EMC 2007 Annual Report Download - page 27

involved in product development and maintenance and continue to enable choice for customers and drive standards. VMware believes that equity incentives
tied directly to the performance of VMware will help them compete for top-level engineering and other talent. They also intend to continue to invest in
hardware, networking and software tools to increase the efficiency of research and development efforts.
VMware's current financial focus is on sustaining growth in revenue to generate cash flow to expand their market segment share and virtualization
solutions. Although VMware is currently the leading provider of virtualization solutions, VMware believes the use of virtualization solutions is at very early
stages by customers and expects to face competitive threats to their leadership from a number of companies, some of whom may have significantly greater
resources than they do. As a result, they believe it is important to continue to invest in research and product development, sales and marketing and the support
function to maintain or expand their leadership in the virtualization solutions market. This investment could result in contracting operating margins as
VMware invests in their future. VMware believes that they will be able to continue to fund product development through operating cash flows as they
continue to sell existing products and services. VMware believes this is the right priority for the long-term health of their business.
Our management is also focused on enhancing EMC's capital structure. In 2006, we issued $3,450.0 of long-term senior unsecured obligations. We
utilized $2,200.0 of the net proceeds to repay the outstanding indebtedness under a six-month unsecured credit facility which was used to finance our
acquisition of RSA. We utilized the majority of the remaining proceeds to purchase approximately 75.0 million shares of our common stock. From 2005
through 2007, we purchased 465.6 million shares of our common stock at a total cost of $6,112.5. During this time frame, we decreased our total outstanding
shares by 12.6%. We plan to spend approximately $550.0 to purchase additional shares of our common stock during the first quarter of 2008.
In the third quarter of 2007, we further enhanced our capital structure through the initial public offering ("IPO") of 37.95 million shares, or
approximately 11%, of the capital stock of VMware. Also in the third quarter, VMware sold 9.5 million shares of its capital stock to Intel Capital Corporation.
Net proceeds to VMware from these transactions were $1,253.5. EMC also sold 6.0 million shares of VMware Class A common stock held by us to Cisco
Systems, Inc., resulting in net proceeds to us of approximately $150.0.
RESULTS OF OPERATIONS
Revenues
The following table presents revenue by our segments:
Percentage Change
2007 2006 2005 2007 vs 2006 2006 vs 2005
Information Storage $10,610.9 $ 9,608.6 $8,792.2 10.4% 9.3%
Content Management and Archiving 773.2 685.8 484.3 12.7 41.6
RSA Information Security 525.3 151.7 — 246.3 NM
VMware Virtual Infrastructure 1,320.8 709.0 387.5 86.3 83.0
Total revenues $13,230.2 $11,155.1 $9,664.0 18.6% 15.4%
NM-not measurable
The Information Storage segment revenues include systems, software license and services revenues. Systems revenues were $5,737.6, $5,124.8 and
$4,486.9 in 2007, 2006 and 2005, respectively, representing increases of 12.0% in 2007 and 14.2% in 2006. The increases in systems revenues were due to
greater demand for these products attributable to increased demand for our Information Technology ("IT") infrastructure offerings and a broadened product
portfolio. Revenue from new and enhanced product offerings introduced in the respective fiscal year, including all product revenue from companies acquired
during that year, contributed $2,262.5 and $2,720.0 of revenue to 2007 and 2006, respectively. In addition, revenue growth was driven by higher sales
volumes from our channel partners. Our channel partners accounted for 57.8% and 106.5% of the revenue growth in 2007 and 2006, respectively.
Software license revenues were $2,075.8, $2,015.3 and $2,005.9 in 2007, 2006 and 2005, respectively, representing increases of 3.0% in 2007 and 0.5%
in 2006. Software license revenues increased in 2007 and 2006 when compared to the prior comparable period primarily due to higher demand for our backup
recovery software and platform-based software. The slower rate of software
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