EMC 2007 Annual Report Download - page 26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis ("MD&A") 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 the risk factors set forth in Item 1A. The forward-looking statements do not include the
potential impact of any mergers, acquisitions, divestitures, securities offerings or business combinations that may be announced or consummated after the date
hereof.
All dollar amounts expressed numerically in this MD&A are in millions.
Certain tables may not add due to rounding.
INTRODUCTION
We manage our business in two broad categories: EMC Information Infrastructure and VMware Virtual Infrastructure ("VMware").
Our EMC Information Infrastructure business consists of three of our segments: Information Storage, Content Management and Archiving and RSA
Information Security. Our objective for our EMC Information Infrastructure business is to grow faster than the markets we serve by investing in the business
for sustainable advantage while driving strong and expanding operating margins. Management believes that by providing a combination of systems, software,
services and solutions to meet customers' needs, we will be able to further profitably increase revenues. Our efforts over the past few years have been
primarily focused on growing revenues by enhancing and expanding our portfolio of offerings to satisfy our customers' information infrastructure
requirements. We have enhanced and expanded our portfolio of offerings through both internal research and development ("R&D") and through acquisitions.
We have increased our overall annual investment in R&D from $1,051.8 in 2005 to $1,339.7 in 2007. Additionally, we invested $3,862.8 on acquisitions
collectively in 2005, 2006 and 2007. These R&D expenditures and acquisitions have enabled us to introduce new and enhanced offerings. We plan to
continue our R&D efforts to enable further innovation so we can continue to introduce new and enhanced offerings and will continue to evaluate potential
acquisitions. Revenue from new and enhanced product offerings introduced in the respective fiscal year, including all product revenues from companies
acquired during that year, contributed $2,758.7 and $3,001.3 of revenue to 2007 and 2006, respectively.
Concurrent with our objective of growing revenues, we are focused on controlling our costs. Beginning in 2006 and continuing throughout 2007, we
continued our implementation of an integration plan for the EMC Information Infrastructure business including most of the acquisitions we had made over the
prior three years. The objectives of the plan are to improve efficiencies across our EMC Information Infrastructure business and reduce costs, while helping us
to present a more unified "One EMC" to our customers. The plan includes a workforce reduction of approximately 1,350 employees worldwide, consolidation
of facilities, termination of contracts and abandoning of assets from which we will no longer derive a benefit. Once fully implemented, we believe the
annualized recurring pre-tax savings we will achieve from this plan is approximately $132.2, favorably impacting the three segments within our Information
Infrastructure business.
VMware's primary source of revenue is the licensing of virtualization software and related support and services through a variety of distribution channels
for use by businesses and organizations of all sizes and across numerous industries in their information technology infrastructure. VMware's virtualization
solutions run on industry-standard desktops and servers and support a wide range of operating system and application environments, as well as networking
and storage infrastructure. They have developed a multi-channel distribution model to expand their presence and reach various segments of the market. In
each of 2007, 2006 and 2005, VMware derived over 75% of revenues from channel partners, which include distributors, resellers, x86 systems vendors and
system integrators. They have also developed a network of nearly 10,000 indirect channel partners who fulfill orders through direct channel partners. A
majority of their revenue results from contracts that include both perpetual software licenses and ongoing software maintenance contracts.
VMware has achieved significant revenue growth to date and is focused on extending growth by broadening their product portfolio, enabling choice for
customers and driving standards, expanding their network of technology and distribution partners, increasing market awareness and promoting the adoption of
virtualization. In addition to selling to new customers, VMware is also focused on expanding the use of their products within their existing customer base, as
much of their license revenue is based on a per desktop or per server arrangement. VMware believes it is important that as they grow sales, they continue to
invest in corporate infrastructure, including customer support, information technology and general and administrative functions. VMware expects spending in
research and development to increase as they add computer scientists, software engineers, and employees
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