VMware 2015 Annual Report Download - page 14

TableofContents
fortheirapplicationsrunninginVMwarevirtualizationenvironments.Inaddition,thesecompetitorscouldintegratecompetitivecapabilitiesintotheirexisting
productsandservicesandmakethemavailablewithoutadditionalcharge.Forexample,Oracleprovidesfreeservervirtualizationsoftwareintendedtosupport
Oracleandnon-Oracleapplications,andMicrosoftoffersitsownservervirtualizationsoftwarepackagedwithitsWindowsServerproductandoffersbuilt-in
virtualizationintheclientversionofWindows.Asaresult,existingandprospectiveVMwarecustomersmayelecttouseproductsthatareperceivedtobe“free”or
“verylowcost”insteadofpurchasingVMwareproductsandservicesforcertainapplicationswheretheydonotbelievethatmoreadvancedandrobustcapabilities
arerequired.
Companiesofferingcompetingplatformsbasedonopensourcetechnologies.Opensourcetechnologiesforvirtualization,containerizationandcloud
platformssuchasXen,KVM,Docker,RocketandOpenStackprovidesignificantpricingcompetitionandenablecompetingvendorstoleveragetheseopensource
technologiestocompetedirectlywithourSDDCinitiative.Enterprisesandserviceprovidershaveshownsignificantinterestinbuildingtheirowncloudsbasedon
opensourceprojectssuchasOpenStack,andothercompanieshaveindicatedtheirintentiontoexpandofferingsofvirtualmanagementandcloudcomputing
solutionsaswell.Additionally,anumberofenterpriseIThardwarevendorshavereleasedsolutionsbasedonOpenStackincludingHP,IBMandCisco.
Otherindustryalliances.Manyofourcompetitorshaveenteredintoorextendedpartnershipsorotherstrategicrelationshipstooffermorecomprehensive
virtualizationandcloudcomputingsolutionsthantheyindividuallyhadoffered.Weexpectthesetrendstocontinueascompaniesattempttostrengthenormaintain
theirpositionsintheevolvingvirtualizationinfrastructureandenterpriseITsolutionsindustry.Thesealliancesmayresultinmorecompellingproductandservice
offeringsthanweoffer.
Ourpartnersandmembersofourdeveloperandtechnologypartnerecosystem.Wefacecompetitionfromourpartners.Forexample,thirdpartiescurrently
sellingourproductsandservicescouldbuildandmarkettheirowncompetingproductsandservicesormarketcompetingproductsandservicesofothervendors.
Additionally,asformerlydistinctsectorsofenterpriseITsuchassoftware-basedvirtualizationandhardware-basedserver,networkingandstoragesolutions
converge,wealsoincreasinglycompetewithcompanieswhoaremembersofourdeveloperandtechnologypartnerecosystem.Consequently,wemayfinditmore
difficulttocontinuetoworktogetherproductivelyonotherprojects,andtheadvantageswederivefromourecosystemcoulddiminish.
Thiscompetitioncouldresultinincreasedpricingpressureandsalesandmarketingexpenses,therebymateriallyreducingouroperatingmargins,andcould
alsopreventournewproductsandservicesfromgainingmarketacceptance,therebyharmingourabilitytoincrease,orcausingustolose,marketshare.
The loss of key management personnel could harm our business.
Wedependonthecontinuedservicesofkeymanagementpersonnel.Wegenerallydonothaveemploymentornon-competeagreementswithouremployees,
and,therefore,theycouldterminatetheiremploymentwithusatanytimewithoutpenaltyandcouldpursueemploymentopportunitieswithanyofourcompetitors.
Inaddition,wedonotmaintainanykey-personlifeinsurancepolicies.Thelossofkeymanagementpersonnelcouldharmourbusiness.
Competition for our target employees is intense and costly, and we may not be able to attract and retain highly skilled employees.
Toexecuteonourstrategy,wemustcontinuetoattractandretainhighlyqualifiedpersonnel.Competitionforthesepersonnelisintense,especiallyforsenior
salesexecutivesandengineerswithsignificantexperiencedesigninganddevelopingsoftwareandcloudofferings.Wemaynotbesuccessfulinattractingand
retainingqualifiedpersonnel.Wehaveinthepastexperienced,andweexpecttocontinuetoexperienceinthefuture,difficultyinhiringandretaininghighly
skilledemployeeswithappropriatequalifications.Manyofthecompanieswithwhichwecompeteforexperiencedpersonnelhavegreaterresourcesthanwehave.
Researchanddevelopmentpersonnelarealsoaggressivelyrecruitedbystartupandemerginggrowthcompanies,whichareespeciallyactiveinmanyofthe
technicalareasandgeographicregionsinwhichweconductproductandservicedevelopment.Competitionforourkeypersonnelresultsinincreasedcostsinthe
formofcashandstock-basedcompensationandcanhaveadilutiveimpactonourstock.Ifwefailtoattractnewpersonnelorfailtoretainandmotivateourcurrent
personnel,ourbusinessandfuturegrowthprospectscouldsuffer.
Adverse economic conditions may harm our business.
Ourbusinessdependsontheoveralldemandforinformationtechnologyandontheeconomichealthofourcurrentandprospectivecustomers.Thepurchase
ofourproductsandservicesisoftendiscretionaryandmayinvolveasignificantcommitmentofcapitalandotherresources.Weakeconomicconditionsor
significantuncertaintyregardingthestabilityoffinancialmarketscouldadverselyimpactourbusiness,financialconditionandoperatingresultsinanumberof
ways,includingbylengtheningsalescycles,affectingthesizeofenterpriseagreements(“EAs”)thatcustomerswillcommitto,reducingthelevelofournon-EA
transactionalsales,loweringpricesforourproductsandservices,reducingunitsalesandreducingtherateofadoptionofourproductsandservicesbynew
customersandthewillingnessofcurrentcustomerstopurchaseupgradesto
13