EMC 2003 Annual Report Download - page 14

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis 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 "FACTORS THAT MAY AFFECT FUTURE RESULTS" beginning on page 40. The forward-looking statements do
not include the potential impact of any mergers, acquisitions, divestitures or business combinations that may be completed after the date hereof.
All dollar amounts in this MD&A are in millions, except per share amounts.
INTRODUCTION
We generate revenue through the sale, license and lease of products and services for information lifecycle management. The demand for our products is
correlated, in general, to the worldwide economy, and more specifically, to the demand for IT infrastructure. We experienced a decline in demand for our
products and services in 2001 and 2002 compared to the late 1990's and 2000. Commencing in 2001, we began to implement programs to reduce costs and to
focus our efforts on areas we considered strategic in order to return to profitability. As a result of various initiatives, as well as an increase in demand for IT
infrastructure, we returned to profitability in 2003.
Our financial objective is to achieve profitable growth. Management believes that by providing a combination of systems, software and services to meet
customers' demand for information lifecycle management, we will be able to further increase revenues and profitability. In 2003, our operating income was
6.4% of revenue. We believe that by increasing revenues and further controlling costs, we will be able to improve operating income as a percentage of
revenue. Our efforts in 2004 will be primarily focused on expanding our portfolio of offerings to satisfy our customers' information lifecycle management
requirements. This will include additional investments in research and development and the introduction of new and enhanced product and service offerings,
with a goal of increasing our market share. We will focus on improving our gross margins through a combination of providing a more profitable mix of
systems, software and services and further leveraging our existing fixed cost component of cost of sales. Additionally, we will further integrate the operations
of LEGATO, Documentum and VMware into EMC to streamline operations and reduce costs.
COMPARISON OF FISCAL 2003 AND 2002
The following table presents certain consolidated statement of operations information stated as a percentage of total revenues. Certain columns may not
add due to rounding.
Year Ended
December 31,
2003 2002
Total revenue 100.0% 100.0%
Cost and expenses
Cost of sales 54.4 61.0
Research and development 11.5 14.4
Selling, general and administrative 26.6 30.9
Restructuring and other special charges 1.1 2.8
Operating income (loss) 6.4 (9.1)
Investment income, interest expense and other expense, net 2.7 3.6
Income (loss) before income taxes 9.2 (5.5)
Provision for (benefit from) income taxes 1.2 (3.3)
Net income (loss) 8.0% (2.2)%
18
Revenues
The following table presents revenue by our segments:
2003 2002 $ Change % Change
Information storage products $4,658.3 $4,218.4 $ 439.9 10%
Information storage services 1,371.0 1,078.4 292.6 27
Documentum products and services 30.7 – 30.7 –
LEGATO products and services 77.3 – 77.3 –
Other businesses 99.5 141.6 (42.1) 30