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Table of Contents
All dollar amounts expressed as numbers in this MD&A (except share and per share amounts) are in millions. Period-over-period changes
are calculated based upon the respective underlying, non-rounded data. Unless the context requires otherwise, we are referring to VMware, Inc.
and its consolidated subsidiaries when we use the terms “VMware,” the “Company,” “we,” “our” or “us.”
Overview
The information technology (“IT”) industry is transforming, moving from a hardware based traditional model to one of a software-defined
infrastructure. We are the leader in virtualization infrastructure solutions utilized by organizations to help transform the way they build, deliver
and consume IT resources. We develop and market our product and service offerings within three main product groups and we also leverage
synergies across these three product and service areas:
Historically, the majority of our license sales have been from our standalone vSphere product, which is included in our compute product
category within our SDDC architecture. However, over the last two years, the growth rate of our standalone vSphere product license sales has
declined as certain large markets for data center server virtualization have matured. The growth rate of license sales beyond
our standalone vSphere product has increased over this period as we transition to offering a wider range of products and services to enable the
entire SDDC. As the transformation of the IT industry continues, we expect that our growth rates will be increasingly derived from sales of our
newer products, suites and services solutions across our SDDC portfolio, beyond standalone vSphere. For example, we have experienced
continued growth in sales volumes, production use and number of customers who have purchased VMware NSX, our network virtualization
solution, throughout 2014. We also continue to see traction of our Virtual SAN product and other newer offerings.
Hybrid cloud computing, comprising of VMware vCloud Air, VMware vCloud Air Network Service Providers Program and vCloud Air
Business Ventures offerings have also experienced growth throughout 2014. We continue to expand our hybrid cloud global footprint as well as
our service offerings. Revenues from these offerings are recognized over a period of time.
We acquired AirWatch during the first quarter of 2014. AirWatch expands our portfolio of mobile solutions within the enterprise mobile and
security space and we are in the early stages of growing this business by leveraging the reach of our global presence, robust channel and access
to enterprise accounts via our sales force. Currently, our AirWatch business models include an on-
premise solution that we offer through the sale
of perpetual licenses and an off-premise solution that we offer as software-as-a-service. AirWatch products and services contributed to the
growth we experienced in sales of our end-user computing products during 2014. Our investments in AirWatch resulted in increased operating
expenses during 2014, primarily driven by employee-
related costs, including expenses we recognized in connection with installment payments to
certain key employees as part of the acquisition, as well as amortization of purchased intangible assets.
We generally sell our solutions using enterprise license agreements (“ELAs”) or as part of our non-ELA, or transactional, business. ELAs
are comprehensive volume license offerings, offered both directly by us and through certain channel partners that also provide for multi-year
maintenance and support.
Results of Operations
In connection with our contribution to Pivotal Software, Inc. (“Pivotal”), during 2013, we transferred certain assets and liabilities to Pivotal
in exchange for ownership interest in Pivotal of approximately 28%. We also transferred approximately 415 of our employees to Pivotal during
2013. While the contribution to Pivotal has had a negative impact on our revenue growth rate in primarily 2013 compared to 2012, our operating
margin has been positively impacted due to the elimination of Pivotal related costs from our consolidated statements of income.
43
ITEM 7. MANAGEMENT’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• SDDC or Software-
Defined Data Center
•
Hybrid Cloud Computing
• End-
User Computing