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Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Systems sales consist of the sale of hardware for the following systems: Symmetrix systems, CLARiiON systems, Celerra systems, Centera systems and
Connectrix systems. Revenue for hardware is generally recognized upon shipment.
Software sales
Software sales consist of the sale of software application programs. Our software products provide customers with resource management, backup and
archiving, content management, information security and server virtualization capabilities. Revenue for software is generally recognized upon shipment or
electronic delivery. License revenue from royalty payments is recognized upon either receipt of final royalty reports or payments from third parties.
Services revenue
Services revenue consists of installation services, professional services, software maintenance, hardware maintenance and training. Generally,
installation and professional services are not considered essential to the functionality of our products as these services do not alter the product capabilities, do
not require specialized skills and may be performed by our customers or other vendors. Installation services revenues are recognized upon completion of the
installation. Professional services revenues include information infrastructure assessments and design, integration and implementation, business continuity,
data migration, residencies, managed storage services, networking storage and consulting services for business, application and infrastructure strategy, design
and execution. Revenues on engagements for which reasonably dependable estimates of progress toward completion are capable of being made are recognized
as earned based upon the hours incurred. Revenue on all other engagements is recognized upon completion. Where services are considered essential to the
functionality of our products, revenue is deferred until the services are complete.
Software and hardware maintenance revenues are recognized ratably over the contract period.
Multiple element arrangements
When more than one element such as hardware, software and services are contained in a single arrangement, we allocate revenue between the elements
based on each element's relative fair value, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered
a separate unit of accounting if it has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the
undelivered items. Fair value is generally determined based upon the price charged when the element is sold separately. Fair value of software support
services may also be measured by the renewal rate offered to the customer. In the absence of fair value for a delivered element, we allocate revenue first to the
fair value of the undelivered elements and allocate the residual revenue to the delivered elements. In the absence of fair value for an undelivered element, the
arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue recognition for the delivered elements until all undelivered
elements for which fair value cannot be determined have been fulfilled.
Shipping terms
Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or local
laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.
Leases
Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the
lease period.
Other
We accrue for the estimated costs of systems' warranty at the time of sale. We reduce revenue for estimated sales returns at the time of sale. Systems'
warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon
our historical experience and specific
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