VMware 2010 Annual Report Download - page 47

Table of Contents
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction
with our annual consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K.
All dollar amounts expressed as numbers in this MD&A (except per share amounts) are in millions.
Overview
Our primary source of revenues is the licensing of virtualization and cloud infrastructure solutions and related support and services for use
by businesses and organizations of all sizes and across numerous industries in their information technology (“IT”) infrastructure. Our
virtualization solutions reflect a pioneering approach to computing that separates application software from the underlying hardware to achieve
significant improvements in efficiency, agility, availability, flexibility and manageability. Our broad and proven suite of virtualization solutions
addresses a range of complex IT problems that include cost and operational inefficiencies, facilitating access to “cloud computing” capacity,
business continuity, software lifecycle management and corporate end-user computing device management. Our solutions run on industry-
standard servers and desktop computers and support a wide range of operating system and application environments, as well as networking and
storage infrastructures. Our solutions enable organizations to aggregate multiple servers, storage infrastructure and networks together into shared
pools of capacity that can be allocated dynamically, securely and reliably to applications as needed, increasing hardware utilization and reducing
spending. The benefits to our customers include substantially lower IT costs, cost-effective high availability across a wide range of applications,
and a more automated and resilient systems infrastructure capable of responding dynamically to variable business demands. With our latest
platform, VMware vSphere, we are helping companies along the path of cloud computing by providing compatible IT infrastructures for both
businesses and cloud service providers.
Although we believe we are currently the leading provider of virtualization infrastructure software solutions, we face competitive threats to
our leadership position from a number of companies, some of which have significantly greater resources than we do, which could result in
increased pressure to reduce prices on our offerings. As a result, we believe it is important to continue to invest in strategic initiatives related to
product research and development, market expansion and associated support functions to expand our industry leadership. We believe that we
will be able to continue to meet our product development objectives through continued investment in our existing infrastructure, supplemented
with strategic hires and acquisitions, funded through the operating cash flows generated from the sale of our products and services. We believe
this is the appropriate priority for the long-term health and growth of our business.
Our current financial focus is on long-term revenue growth to generate free cash flows to fund our expansion of industry segment share
and to evolve our virtualization-based products for data centers, desktop computers and cloud computing through a combination of internal
development and acquisitions. We expect to grow our business by broadening our virtualization infrastructure software solutions technology and
product portfolio, increasing product awareness, promoting the adoption of virtualization and building long-term relationships with our
customers through the adoption of enterprise license agreements (“ELAs”). Since the introduction in 2009 of VMware vSphere and VMware
View 4, we have introduced more products that build on the vSphere foundation. In the third quarter of 2010, we released updated versions of
VMware vSphere and VMware View, and we plan to continue to introduce additional products in the future. Additionally, we have made, and
expect to continue to make, acquisitions designed to strengthen our product offerings and/or extend our strategy to deliver solutions that can be
hosted at customer data centers or at service providers.
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ITEM 7.
MANAGEMENT
’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Free cash flows, a non
-
GAAP financial measure, is defined as net cash provided by operating activities plus the excess tax benefits from
stock-based compensation, less capital expenditures and capitalized software development costs. Each adjusting item is separately presented
on our consolidated statements of cash flows. See
“
Non
-
GAAP Financial Measures
”
for further information.
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