EMC 2008 Annual Report Download - page 31

Table of Contents
Research and Development
As a percentage of revenues, R&D expenses were 11.6%, 11.5% and 11.2% in 2008, 2007 and 2006, respectively. R&D expenses increased $194.4 and
$272.7 in 2008 and 2007, respectively, primarily due to higher personnel-related costs, including salaries, benefits, recruiting, contract labor and consulting
and higher cost of facilities. Personnel-related costs increased by $218.5 and $261.6 and the cost of facilities increased by $26.4 and $21.9 in 2008 and 2007,
respectively. Partially offsetting these increases was an increase in capitalized software development costs of $59.9 and $42.7 in 2008 and 2007, respectively,
which reduced R&D costs. Additionally, we experienced a reduction in the cost of materials to support new product development of $13.2 and $18.4 in 2008
and 2007, respectively.
Corporate reconciling items within R&D consist of stock-based compensation and intangible asset amortization. These costs increased $56.0 to $175.4 in
2008 and decreased $0.7 to $119.4 in 2007. In 2008, stock-based compensation expense increased $54.4 and intangible asset amortization increased $1.6. The
increase in stock-based compensation expense consisted of a $35.6 increase within the VMware Virtual Infrastructure business and an $18.8 increase within
EMC's Information Infrastructure business. The increase in stock-based compensation expense was primarily attributable to incremental VMware equity
grants made in 2007 and 2008. In 2007, intangible asset amortization decreased $1.3 and stock-based compensation expense increased $0.6. The increase in
stock-based compensation expense in 2007 consisted of a $16.5 increase within the VMware Virtual Infrastructure business offset by a $15.9 decrease within
EMC's Information Infrastructure business. The increase in stock-based compensation expense within the VMware Virtual Infrastructure business was
attributable to incremental equity grants made in 2007. The decrease in stock-based compensation expense within EMC's Information Infrastructure business
was primarily attributable to higher valued options becoming fully vested in 2006. For segment reporting purposes, corporate reconciling items are not
allocated to our various operating segments.
R&D expenses within EMC's Information Infrastructure business, as a percentage of EMC's Information Infrastructure business revenues, were 9.3% in
2008 and 9.7% in 2007 and 2006. R&D expenses increased $51.5 and $135.3 in 2008 and 2007, respectively. In 2008, the increase was primarily due to
higher personnel-related costs and increased facilities costs which increased by $74.7 and $6.2, respectively. Partially offsetting the increase was an increase
in capitalized software development costs of $16.6 which reduced R&D costs and a reduction in the cost of materials to support new product development of
$14.4. In 2007, the increase was primarily due to higher personnel-related costs and increased facilities cost which increased by $151.7 and $15.9,
respectively. Partially offsetting the increase was an increase in capitalized software development costs of $27.6 which reduced R&D costs and a reduction in
the costs of materials to support new product development of $20.3.
R&D expenses within the VMware Virtual Infrastructure business, as a percentage of VMware's revenues, were 18.2%, 19.3% and 16.5% in 2008, 2007
and 2006, respectively. R&D expenses increased $86.9 and $138.1 in 2008 and 2007, respectively. The increase in R&D expenses was primarily attributable
to incremental headcount to support the growth of the business, resulting in increased salaries and benefits expense of $91.2 and $109.3 in 2008 and 2007,
respectively. Partially offsetting these increases were software capitalization costs increases of $43.3 and $15.1 in 2008 and 2007, respectively, which reduced
R&D costs. We expect the amount of software development costs which are capitalized to decrease in 2009 compared to 2008.
Selling, General and Administrative
As a percentage of revenues, SG&A expenses were 30.9%, 29.6% and 29.2% in 2008, 2007 and 2006, respectively. SG&A expenses increased by $688.9
and $659.4 in 2008 and 2007, respectively, primarily due to higher personnel-related costs, depreciation, travel costs and facilities costs to support the overall
growth of the business and increased bad debt provisions. Personnel-related costs increased by $468.2 and $420.5, depreciation increased by $49.4 and $59.5,
travel increased by $6.1 and $57.1 and facilities costs increased by $28.3 and $28.9 in 2008 and 2007, respectively. Bad debt provisions increased $25.8 in
2008 when compared to 2007 and decreased $1.4 in 2007 when compared to 2006.
Corporate reconciling items within SG&A consist of stock-based compensation and intangible asset amortization. These costs increased $91.5 to $367.2
in 2008 and increased $4.6 to $275.6 in 2007. In 2008, stock-based compensation increased $56.8 and intangible asset amortization increased $34.7. The
increase in stock-based compensation consisted of a $31.3 increase within the VMware Virtual Infrastructure business and a $25.5 increase within EMC's
Information Infrastructure business. The increase in stock-based compensation expense was attributable to equity grants made in 2007 and 2008. In 2007,
intangible asset amortization increased $27.4 and stock-based compensation decreased $22.8. The increase in intangible asset amortization in 2008 and 2007
was attributable to amortization of intangible assets associated
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