VMware 2010 Annual Report Download - page 53

Table of Contents
Total revenues were $2,857.3 in 2010, $2,023.9 in 2009 and $1,881.0 in 2008, representing year-over-year increases of $833.4 or 41% in
2010 and $142.9 or 8% in 2009. The revenue mix in 2010 reflected an increase in license revenues and an increase in services revenues as
compared with 2009. The revenue mix in 2009 reflected a decrease in license revenues and an increase in services revenues as compared with
2008. In 2010 and 2009, the growth in our services revenues was driven by strong maintenance renewals, multi-year software maintenance
contracts sold in previous periods and additional maintenance contracts sold in conjunction with software licenses. Our professional services
practice has continued to grow in conjunction with the growth of our customer base. During 2010, we saw improved economic conditions and a
corresponding increase in customer spending, which drove our license revenue growth for the year. Geographically, both U.S. and international
revenues increased in 2010 and 2009, respectively, as compared with their respective prior years. The decline in license revenues year-over-year
in 2009 was a result of customers delaying or reducing their IT purchases in response to the macroeconomic environment.
License Revenues
Software license revenues were $1,401.4 in 2010, $1,029.4 in 2009 and $1,178.1 in 2008, representing a year-over-year increase of $372.0
or 36% in 2010 and a year-over-year decrease of $148.7 or 13% in 2009. We believe license revenues benefited in 2010 from the improving
macroeconomic environment, resulting in strong customer demand for the vSphere platform and growing interest in our desktop and
management solutions. We believe that the revenue decline in 2009 compared with 2008 was due to the difficult macroeconomic environment
and the related challenges that our customers faced, including reduced budgets for IT spending.
We have promoted the adoption of virtualization and built long-
term relationships with our customers through the adoption of ELAs. ELAs
continue to be an important component of our revenue growth and are offered both directly by us and through certain channel partners. ELAs are
core to our strategy to build long-term relationships with customers as they commit to our virtualization infrastructure software solutions in their
data centers. ELAs provide a base from which to sell additional products, such as our application platform products, our end-user computing
products, and virtualization and cloud management products. Under a typical ELA, a portion of the revenues is attributed to the license and
recognized immediately and the remainder is deferred and recognized as services maintenance revenues in future periods. In addition, ELAs
typically include an initial maintenance period that is longer than other types of license sales.
In 2010, we observed an increase in the volume of our ELAs as compared with 2009 and 2008, due in part to growing international
customer interest as well as the improving economic environment. In addition, in 2010, customers generally renewed their ELAs at a dollar
value higher than the original transaction and with an average maintenance term of three years. The increase in the value of the renewed ELAs
compared with the initial ELAs is typically due to additional products and upgrades added to the renewed ELAs, as well as the expanding use of
originally purchased products within the customer’s environment.
Services Revenues
Services revenues were $1,455.9 in 2010, $994.5 in 2009 and $702.9 in 2008, representing year-over-year increases of $461.4 or 46% in
2010 and $291.6 or 41% in 2009. The increase in services revenues during 2010 and 2009 was primarily attributable to growth in our software
maintenance revenues.
Software maintenance revenues were $1,217.0 in 2010, $823.8 in 2009 and $555.9 in 2008, representing year-over-year increases of
$393.3 or 48% in 2010 and $267.9 or 48% in 2009. In 2010 and 2009, software maintenance revenues benefited from strong renewals, multi-
year software maintenance contracts sold in previous periods, and additional maintenance contracts sold in conjunction with software licenses. In
2010, customers continued to buy, on average, more than 24 months of support and maintenance with each new license purchased, which we
believe illustrates our customers’ commitment to VMware as a core element of their data center architecture. In addition, in 2009, services
revenues increased year-over-year as a result of customers becoming current on their maintenance agreements in order to receive our 2009
release of vSphere 4.0 as a part of their service arrangements.
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