EMC 2008 Annual Report Download - page 27

Table of Contents
The current financial focus of VMware is on revenue growth to generate cash flows to fund its expansion of industry segment share and development of
virtualization-based products for data centers, desktops and cloud computing. VMware expects to continue its revenue growth by broadening its virtual
infrastructure software solutions technology and product portfolio.
Although VMware is currently the leading provider of virtual infrastructure solutions, management believes the use of virtual infrastructure solutions is
at early stages by customers. The business faces competitive threats to its leadership from a number of companies, some of which have significantly greater
resources, which could result in increased pressure to reduce prices on its offerings. As a result, management believes it is important to continue to invest in
strategic initiatives related to product research and development, market expansion and associated support functions to expand industry leadership. These
investments could result in contracting operating margins as VMware invests in its future.
RESULTS OF OPERATIONS
Revenues
The following table presents revenue by our segments:
Percentage Change
2008 2007 2006 2008 vs 2007 2007 vs 2006
Information Storage $11,632.3 $10,610.9 $ 9,608.6 9.6% 10.4%
Content Management and Archiving 785.6 773.2 685.8 1.6 12.7
RSA Information Security 581.3 525.3 151.7 10.7 246.3
VMware Virtual Infrastructure 1,876.9 1,320.8 709.0 42.1 86.3
Total revenues $14,876.2 $13,230.2 $11,155.1 12.4% 18.6%
The Information Storage segment revenues include systems, software and other services revenues. Systems revenues were $6,281.6, $5,737.6 and
$5,124.8 in 2008, 2007 and 2006, respectively, representing an increase of 9.5% in 2008 and 12.0% in 2007. The increases in systems revenues were due to
greater demand for these products attributable to increased demand for our IT infrastructure offerings and a broadened product portfolio. Software revenues
were $3,170.5, $3,078.0 and $2,941.2 in 2008, 2007 and 2006, respectively, representing an increase of 3.0% and 4.7% in 2008 and 2007, respectively. The
2008 increase of 3.0% was due to an $186.4 or 18.6% increase in software maintenance revenues, partially offset by a decrease in software license revenues
of $93.9 or 4.5%. Software maintenance revenues increased due to continued demand for support from our installed base. The decline in software license
revenues was due to a combination of factors, including existing systems' customers migrating to higher-end systems while continuing to utilize their existing
software licenses and increased lower-end systems sales which utilize less software. The 2007 increase of 4.7% was due to a $76.3 or 8.2% increase in
software maintenance revenues and a $60.5 or 3.0% increase in software license revenues. Software maintenance revenues increased due to continued demand
for support from our installed base. Software license revenue increased when compared to the prior comparable period due to demand for our backup recovery
software and platform based software. Total other services revenues were $2,180.2, $1,795.3 and $1,542.6 in 2008, 2007 and 2006, respectively, representing
an increase of 21.4% in 2008 and 16.4% in 2007. Other services primarily consist of professional services and system maintenance. Professional services
increased $278.6 or 22.7% and $208.3 or 20.5% in 2008 and 2007, respectively, and system maintenance revenues increased $89.1 or 17.7% and $36.6 or
7.8% in 2008 and 2007, respectively. The increase in professional services was partially attributable to greater demand for our professional services, largely to
support and implement information lifecycle management-based solutions and to acquisitions consummated in 2007 and 2008. Acquisitions in 2008
contributed 300 basis points to the 2008 increase in revenues and acquisitions in 2007 contributed 68 basis points to the 2007 increase in revenues. System
maintenance increased due to greater demand for our information storage systems. Total Information Storage revenue growth was also driven by higher sales
volume from our channel partners. Our channel partners accounted for 27.2% and 57.8% of the revenue growth in 2008 and 2007, respectively.
The Content Management and Archiving segment revenues primarily include software revenues and other services revenues. Total software revenues
were $580.6, $585.0 and $542.6 in 2008, 2007 and 2006, respectively, representing a decrease of 0.8% in 2008 and an increase of 7.8% in 2007. The 0.8%
decrease in 2008 software revenues was primarily due to a decrease in software license revenues of $57.0 or 17.2%, partially offset by an increase in software
maintenance revenues of $52.6 or 20.8%. The decrease in software license revenues was attributable to lower demand for application software resulting from
the current uncertain economic climate and resulting negative impact in our customers' IT
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