VMware 2010 Annual Report Download - page 56

Table of Contents
Cost of Services Revenues
Core operating expenses in cost of services revenues increased by $74.6 or 34% in 2010 compared with 2009 and by $15.5 or 8% in 2009
compared with 2008. The increase in 2010 was primarily due to growth in employee-related expenses of $41.1, which were largely driven by
incremental headcount from business growth and acquisitions, as well as an increase in third-
party professional services costs of $19.1 to provide
professional services and training, primarily associated with increased services revenues. The increase in 2009 was primarily due to increases in
employee-related expenses of $13.5, which were largely driven by incremental headcount to support the services function, as well as an increase
in third-party professional services costs of $10.5 to provide technical support and professional services, primarily associated with increased
services revenues. These increases in 2009 were partially offset by a decrease of $9.4 for certain costs that were previously categorized as cost of
services revenues that are now recorded in other operating expense categories on our consolidated statements of income.
Research and Development Expenses
Core operating expenses for R&D increased by $96.2 or 22% in 2010 compared with 2009 and by $8.9 or 2% in 2009 compared with
2008. The increase in 2010 was primarily due to growth in employee-related expenses of $80.3, which was primarily driven by incremental
headcount from strategic hiring and business acquisitions. The increase in 2009 was primarily due to employee-related expenses of $27.9 driven
primarily by incremental headcount from strategic hiring. This increase was partially offset by a decrease of $16.5 in corporate and legal
expenses and contractor costs due to the austerity measures we introduced at the end of 2008 in response to the global economic downturn.
Sales and Marketing Expenses
Core operating expenses for sales and marketing increased by $256.2 or 38% in 2010 compared with 2009 and by $76.0 or 13% in 2009
compared with 2008. The increase in 2010 was primarily due to growth in employee-related expenses of $159.3 driven by incremental
headcount from strategic hiring and business acquisitions as well as by higher commission expense due to increased sales volumes. In support of
our expanding markets and sales efforts, the costs of marketing programs increased by $36.9, and travel and entertainment expense increased by
$19.9. We also incurred additional expenses of $20.6 for IT infrastructure development to support revenue growth, as well as consulting projects.
The fluctuations in the exchange rate between the U.S. Dollar and foreign currencies had a minimal impact on expenses in 2010. The increase in
2009 was primarily due to increases in employee-related expenses of $82.9 driven by incremental headcount added in conjunction with our
international expansion as well as by higher commission expense due to increased sales volumes. These increases in 2009 were partially offset
by the positive impact of $16.6 from fluctuations in the exchange rate between the U.S. Dollar and foreign currencies, a decrease in travel and
entertainment expense of $13.1 resulting from the austerity measures we implemented at the end of 2008, and a decrease in the costs of
marketing programs of $7.5.
General and Administrative Expenses
Core operating expenses for general and administrative increased by $55.5 or 32% in 2010 compared with 2009 and by $20.7 or 13% in
2009 compared with 2008. The increase in 2010 was primarily due to an increase of $21.2 related to corporate expenses, including contributions
to our charitable foundation and legal fees. Also contributing to the increase in expenses in 2010 was depreciation and equipment expenses of
$11.3 and employee-related expenses of $10.9 due to the incremental growth in headcount. The increase in 2009 was primarily due to an
increase of $18.3 related to employee-related expenses as a result of additional personnel employed to enhance the infrastructure of our business
and to expand our own administrative functions. The increase in employee-related expenses in 2009 also included expenses related to the
relocation of certain functions to lower-cost geographical regions.
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