EMC 2006 Annual Report Download - page 24

Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations should be read in conjunction with our
consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K. The following discussion contains
forward-looking statements and should also be read in conjunction with the risk factors set forth in Item 1A. The forward-looking statements do not include
the potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or consummated after
the date hereof.
All dollar amounts in this MD&A are in millions, except per share amounts.
Certain tables may not add due to rounding.
INTRODUCTION
Our financial objective is to achieve profitable growth. Management believes that by providing a combination of systems, software, services and
solutions to meet customers' needs, we will be able to further profitably increase revenues. Our efforts over the past few years have been primarily focused on
growing revenues by enhancing and expanding our portfolio of offerings to satisfy our customers' information infrastructure requirements. We have increased
our overall investment in research and development ("R&D") from $847.9 in 2004 to $1,254.2 in 2006. These R&D expenditures have enabled us to introduce
new and enhanced offerings. We have also made acquisitions over the past three years to expand our offerings.
Additionally, as further discussed below, in 2006 we implemented an integration plan for EMC and most of the acquisitions we have made over the past
three years. The objectives of the plan are to improve efficiencies across our business and reduce costs, while helping us to present a more unified "One EMC"
appearance to our customers.
Through a combination of increasing our revenues and controlling the level of cost increases, our objective is to increase our overall level of
profitability.
RESULTS OF OPERATIONS
Revenues
In the fourth quarter of 2006, we realigned our business into four segments: Information storage, Content management and archiving, VMware virtual
infrastructure and RSA information security. We have conformed our prior period presentations to be consistent with our current segments. The following
table presents revenue by our segments:
Percentage Change
2006
2005 2004 2006 vs 2005 2005 vs 2004
Information storage $ 9,608.6 $ 8,792.2 $ 7,615.0 9.3% 15.5%
Content management and archiving 685.8 484.3 396.3 41.6 22.2
VMware virtual infrastructure 709.0 387.5 218.2 83.0 77.6
RSA information security 151.7 — — NM NM
Total revenues $ 11,155.1 $ 9,664.0 $ 8,229.5 15.4% 17.4%
NM – not measurable
The Information storage segment revenues include systems, software license and services revenues. Systems revenues were $5,124.8, $4,486.9 and
$3,871.0 in 2006, 2005 and 2004, respectively, representing increases of 14.2% in 2006 and 15.9% in 2005. The increases in 2006 and 2005 were due to
greater demand for these products attributable to wider acceptance of information lifecycle management-based solutions, a broadened product portfolio,
increased demand for IT infrastructure and new and enhanced distribution channels. Software license revenues were $2,015.3, $2,005.9 and $1,813.1 in 2006,
2005 and 2004, respectively, representing increases of 0.5% in 2006 and 10.6% in 2005. Software license revenues increased in 2006 compared to 2005
primarily due to higher demand for our resource management software and backup and recovery software. This increase was partially offset by a decrease in
platform-based software revenues due to a change in the mix of mid-range information storage systems sold resulting in more lower-end units with a
decreased software content. Additionally, within our high-end storage system product line, we sold a greater proportion of larger systems in 2006 compared to
2005 which resulted in less platform-based software revenues. The increase in 2005 software license revenues compared to 2004 was attributable to higher
platform-based
19