EMC 2006 Annual Report Download - page 25

Table of Contents
software revenues due to an expanded product offering, a greater demand for software to manage increasingly complex high-end and midrange networked
storage environments and new and enhanced distribution channels. Services revenues were $2,468.5, $2,299.4 and $1,930.9 in 2006, 2005 and 2004,
respectively, representing increases of 7.4% in 2006 and 19.1% in 2005. Services revenues consist of software and hardware maintenance and professional
services revenues. Services revenues increased in both 2006 and 2005 due to greater demand for our software support. Additionally, increased demand for
professional services, largely to support and implement information lifecycle management-based solutions, contributed to the increase. The increase in 2005
services revenues was also impacted by greater demand for hardware maintenance contracts associated with increased sales of information storage systems.
Partially offsetting the increases in services revenues in 2006 and 2005 was a decrease in AViiON maintenance services revenues. These revenues are
expected to continue to decline in future years, as we have discontinued selling AViiON servers.
The Content management and archiving segment revenues include software license and services revenues. Software license revenues were $323.6,
$228.7 and $192.7 in 2006, 2005 and 2004, respectively, representing increases of 41.5% in 2006 and 18.7% in 2005. Software license revenue increased in
2006 and 2005 primarily due to greater demand for content management software. Software license revenues for 2006 were favorably impacted by $63.7 from
the Captiva acquisition which was completed in December 2005. Services revenues were $353.6, $255.5 and $203.6 in 2006, 2005 and 2004, respectively,
representing increases of 38.4% in 2006 and 25.5% in 2005. The increase in services revenues in 2006 and 2005 was primarily attributable to higher software
maintenance revenues and higher professional services revenues. Services revenues for 2006 were favorably impacted by $38.1 from the Captiva acquisition.
The VMware virtual infrastructure segment revenues include software license and services revenues. Software license revenues were $494.6, $287.5
and $178.3 in 2006, 2005 and 2004, respectively, representing increases of 72.0% in 2006 and 61.2% in 2005. The software license revenue increases in 2006
and 2005 were attributable to increased demand for virtual infrastructure software and the introduction of new product offerings. Services revenues were
$214.4, $99.9 and $39.9 in 2006, 2005 and 2004, respectively, representing increases of 114.6% in 2006 and 150.4% in 2005. The increases in 2006 and 2005
were primarily due to higher software maintenance revenues associated with the growth in sales of virtualization software product offerings.
The RSA information security segment was created during the third quarter of 2006 as a result of our acquisitions of RSA and Network Intelligence.
The RSA information security segment provides technologies to secure information no matter where it resides or travels inside or outside of an organization
and throughout its lifecycle and includes systems, software license, software maintenance and other services revenues. Total revenues for the period from the
dates of acquisition through December 31, 2006 were $151.7.
Revenues by geography were as follows:
Percentage Change
2006
2005 2004 2006 vs 2005 2005 vs 2004
United States $ 6,319.7 $ 5,468.6 $ 4,631.3 15.6% 18.1%
Europe, Middle East and Africa 3,232.6 2,743.8 2,355.9 17.8 16.5
Asia Pacific 1,126.2 1,061.2 926.0 6.1 14.6
Latin America, Mexico and Canada 476.6 390.3 316.3 22.1 23.4
Revenue increased in 2006 and 2005 in all of our markets due to greater demand for our products and services. The lower growth rate in the Asia
Pacific markets in 2006 was primarily attributable to lower levels of demand in Japan. Changes in exchange rates adversely impacted revenue growth by 0.2%
in 2006 and positively impacted revenue growth by 0.8% in 2005 and 3.7% in 2004. The impact of the change in rates in 2006 was most significant in the
Asia Pacific market, primarily Japan. In 2005 and 2004, the impact of the change in rates was most significant in the European market, primarily Germany,
France, Italy and the United Kingdom.
Costs and expenses
Our results of operations were impacted by a significant increase in stock-based compensation expense as a result of our adoption of Financial
Accounting Standards Board ("FASB") Statement No. 123R, "Share-Based Payment" ("FAS No. 123R") for 2006, as described further below. We selected
the modified prospective transition method of adoption, which does not result in the restatement of results from prior periods, and accordingly, our gross and
operating margins as a percentage of total revenue declined during 2006 compared to 2005. We do not expect a similar type of decline to occur in 2007
because both the 2006 and 2007 results will include the effect of accounting for stock-based compensation under FAS No. 123R.
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