EMC 2007 Annual Report Download - page 17

Changes in generally accepted accounting principles may adversely affect us.
In July 2007, the Financial Accounting Standards Board ("FASB") voted to issue a draft FASB Staff Position ("FSP") to change the accounting treatment
for convertible debt instruments that require or permit partial cash settlement upon conversion. The proposed accounting change would require issuers to
separate the bond into two components: a non-convertible bond and a conversion option. The separation of the conversion option would create a discount in
the bond component which would be accreted to its face value through interest expense over the term of the bond. This would increase an issuer's interest rate
commensurate with the issuer's straight debt rate. If a final FSP is issued and approved with substantially the same terms as the draft FSP, we would recognize
incremental interest expense on our convertible debt instruments, negatively impacting our diluted earnings per share.
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 nine
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 2007, Dell Inc., one of our channel partners, accounted for 14.3% 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, if the financial condition of our channel
partners were to weaken, if our channel partners are not able to timely and effectively implement their planned actions or if the level of demand for our
channel partners' products and services decreases. In addition, as our market opportunities change, we may have an increased reliance on channel partners,
which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are
not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the
visibility to our management of potential
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