EMC 2005 Annual Report Download - page 15

Table of Contents
value of our equity awards may also be adversely affected by the volatility of our stock price. These factors may impair our ability to attract, retain and
motivate employees.
Changes in generally accepted accounting principles may adversely affect us.
From time to time, the Financial Standards Accounting Board ("FASB") promulgates new accounting principles that are applicable to us. In 2006, we
will adopt Financial Accounting Standards ("FAS") No. 123R, "Share-Based Payment". This standard will require us to expense the fair value of stock
options issued to employees in our basic financial statements. This will adversely affect our results of operations. We currently estimate that the standard will
adversely impact earnings for 2006 by approximately $0.09 per diluted share. The FASB has proposed other standards, including modifying the accounting
for income taxes, accounting for business combinations and fair value measurements. These proposed standards or other proposals could have a material
adverse impact on our results of operations or financial condition.
Our quarterly revenues and earnings could be materially adversely affected by uneven sales patterns and changing purchasing behaviors.
Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter's total sales occur in the last month
and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and
uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. We believe this uneven sales pattern is a result of many
factors including:
• the relative dollar amount of our product and services offerings in relation to many of our customers' budgets, resulting in long lead times for
customers' budgetary approval, which tends to be given late in a quarter
• the tendency of customers to wait until late in a quarter to commit to purchase in the hope of obtaining more favorable pricing from one or more
competitors seeking their business
• the fourth quarter influence of customers' spending their remaining capital budget authorization prior to new budget constraints in the first six
months of the following year
• seasonal influences
Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity accordingly. If predicted
demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed predicted demand, the ability to
assemble, test and ship orders received in the last weeks and days of each quarter may be limited, which could materially adversely affect quarterly revenues
and earnings.
In addition, our revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and our backlog at any particular time
is not necessarily indicative of future sales levels. This is because:
• we assemble our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from
customers
• we generally ship products shortly after receipt of the order
• customers may reschedule or cancel orders with little or no penalty
Loss of infrastructure, due to factors such as an information systems failure, loss of public utilities or extreme weather conditions, could impact our
ability to ship products in a timely manner. Delays in product shipping or an unexpected decline in revenues without a corresponding and timely slowdown in
expenses, could intensify the impact of these factors on our business, results of operations and financial condition.
In addition, unanticipated changes in our customers' purchasing behaviors such as customers taking longer to negotiate and complete their purchases or
making smaller, incremental purchases based on their current needs, also make the prediction of revenues, earnings and working capital for each financial
period difficult and uncertain and increase the risk of unanticipated variations in our quarterly results and financial condition.
Risks associated with our distribution channels may materially adversely affect our financial results.
In addition to our direct sales force, we have agreements in place with many distributors, systems integrators, resellers and original equipment
manufacturers to market and sell our products and services. We may, from time to time, derive a significant percentage of our revenues from such distribution
channels. For 2005, Dell, Inc., one of our channel partners, accounted for 12% of our revenues. Our financial results could be materially adversely affected if
our contracts with channel partners were terminated, if our relationship with channel partners were to deteriorate or if the financial condition of our channel
partners were to weaken. In
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