, modify the agreement or terminate the agreement.

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 actions cited above and intends to vigorously defend
against these actions.  However, it is reasonably possible that these actions
could result in outcomes unfavorable to the Company.  While the Company
currently believes that the amount of the ultimate potential loss would not
be material to the Company's financial position, the outcome of these actions
is inherently difficult to predict.  In the event of an adverse outcome, the
ultimate potential loss could have a material 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>
                                                                    Form 10-Q
                                                                      Page 10

NOTE 7 - REPURCHASES OF COMMON STOCK
------------------------------------

In February 1997, the Company announced a program to repurchase up to
1,500,000 shares of common stock on an annual basis.  The intent of the
repurchase program is to offset dilution associated with the Company's stock
purchase and stock option plans.  As of June 27, 1997, the Company had
repurchased 649,500 shares of common stock at a cost of $26,108,000 under
this program.

NOTE 8 - EARNINGS PER COMMON SHARE
----------------------------------

Fully diluted earnings per common share for the quarter and six months ended
June 28, 1996, reflect the assumed conversion of the Company's 7% and 8%
Convertible Subordinated Debentures, whereas these convertible securities
were either not outstanding or were not dilutive in the same periods of 1997.

NOTE 9 - RECENTLY ISSUED ACCOUNTING STANDARDS
---------------------------------------------

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." SFAS No. 128, which is effective for periods ending after December
15, 1997, requires changes in the computation, presentation, and disclosure
of earnings per share.  All prior period earnings per share data must be
restated to conform with the provisions of SFAS No. 128. The Company will
adopt SFAS No. 128 during the fourth quarter 1997, but does not expect the
new accounting standard to have a material impact on the Company's reported
earnings per share.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130, which is effective for all periods beginning after December 15,
1997, establishes standards for reporting and displaying comprehensive income
and its components with the same prominence as other financial statements.
All prior periods must be restated to conform with the provisions of SFAS No.
130.  The Company will adopt SFAS No. 130 during the first quarter of 1998,
but does not expect the new accounting standard to have a material impact on
the Company's reported financial results.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131, which is effective for
fiscal years beginning after December 15, 1997, establishes new disclosure
requirements for operating segments, including products, services, geographic
areas, and major customers.  The Company will adopt SFAS No. 131 for the 1998
fiscal year.  The Company does not expect the new accounting standard to have
a material impact on the Company's reported financial results.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 11

               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                JUNE 27, 1997


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 DETAILED BELOW IN "RISK FACTORS THAT MAY AFFECT FUTURE
RESULTS."


GENERAL
-------

Storage Technology Corporation (StorageTek or the Company) reported net
income for the second quarter ended June 27, 1997, of $54.0 million on
revenue of $517.0 million, compared to net income for the second quarter
ended June 28, 1996, of $37.9 million on revenue of $479.3 million.  Net
income of $93.6 million was reported for the six months of 1997 on revenue of
$955.6 million, compared to net income of $73.0 million for the six months of
1996 on revenue of $932.8 million.  The Company's reported net income for the
six 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 8% and 2% during the second quarter and six months of 1997,
respectively, as compared to the same periods in 1996.  The increase in
revenue is primarily due to sales of mainframe online products to IBM,
smaller-scale tape libraries for client/server attachment, open storage disk
products, and an increase in maintenance revenue.  The increase was partially
offset by declines in sales of mainframe Nearline and network products, and
unfavorable foreign currency exchange rate movements.  The decreased sales of
mainframe Nearline products was partially offset by increased sales of these
products into new markets as a result of the Company's applications
development.  Overall gross profit margin increased to 45% in the second
quarter and six months of 1997, as compared to 43% in the same periods of
1996.  The increase was a result of increased product sales margins which was
partially offset by a decrease in maintenance margins.

The Company's future revenue and operating results are significantly
dependent upon the continued demand for its mainframe Nearline product
offerings in their traditional markets; expanding the markets for its
mainframe Nearline products through the development of new applications;
increasing sales of products targeted for the client/server market;
continuing to successfully fulfill its obligations under the OEM agreement
with IBM; and expanding its product  distribution channels.  For discussion
of these and other risk factors, see "Risk Factors That May Affect Future
Results" below.

The Company's cash balances increased $85.0 million during the six months of
1997.  Cash generated from operations of $219.6 million was partially offset
by short-term investments of $98.7 million, repurchases of common stock at a
cost of $26.1 million, and investments in property, plant and equipment of
$21.0 million.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 12

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, maintenance, and software revenue.

                                      Quarter Ended          Six Months Ended
                                     -----------------------------------------
                                     06/27/97  06/28/96     06/27/97  06/28/96
                                     -----------------------------------------
Revenue:
  Nearline products                     65.7%     67.9%        65.1%     66.7%
  Online products                       22.9      17.5         23.2      18.0
  Networking products                    7.1       8.8          7.2       9.6
  Other products                         4.3       5.8          4.5       5.7
                                       -----     -----        -----     -----
     Total revenue                     100.0     100.0        100.0     100.0
Cost of revenue                         54.8      57.0         54.9      57.1
                                       -----     -----        -----     -----
     Gross profit                       45.2      43.0         45.1      42.9
Research and product development
  costs                                  9.9      10.2         10.2      10.6
Marketing, general, administrative
  and other income and expense, net     22.3      21.8         22.8      22.8
                                       -----     -----        -----     -----
     Operating profit                   13.0      11.0         12.1       9.5
Interest income (expense), net           1.3      (0.2)         1.3      (0.2)
                                       -----     -----        -----     -----
     Income before income taxes and
       extraordinary item               14.3      10.8         13.4       9.3
Provision for income taxes              (3.9)     (2.9)        (3.6)     (2.5)
                                       -----     -----        -----     -----
     Income before
       extraordinary item               10.4       7.9          9.8       6.8
Extraordinary gain on sale of lease
  assets, net of income taxes                                             1.0
                                       -----     -----        -----     -----
     Net income                         10.4%      7.9%         9.8%      7.8%
                                       =====     =====        =====     =====

REVENUE
-------

NEARLINE PRODUCTS

Revenue from Nearline products increased 4% in the second quarter of 1997 as
compared to the second quarter of 1996.  Revenue from Nearline products for
the six months of 1997 was unchanged, as compared to the same period in 1996.
Sales revenue in the second quarter  of 1997 increased compared to the same
period in 1996 principally due to increased sales of TimberWolf, a family of
smaller-scale libraries designed for client/server attachment, and RedWood
SD-3 (RedWood), a high-capacity cartridge subsystem.  The increased sales of
RedWood was primarily due to the success of the Company's initiative to
develop new applications.  The Company's new applications include document
management, scientific, imaging, and video applications.  Sales revenue from
the TimberLine 9490 (TimberLine), a 36-track cartridge subsystem, decreased
in the second quarter of 1997, as compared to the same period in 1996.  The
decrease in TimberLine sales revenue was primarily due to delays in 
customer purchase decisions associated with the evaluation by customers of 
new mainframe technology and the expansion of the client/server market.
Sales of earlier generation Nearline products also continued to decline 
during the second quarter of 1997.  Sales of the PowderHorn 9310 (PowderHorn),
an Automated Cartridge System (ACS) Library, was unchanged in the
<PAGE>
                                                                    Form 10-Q
                                                                      Page 13

second quarter of 1997, as compared to the second quarter of 1996.  Maintenance
revenue from Nearline products increased in the second quarter and six months 
of 1997, as compared to the same periods in 1996.  Nearline sales and 
maintenance revenue during the second quarter and six months of 1997, as 
compared to the same periods of 1996, were unfavorably impacted by foreign 
currency exchange rate movements.

The Company anticipates that the market for mainframe Nearline products will
continue to experience a slower rate of growth as customers transition to the
client/server environment.  Future revenue growth for Nearline products is
dependent upon the continued customer demand for mainframe Nearline products,
successfully introducing new products for the mainframe and client/server
environments, and the continuing success of the Company's applications
development initiative.  The Company is currently developing new products and
features which will provide its customers with increased functionality and
reduce the cost of data storage.  There can be no assurance that the Company
will experience revenue growth in its mainframe Nearline products or that
Nearline products targeted for the client/server and new applications markets
will continue to gain market acceptance in the future.  Additionally, there
can be no assurances that new Nearline products and features currently under
development will be completed in a timely manner or gain market acceptance.

ONLINE PRODUCTS

Revenue from online products increased 41% and 32% in the second quarter and
six months of 1997, respectively, compared to the same periods in 1996.  The
increase was primarily due to increased hardware sales volumes and
incremental software revenue for mainframe online products under the OEM
agreement with IBM.  Sales of the Company's mainframe online products in the
second quarter and six months of 1996 were to end-users through the Company's
direct sales force.  Sales revenue of open storage disk products also
increased in the second quarter and six months of 1997, as compared to the
same periods of 1996.  Maintenance revenue for online products decreased in
the second quarter and six months of 1997, as compared to the same periods in
1996.

The Company anticipates the OEM agreement with IBM will continue to benefit
the Company through increased market penetration for mainframe online
products, provided that the Company continues to successfully fulfill its
obligations under the agreement.  Additionally, the OEM agreement is also
expected to allow the Company to redirect resources to other products and
services outside the Company's traditional marketplace.  See "Risk Factors
That May Affect Future Results - Dependence on IBM," for description of risks
which could adversely impact the success of the OEM agreement.

NETWORK PRODUCTS

Revenue from network products decreased 14% and 23% in the second quarter and
six months of 1997, respectively, compared to the same periods in 1996.  The
decrease is due primarily to the continued decline in revenue from channel
extension products, as well as the sale of a non-strategic network business
in the third quarter of 1996.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 14

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

Overall gross profit margins increased to 45% in the second quarter and six
months of 1997, compared to 43% for the same periods of 1996, due to an
increase in product sales margins.  This increase was partially offset by a
decrease in maintenance margins.

Product sales margins increased to 46% and 45% in the second quarter and six
months of 1997, respectively, compared to 42% and 41% in the second quarter
and six months of 1996, respectively.  The improvement in 1997 was primarily
due to increased manufacturing volumes of mainframe online products, and
incremental sales of higher margin software products.  Sales margins for
Nearline products decreased in the second quarter and six months of 1997 as
compared to the same periods of 1996, primarily as a result of decreasing
margins on sales of earlier generation Nearline products.  Product sales
margins in the second quarter and six months of 1997 benefited from a change
in classification of approximately $8.4 million and $16.7 million,
respectively, of advanced manufacturing costs, which are now included within
research and product development costs in the Consolidated Statement of
Operations.

Maintenance margins decreased to 43% and 45% in the second quarter and six
months of 1997, respectively, compared to 46% in both the second quarter and
six months of 1996.  The decline is primarily attributable to costs
associated with the Company's entry into the professional consulting services
business.

The Company's ability to sustain or improve product sales margins during the
remainder of 1997 is significantly dependent upon the Company's continued
success in reducing manufacturing costs in all of its product lines.  The
Company anticipates that the product sales margins for its mainframe online
products will be pressured due to scheduled price reductions over the term of
the OEM agreement with IBM.  The Company expects that lower manufacturing
costs resulting from increased volumes and operating expense savings will
partially offset pricing pressures, but 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 affected by inventory
reserves and writedowns resulting from rapid technological changes and delays
in gaining market acceptance for new products.  Maintenance margins may be
affected in the future by increased competition and the Company's ability to
successfully establish its professional consulting services business.

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

Research and product development costs increased 5% in the second quarter of
1997 and decreased 2% in the six months of 1997, compared to the same periods
in 1996.  As a percent of revenue, research and product development costs
were 10% in both the second quarter and six months of 1997, compared  to 10%
and 11% in the second quarter and six months of 1996, respectively.  Research
and product development costs for the second quarter and six months of 1997
include incremental costs of approximately $8.4 million and $16.7 million,
respectively, due to the reclassification of costs associated with certain
advanced manufacturing activities which were previously included within cost
of sales in the Consolidated Statement of Operations.  The decrease in
research and product development costs for the second quarter and six months
of 1997, after considering this reclassification, reflects IBM's agreement to
partially fund the development of enhancements for mainframe online products.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 15

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

Marketing, general, administrative and other income and expense (MG&A and
Other) increased 10% and 2% in the second quarter and six months of 1997,
respectively, compared to the same periods in 1996.  The increase is
primarily due to employee profit-sharing and bonus expenses associated with
higher levels of profitability in the six months of 1997, and increased
promotional activities associated with the Company's Nearline product
strategy.  The increase was partially offset by gains realized on the sale of
accounts receivable of $7.2 million and $12.1 million in the second quarter
and six months of 1997, respectively.  See "Liquidity and Capital Resources -
Available Financing Lines" for further description of these account
receivable sales.

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

Interest income increased 19% in the second quarter of 1997, as compared to
the second quarter of 1996, as a result of an increase in cash available for
investment.  Interest income was unchanged during the six months of 1997, as
compared to the six months of 1996, as the additional interest income
associated with increased cash balances was offset by a decrease in interest
income associated with lease assets which were sold in March 1996.

Interest expense decreased 83% and 84% in the second quarter and six months
of 1997, respectively, as compared to the same periods of 1996.  The decrease
was due to the Company's redemption of all its outstanding 7% and 8%
Convertible Subordinated Debentures in July 1996 and January 1997,
respectively.

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 $133.9 million of deferred income tax assets as of June 27, 1997.
The Company's valuation allowance of $58.5 million as of June 27, 1997, was
established based upon the consideration of a variety of factors, including
the Company's earnings history, the number of years the Company's operating
loss and tax credits can be carried forward, the existence of taxable
temporary differences, near-term expectations, and the highly competitive
nature of the high-technology marketplace.

The provision for income taxes relates primarily to U.S. federal and state
taxes.  The Company anticipates that the effective tax rate will increase to
the extent its remaining net deductible temporary differences, tax credit
carryforwards, and net operating loss carryforwards in the United States
become fully recognizable in future periods.

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

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. This sale resulted in an extraordinary gain of
$9.5 million, net of applicable taxes of $8.2 million, in the first quarter
of 1996.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 16

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

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

The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 27, 1997 (in
thousands of dollars):

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

Balances, December 27, 1996     $16,152       $15,477       $1,980     $33,609

Cash payments                    (1,743)         (941)        (479)     (3,163)
                                 ------        ------        -----      ------

Balances, June 27, 1997         $14,409       $14,536       $1,501     $30,446
                                 ======        ======        =====      ======

The remaining restructuring reserves relate principally to the Company's
plans to further integrate its sales administration organization and
rearchitect its distribution processes in the United States and Europe.
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.  During 1996, the Company exceeded
these expected expense reductions.  While the Company has completed or is
evaluating various outsourcing and automation projects in order to gain
improvements in operating efficiencies, the Company does not anticipate that
any material incremental costs 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.  The continued success of the Company's ongoing
restructuring activities 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 continue
to generate improved operating results in future periods.  It is possible
that changes in the Company's business or in its industry may necessitate
restructuring charges in the future.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 17

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

WORKING CAPITAL

During the six months of 1997, the Company's cash and short-term investment
balances increased $85.0 million and $98.7 million, respectively.  Operating
activities generated $219.6 million in cash during the six months of 1997,
which was partially offset by short-term investments of $98.7 million,
repurchases of common stock at a cost of $26.1 million, and net investments
in property, plant and equipment of $21.0 million.  During six months of
1996, net cash from operating activities was $329.8 million, which included
cash received from the sale of lease assets and was partially offset by net
repayments of nonrecourse borrowings and other debt.

The current ratio increased to 2.7 as of June 27, 1997, from 2.4 as of
December 27, 1996.  The increase was principally due to the increase in cash
and short-term investments.  Accounts receivable decreased $57.8 million,
from $554.2 million as of December 27, 1996, to $496.4 million as of June 27,
1997, primarily as a result of the decreased level of sales in the second
quarter of 1997, as compared to the fourth quarter of 1996.  Inventory
balances decreased from $288.6 million as of December 27, 1996, to $263.7
million as of June 27, 1997, principally as a result of a reduction in raw
materials and benefits associated with a recently implemented finished goods
inventory delivery process.

AVAILABLE FINANCING LINES

On April 9, 1997, the Company's $150 million secured credit agreement was
replaced with a new $150 million unsecured credit agreement (the Revolver)
which expires in May 2000.  The interest rates under the Revolver depend on
the type of advance selected.  The primary advance rate is the agent bank's
prime lending rate (8.5% as of June 27, 1997).  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 June 27, 1997, the Company had issued letters of credit for
approximately $36.9 million and had approximately $113.1 million of available
credit under the Revolver.

In December 1996, the Company entered into a financing agreement with a bank
which provides for the issuance of promissory notes in the principal amount
of up to $25 million at any one time.  The agreement, which expires on
January 15, 1998, provides for commitments by the bank to purchase promissory
notes denominated in a number of foreign currencies with the foreign currency
exchange rate applicable to each note set at the time the Company commits to
a future borrowing.  The promissory notes, together with accrued interest,
are payable in U.S. dollars within 90 to 110 days from the date of issuance
and will bear interest at rates equal to the Eurodollar rate plus at least
0.50% (6.28% as of June 27, 1997).  Under the terms of the agreement, the
Company is required to comply with certain covenants which can, under certain
circumstances, include the maintenance of compensating cash balances.  As of
June 27, 1997, the Company had not committed to any future borrowings under
this facility.

In January 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.  The agreement expires on January 31, 1998,
and allows for receivable sales of up to $40 million at any one time.  The
Company's obligations under the agreement are secured by a letter of credit
<PAGE>
                                                                    Form 10-Q
                                                                      Page 18

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.
During the second quarter and six months ended June 27, 1997, the Company
sold approximately $75.5 million and $184.6 million, respectively, of
receivables in connection with this agreement.  As of June 27, 1997, the
outstanding balance associated with receivables sold on a recourse basis, but
not collected, was approximately $36.2 million, and the Company had committed
to future cumulative receivable sales of approximately $181.1 million.  Gains
and losses associated with receivable sales have not historically had, and
are not expected in the future 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 does not believe that it has
a material credit risk under the recourse provisions included in the
agreement.

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 business opportunities arise, invest
in or acquire complementary businesses, products or technologies.  The
Company may choose to fund these activities through the issuance of
additional equity or debt financing.  Any equity or convertible debt
financing could result in dilution to the Company's stockholders.  There can
be no assurance that additional financing, if required, can be completed on
terms acceptable to the Company.

TOTAL DEBT-TO-CAPITALIZATION

The Company's total debt-to-capitalization ratio decreased from 12% as of
December 27, 1996, to 2% as of June 27, 1997.  The decrease resulted
primarily from the redemption of the Company's 8% Convertible Subordinated
Debentures (8% Convertible Debentures) in January 1997, and was partially
offset by repurchases of common stock during the six months of 1997.  These
repurchases were pursuant to a program announced in February 1997 to
repurchase up to 1.5 million shares of the Company's common stock on an
annual basis to offset dilution associated with stock purchase and stock
option plans.  As of June 27, 1997, the Company had repurchased 649,500
shares of common stock at a cost of $26.1 million.

REPAYMENT OBLIGATIONS AND CONVERSION FEATURES

In December 1996, the Company called for redemption on January 13, 1997, all
outstanding 8% Convertible Debentures due 2015.  During January 1997, 8%
Convertible Debentures in the principal amount of $125.3 million were
converted at a price of $35.25 per share into approximately 3.6 million
shares of common stock.  The remaining 8% Convertible Debentures were
redeemed for cash.

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

During the second quarter and six months of 1997, approximately 34% and 35%,
respectively, of the Company's revenue was generated from international
operations, and the Company expects that it will generate a significant
portion of its revenue from international operations in
<PAGE>
                                                                    Form 10-Q
                                                                      Page 19

the future.  The majority of the Company's international operations involve
transactions denominated in the local currencies of countries within Western
Europe, principally Germany, France and the United Kingdom; Japan; Canada and
Australia.  An increase in the exchange value of the U.S. dollar reduces the
value of revenue and profits generated by the Company's international
operations.  As a result, the Company's operating and financial results can
be materially affected by fluctuations in foreign currency exchange rates.

To mitigate the impact of foreign currency fluctuations, the Company employs
a hedging program which takes into account operating and financing activities
to reduce 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 associated
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.  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.

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

PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE

The Company operates in markets characterized by rapid technological advances
and changing customer demands, which necessitate frequent product
introductions and enhancements. The Company's results of operations and
competitive strength depend upon its ability to successfully and rapidly
develop new products and enhancements to its existing products.  Short
product life cycles and product transitions are a recurring part of the
Company's business cycle and require the  Company to manage the risks
inherent in the transition process. The Company must make significant
investments in research and product development and successfully introduce
competitive new products and enhancements on a timely basis. The development
of new technology, products, and enhancements is complex and involves
uncertainties, which increases the risk of delays in the introduction of new
products and enhancements.  From time to time the Company has encountered
product development 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 and trigger substantial repair or replacement costs
and damage the Company's reputation.  As a result, the Company's operating
results could be adversely affected by these factors.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 20

The Company has historically generated a significant portion of its revenue
and operating profits from the sale and maintenance of library and tape
products designed for the mainframe marketplace. The Company anticipates that
the marketplace for mainframe library and tape products will continue to
experience a slower rate of growth as customers transition to the
client/server environment.  Future revenue growth for Nearline products is
dependent upon the continued customer demand for mainframe Nearline products,
successfully introducing new products for the client/server environment, and
the continuing success of the Company's application development initiative.
The Company is focusing resources on expanding into new markets including:
investing in research and development of new applications and products for
the open-systems marketplace; developing network-attached storage solutions;
establishing a professional services consulting group to capitalize on the
Company's expertise in information storage management; and expanding the
Company's distribution channels.  There can be no assurance that the Company
will be successful in expanding into new markets or establishing distribution
channels.

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 maintenance is therefore dependent on continued
widespread acceptance in the marketplace of, and IBM's continued support of,
these products.

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
worldwide distribution channel for mainframe online storage products and
StorageTek does not anticipate that it will continue to sell these products
directly to end-user customers during the term of the agreement, which runs
through December 1999.  The Company's success in its mainframe online storage
business is significantly dependent upon achieving certain product quality,
availability, supply, delivery and development milestones contained in the
OEM agreement and IBM's continued support for and success in marketing these
products to end-user customers.  Because of scheduled price reductions over
the term of the agreement, the Company must reduce costs and expenses
associated with manufacturing these products in order to achieve the expected
benefits.  In addition, subject to required lead times and minimum purchase
commitment terms on behalf of IBM, the OEM arrangement may cause the Company
to incur additional costs associated with unanticipated increases or
decreases in manufacturing volumes.  The agreement includes termination
provisions.  The Company may elect to terminate the agreement if IBM fails to
meet its minimum volume commitments and would be entitled to receive certain
amounts from IBM.  The agreement may be terminated by IBM for convenience, or
upon the occurrence of certain other conditions, in each case IBM would be
required to make a payment to the Company.  IBM may also elect to terminate
the agreement upon the occurrence of certain instances of change in control
of the Company or for cause.  The Company's failure to achieve the milestones
provided for in the agreement may result in reduced purchase commitments, the
imposition of penalties and, under certain circumstances, IBM may terminate
the agreement.  There can be no assurances that the Company will achieve the
milestones or that the Company will realize the anticipated benefits
associated with the agreement.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 21

On July 30, 1996, the Company received Civil Investigative Demands (CIDs)
from the U.S. Department of Justice Antitrust Division concerning the OEM
agreement with IBM for mainframe online storage subsystems.  The Company
received additional CIDs in October 1996, February 1997, May 1997, and June
1997.  The CIDs requested production of documents and testimony in connection
with a review of the agreement for compliance with the Sherman Act.  In July
1997, the Department of Justice requested the Company to provide it with
further information.  The Company has provided information and has
engaged in discussions with the Department of Justice regarding the
resolution of the investigation.  While the Company believes that the
agreement is in compliance with antitrust laws, it is unable to predict the
outcome of the investigation or the discussions.  In the event of an
unfavorable outcome, the Company could be required to pay penalties, modify
the agreement or terminate the agreement.

COMPETITION

The market for the Company's products is intensely competitive and subject to
continuous, rapid technological change, frequent product performance
improvements and price reductions.  Competition in the mainframe marketplace
comes from companies with significant resources, including IBM, EMC Corp.,
and Hitachi, Ltd.  As the Company moves into the client/server marketplace,
it will face its traditional rivals, as well as new competitors.  In the
network connectivity marketplace and the professional services consulting
arena, the competition includes a number of large companies with significant
market presence and resources.  The Company's ability to compete in both its
existing and new markets will depend to a considerable extent on its ability
to continuously develop and introduce new products and enhancements to
existing products and expand the distribution channels for all of its
products.  The Company's competitiveness could also be affected by
cooperative alliances between the Company's competitors or other
relationships between its competitors, who may emerge and rapidly acquire
market share or proprietary technology.  These alliances and acquisitions may
result in companies being at various times, collaborators, competitors and
customers in different markets.  Increased competition may result in price
reductions, delays in purchasing decisions as customers evaluate new
competitive product offerings, reduced profit margins and declining market
share, which may have a material adverse effect on the Company's business and
financial results.

INTELLECTUAL PROPERTY

The Company's intellectual property rights are material assets and key to its
business and competitive strength.  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 legal 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 its license arrangements can be renewed on terms acceptable
to the Company.  The failure to successfully protect its intellectual property
rights or obtain licenses from others as needed could have a
<PAGE>
                                                                    Form 10-Q
                                                                      Page 22

material adverse effect on the Company's business and financial results.  In
1996, the Company entered into an OEM agreement with IBM under which certain 
research and development activities are partially funded by IBM.  Any 
technology that is developed under this agreement will be owned by IBM, and 
subject to licensing rights by the Company.

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.  From time to time, StorageTek has commenced actions against other
companies to protect or enforce its intellectual property rights.  Similarly,
from time to time, other companies have commenced actions against StorageTek
claiming infringement of certain patent or other intellectual property
rights.  Licenses or royalty agreements are generally offered in such
situations.  Litigation by or against the Company may 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, the Company
could be required to pay substantial damages; cease the manufacture, use and
sale of infringing products; expend significant resources to develop non-
infringing technology; or discontinue the use of certain processes if it is
unable to enter into royalty arrangements.  There can be no assurances that
litigation will not be commenced in the future regarding patents, copyrights,
trademarks or trade secrets or that any license, royalty or other rights can
be obtained on acceptable terms, or at all.  StorageTek is currently engaged
in certain proceedings relating to its intellectual property and alleged
patent infringements.  See Note 6 of NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS for additional information with respect to the Company's legal
proceedings.

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 components.  The Company manufactures key
components for its products and purchases certain important components and
products.  Some of these components and products are purchased from single
suppliers that the Company believes are currently the only manufacturers of
the particular components that meet the Company's qualification requirements
and other specifications or for which alternative sources of supply are not
readily available.  In particular, a key component of the Company's tape
drive heads is supplied by Sumitomo Corporation on a sole source basis.
Certain of the Company's suppliers have experienced occasional technical,
financial or other problems in the past that have delayed deliveries, but
without significant effect on the Company.  An unanticipated failure of any
sole source supplier to meet the Company's requirements for an extended
period, or an interruption 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 revenue and reported earnings have fluctuated significantly in
the past and may continue to fluctuate significantly in the future from
quarter to quarter due to a variety of factors.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 23

Factors that may have a significant affect on periodic revenue and operating 
results include, among others: (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, (v) variations in customer 
acceptance periods for the Company's products, and (vi) global economic 
conditions.

VOLATILITY OF STOCK PRICE

The trading price of the Company's common stock has fluctuated significantly
in the past and, in the future, may continue to fluctuate.  The Company's
stock price may also be affected by industry conditions, new product or
product development announcements by the Company or its competitors,
announced acquisitions and joint ventures by the Company or its competitors,
broad market trends unrelated to the Company's performance, general market
and economic conditions, and foreign currency exchange rate fluctuations.  If
the Company's reported operating results are below the expectations of stock
market analysts and investors, there could be an immediate and significant
adverse effect on the trading price of the Company's common stock.  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.

COMPUTER SYSTEMS RISKS ASSOCIATED WITH THE YEAR 2000

The Company's product lines include information storage systems and network
products which store, retrieve and transmit data.  In order to properly
process this data, the Company's products must manage and manipulate
data that includes both 20th and 21st century dates (Year 2000 Compliant).
The Company has taken steps to address the year 2000 concerns and believes
its products are Year 2000 Compliant provided they have been upgraded to
include all recommended engineering changes.  There can be no assurances,
however, that the Company's products are fully Year 2000 Compliant.  The
inability of these products to properly manage and manipulate data in the
year 2000 could result in a material adverse impact on the Company, including
increased warranty costs, customer satisfaction issues, and potential
lawsuits.

The Company is currently installing significant new internal business and
financial information systems in connection with operating its business.
These systems are believed to be Year 2000 Compliant.  The Company is also
identifying and implementing changes to its other information systems in
order to make them Year 2000 Compliant.  While the Company currently expects
that the year 2000 will not pose significant operational problems, delays in
the implementation of new information systems, or a failure to fully identify
all year 2000 dependencies in the Company's systems could result in material
adverse consequences, including delays in the delivery or sale of products.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 24

               STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
                         PART II - OTHER INFORMATION

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

See Part I, Item 3 - Legal Proceedings, of the Company's Form 10-K for the
fiscal year ended December 27, 1996, filed with the Commission on March 7,
1997.

On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company 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.  In February 1996, a jury found that the Company's
products did not infringe the 151 Patent.  Odetics appealed and in June 1997,
the U.S. Court of Appeals for the Federal Circuit reversed the district
court's ruling and remanded the case back to the district court for further
proceedings.  The Company has requested a rehearing.  A ruling is expected in
the third quarter.

On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent.  The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorneys fees and costs.  This case has been stayed pending the
outcome of the case filed by Odetics, Inc. on June 29, 1995, which is further
described above.

On July 30, 1996, the Company received Civil Investigative Demands (CIDs)
from the U.S. Department of Justice Antitrust Division concerning the
original equipment manufacturer (OEM) agreement with IBM for mainframe online
storage subsystems.  The Company received  additional CIDs in October 1996,
February 1997, May 1997, and June 1997.  The CIDs requested production of
documents and testimony in connection with a review of the agreement for
compliance with the Sherman Act.  In July 1997, the Department of Justice
requested the Company to provide it with further information.  The Company
has provided information and has engaged in discussions with the
Department of Justice regarding the resolution of the investigation.  In the
event of an unfavorable outcome, the Company could be required to pay
penalties, modify the agreement or terminate the agreement.

Information concerning legal proceedings is also contained in Note 6 of NOTES
TO 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 actions 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 these actions
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>
                                                                    Form 10-Q
                                                                      Page 25

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

The annual meeting of stockholders of the Company was held on May 22, 1997.
A quorum of stockholders was represented at the meeting in person or by
proxy.

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

                                                     FOR             WITHHELD
                                                  ----------         --------
David E. Weiss                                    54,107,751          289,585
William L. Armstrong                              54,119,590          277,746
J. Harold Chandler                                53,985,822          411,514
Paul Friedman                                     54,121,561          275,775
William R. Hoover                                 47,794,287        6,603,049
Stephen J. Keane                                  54,123,988          273,348
Robert E. La Blanc                                54,127,684          269,652
Robert E. Lee                                     54,127,649          269,687
Harrison Shull                                    54,119,803          277,533
Richard C. Steadman                               54,125,259          272,077

During the annual meeting, a stockholder nominated Seymour Licht to serve as
a director.  Dr. Licht received 23,906 votes in favor of his election, which
was less than any of management's ten nominees.  Thus Dr. Licht was not
elected as a director.

At the annual meeting, the stockholders approved amendments to the Company's
1995 Equity Participation Plan and the reservation of an additional 2,200,000
shares of Common Stock for issuance under the Plan, by a vote of 44,497,814
in favor to 8,233,468 against, with 1,666,054 abstentions.  The stockholders
also ratified the appointment of Price Waterhouse LLP as the Company's
independent accountants for the current fiscal year, by a vote of 54,241,947
in favor, to 80,508 against, with 74,881 abstentions.  There were no broker
non-votes for either of these proposals.

The stockholders did not approve a stockholder proposal requesting the Board
of Directors to consider adopting stock ownership requirements for directors,
by a vote of 1,786,952 in favor, to 39,214,405 against, with 4,243,729
abstentions, and 9,152,250 broker non-votes.
<PAGE>
                                                                    Form 10-Q
                                                                      Page 26

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

      (a) Exhibits

      10.1*    1995 Equity Participation Plan, as amended February 1997.

      10.2*    Credit Agreement dated as of April 9, 1997, among the Company,
               Bank of America National Trust and Savings Association, and
               the other Financial Institutions Party thereto.

      10.3*    Employment and Termination Agreement dated June 26, 1997,
               between the Company and John V. Williams.

      11.0*    Computation of Earnings 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
          June 27, 1997.










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

* Indicates Exhibits filed with this Quarterly Report on Form 10-Q.
<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)




        August 8, 1997                           /s/ DAVID E. LACEY
-----------------------------           ---------------------------------------
            (Date)                                   David E. Lacey
                                                Executive Vice President
                                              and Chief Financial Officer
                                             (Principal Financial Officer)






        August 8, 1997                          /s/ THOMAS G. ARNOLD
-----------------------------           ---------------------------------------
            (Date)                                  Thomas G. Arnold
                                        Vice President and Corporate Controller
                                               (Chief Accounting Officer)