EMC 2010 Annual Report Download - page 52

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
• Software sales
Software sales consist of the sale of optional value-added software application programs. Our software application programs provide customers with
resource management, backup and archiving, information security, information management and intelligence 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.
EMC recognizes revenue from fixed-price support or maintenance contracts sold for both hardware and software, including extended warranty
contracts, ratably over the contract period and recognizes the costs associated with these contracts as incurred. 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. Where
services are considered essential to the functionality of our products, revenue for the products and services is recorded over the service period. Professional
services engagements that are on a time and materials basis are recognized based upon hours incurred. Revenues on all other professional services
engagements are recognized upon completion.
• Multiple element arrangements
When more than one element, such as hardware, software and services are contained in a single arrangement, we first allocate revenue based upon the
relative selling price into two categories: (1) non-software components, such as hardware and any hardware-related items, such as required software that
functions with the hardware to deliver the essential functionality of the hardware and related post-contract customer support and other services and
(2) software components, such as optional software application programs and related items, such as post-contract customer support and other services. We
then allocate revenue within the non-software category to each element based upon their relative selling price using estimated selling prices ("ESP") if vendor-
specific objective evidence ("VSOE") or third-party evidence of selling price ("TPE") does not exist. We allocate revenue within the software category to the
undelivered elements based upon their fair value using VSOE with the residual revenue allocated to the delivered elements. If we cannot objectively
determine the fair value of any undelivered element, we defer revenue until all elements are delivered and services have been performed, or until fair value
can objectively be determined for any remaining undelivered elements.
We limit the amount of revenue recognition for delivered elements to the amount that is not contingent on the future delivery of products or services.
Customers under software maintenance agreements are entitled to receive updates and upgrades on a when-and-if-available basis, and various types of
technical support based on the level of support purchased. In the event specific features or functionality, entitlements, or the release number of an upgrade or
new product have been announced but not delivered, and customers will receive that upgrade or new product as part of a current software maintenance
contract, a specified upgrade is deemed created and product revenues are deferred on purchases made after the announcement date until delivery of the
upgrade or new product. The amount and elements to be deferred are dependent on whether we have established VSOE of fair value for the upgrade or new
product. On occasion, VSOE of fair value of these upgrades or new products is established based upon the price set by management. We have a history of
selling such upgrades or new products on a stand-alone basis.
• Shipping terms
Our sales contracts generally provide for the customer to accept risk of loss when the product leaves our facilities. When shipping terms or local laws
do not allow for passage of risk of loss at shipping point, we defer recognizing revenue until risk of loss transfers to the customer.
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