VMware 2014 Annual Report Download - page 25

Table of Contents
significantly increase the damage it could cause. In addition, we could face claims for product liability, tort or breach of warranty, including
claims relating to changes to our products and services made by our channel partners. Our contracts with customers contain provisions relating to
warranty disclaimers and liability limitations, which may not be upheld, and customers and channel partners may seek indemnification from us
for their losses and those of their customers. Defending a lawsuit, regardless of its merit, is costly and time-consuming and may divert
management’s attention and adversely affect the market’s perception of us and our products and services. In addition, if our business liability
insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, financial condition and results
of operations could be adversely impacted.
Operating in foreign countries subjects us to additional risks that may harm our ability to increase or maintain our international sales
operations and investments.
Revenues from customers outside the United States comprised approximately 52% of our total revenues in the years ended 2014 and 2013 .
We have sales, administrative, research and development and technical support personnel in numerous countries worldwide. We expect to
continue to add personnel in additional countries. Additionally, our investment portfolio includes investments in non-U.S. financial instruments
and holdings in non-U.S. financial institutions, including European institutions. Our international operations subject us to a variety of risks,
including:
Additionally, as we continue to expand our business globally, we will need to maintain compliance with legal and regulatory requirements
covering the foreign activities of U.S. corporations, such as export control requirements and the Foreign Corrupt Practices Act, as well as with
local regulatory requirements in non-U.S. jurisdictions. These risks will increase as we expand our operations to locations with a higher
incidence of corruption and fraudulent business practices. Our success will depend, in large part, on our ability to anticipate and effectively
manage these and other risks associated with our international operations. We expect a significant portion of our growth to occur in foreign
countries, which can add to the difficulties in maintaining adequate management and compliance systems and internal controls over financial
reporting, and increase challenges in managing an organization operating in various countries. In addition, potential fallout from recent
disclosures related to the U.S. Internet and communications surveillance could also make foreign customers reluctant to purchase cloud
computing products and services from U.S.-based companies and impair our growth rate in foreign markets.
Our failure to manage any of these risks successfully could negatively affect our reputation, limit our growth, harm our operations and
reduce our international sales.
Failure to effectively manage our product and service lifecycles could materially adversely affect our business, financial condition, operating
results and cash flow.
As part of the natural lifecycle of our products and services, we periodically inform customers that products or services will be reaching
their end of life or end of availability and will no longer be supported or receive updates and security patches. To the extent these products or
services remain subject to a service contract with the customer, we offer to transition the customer to alternative products or services. Failure to
effectively manage our product and service lifecycles could lead to
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• the difficulty of managing and staffing international offices and the increased travel, infrastructure and legal compliance costs
associated with multiple international locations;
•
increased exposure to foreign currency exchange rate risk;
•
difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets;
•
difficulties in delivering support, training and documentation in certain foreign markets;
• tariffs and trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products and services in
certain foreign markets;
•
economic or political instability and security concerns in countries that are important to our international sales and operations;
• macroeconomic disruptions, such as monetary and credit crises, that can threaten the stability of local and regional financial institutions
and decrease the value of our international investments;
•
the overlap of different tax structures or changes in international tax laws;
•
reduced protection for intellectual property rights, including reduced protection from software piracy, in some countries;
•
difficulties in transferring funds from certain countries; and
•
difficulties in maintaining appropriate controls relating to revenue recognition practices.