EMC 2009 Annual Report Download - page 51

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
• Systems sales
Systems sales consist of the sale of hardware storage and hardware-related devices. Revenue for hardware is generally recognized upon shipment.
• Software sales
Software sales consist of the sale of software application programs and operating systems. Our software products provide customers with resource
management, backup and archiving, content management, information security and server virtualization capabilities. Revenue for software is generally
recognized upon shipment or electronic delivery. License revenue from royalty payments is recognized upon either receipt of final royalty reports or payments
from third parties.
• Services revenue
Services revenue consists of installation services, professional services, software maintenance, hardware maintenance and training. Generally,
installation and professional services are not considered essential to the functionality of our products as these services do not alter the product capabilities and
may be performed by our customers or other vendors. Installation services revenues are recognized as the services are being performed. Professional services
revenues on engagements for which reasonably dependable estimates of progress toward completion are capable of being made are recognized as earned
based upon the hours incurred. Revenue on all other engagements is recognized upon completion. Where services are considered essential to the functionality
of our products, revenue for the products and services is recorded over the service period.
Software and hardware maintenance revenues are recognized ratably over the contract period.
• Multiple element arrangements
When more than one element such as hardware, software and services are contained in a single arrangement, we allocate revenue to each element of the
transaction based upon its fair value as determined by the appropriate authoritative guidance. Fair value is generally determined based upon the price charged
when the element is sold separately. Fair value of software support services may also be measured by the renewal rate offered to the customer. In the absence
of fair value for a delivered element, we allocate revenue first to the fair value of the undelivered elements and allocate the residual revenue to the delivered
elements. If evidence of fair value for each individual element of the arrangement does not exist, all revenue for the arrangement is deferred until such time as
evidence of fair value can be determined objectively; until evidence of fair value exists for the undelivered elements; or until there is one remaining
undelivered element, at which point all revenue for the arrangement is recognized over the remaining period of the undelivered element.
• Shipping terms
Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or
local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.
• Leases
Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the
lease period.
• Other
We accrue for the estimated costs of systems' warranty at the time of sale. We reduce revenue for estimated sales returns at the time of sale. Systems'
warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon
our historical experience and specific identification of probable returns. For our Iomega business we defer revenue and cost of sales for inventory sold through
the channel that exceeds the channel's requirements.
49