VMware 2013 Annual Report Download - page 22

Table of Contents
term of the subscription, downturns or upturns in sales may not be immediately reflected in our results. As we offer more products that depend on converting
users of free services to users of premium services and as such services grow in size, our ability to maintain or improve and to predict conversion rates will
become more important.
Breaches of our cybersecurity systems could degrade our ability to conduct our business operations and deliver products and services to our customers,
delay our ability to recognize revenue, compromise the integrity of our software products, result in significant data losses and the theft of our intellectual
property, damage our reputation, expose us to liability to third parties, and require us to incur significant additional costs to maintain the security of our
networks and data.
We increasingly depend upon our IT systems to conduct virtually all of our business operations, ranging from our internal operations and product
development activities to our marketing and sales efforts and communications with our customers and business partners. Unauthorized parties have attempted
to penetrate our network security and our website. Such cyberattacks threaten to misappropriate our proprietary information and cause interruptions of our IT
services. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched
against a target, we may be unable to anticipate these techniques. Further, if unauthorized access or sabotage remains undetected for an extended period of
time, the effects of such breach could be exacerbated. In addition, sophisticated hardware and operating system software and applications that we produce or
procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the
operation of the system. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as our vCloud Hybrid
Service business expands and we store increasing amounts of customer data and host or manage parts of customers’ businesses in cloud-based IT
environments.
We have also outsourced a number of our business functions to third party contractors, and our business operations also depend, in part, on the success of
our contractors’ own cybersecurity measures. We also use third parties to provide colocation services (i.e. data center services) for our hybrid cloud offering.
Similarly, we rely upon distributors, resellers, system vendors and systems integrators to sell our products and our sales operations depend, in part, on the
reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential data and deploy our IT
resources in safe and secure fashion that does not expose our network systems to security breaches and the loss of data. Accordingly, if our cybersecurity
systems and those of our contractors, partners and vendors fail to protect against unauthorized access, sophisticated cyberattacks and the mishandling of data
by our employees, contractors, partners or vendors, our ability to conduct our business effectively could be damaged in a number of ways, including:
Should any of the above events occur, we could be subject to significant claims for liability from our customers, regulatory actions from governmental
agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly
harmed. Also, the regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to data breaches that result in losses of
personally identifiable or credit card information of users of our services can be significant in terms of fines and reputational impact, and necessitate changes
to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and
remediate damages. Consequently, our financial performance and results of operations could be adversely affected.
Our products and services are highly technical and may contain errors, defects or security vulnerabilities which could cause harm to our reputation and
adversely affect our business.
Our products and services are highly technical and complex and, when deployed, have contained and may contain errors, defects or security
vulnerabilities. Some errors in our products or services may only be discovered after a product or service has been installed and used by customers. Any
errors, defects or security vulnerabilities discovered in our products or services after commercial release could result in loss of revenues or delay in revenue
recognition, loss of customers and increased service and warranty cost, any of which could adversely affect our business, financial condition and results of
operations. Undiscovered vulnerabilities in our products or services could expose them to hackers or other unscrupulous third parties who develop and
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sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen;
• our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations
could be seriously damaged until such systems can be restored and secured;
• our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels could be
disrupted, resulting in delays in revenue recognition;
• defects and security vulnerabilities could be exploited or introduced into our software products or our hybrid cloud offering, thereby damaging the
reputation and perceived reliability and security of our products and services and potentially making the data systems of our customers vulnerable to
further data loss and cyberincidents; and
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personally identifiable or confidential data of our customers, employees and business partners could be stolen or lost.