EMC 2011 Annual Report Download - page 54

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
• Software sales
Software sales consist of the sale of stand-alone 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.
We recognize revenue from fixed-price support or maintenance contracts sold for both hardware and software, including extended warranty contracts,
ratably over the contract period and recognize 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 VSOE of the fair value of any undelivered software 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.
• Indirect Channel Sales
We market and sell our products through our direct sales force and indirect channels such as independent distributors and value-added resellers. For
substantially all of our indirect sales we recognize revenues on products sold to resellers and distributors on a sell through basis since we do not expect our
channel partners to carry inventory. These product sales are evidenced by a master distribution agreement, together with evidence of an end-user arrangement,
on a transaction-by-transaction basis. For our Iomega business, we defer revenue and cost of sales for inventory sold into the channel that exceeds the
channel's anticipated requirements.
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