VMware 2015 Annual Report Download - page 15

TableofContents
ourexistingproductsandservices.Forexample,arecurrenceofthesovereigndebtcrisisinEuropeorthatregion’sfailuretorecoverfromrecessionwould
threatentosuppressdemandandourcustomers’accesstocreditinthatregion,whichisanimportantmarketforourproductsandservices.Inaddition,recent
economicinstabilityinBrazil,ChinaandRussiahasadverselyaffectedouroperatingresultsinthesecountries,andouroperatingresultsmaybefurtheradversely
affectedifthiseconomicinstabilitycontinuesorspreadstoneighboringmarkets.Inresponsetosustainedeconomicuncertainty,manynationalandlocal
governmentsthatarecurrentorprospectivecustomersforourproductsandservices,includingtheU.S.federalgovernment,havemade,orthreatenedtomake,
significantspendingcutbackswhichcouldreducetheamountofgovernmentspendingonITandthepotentialdemandforourproductsandservicesfromthe
governmentsector.
Regionaleconomicuncertaintycanalsoresultingeneralandongoingtighteninginthecreditmarkets,lowerlevelsofliquidity,increasesintheratesofdefault
andbankruptcyandsignificantvolatilityinthecredit,equityandfixedincomemarkets.Asaresult,currentorpotentialcustomersmaybeunabletofundsoftware
purchases,whichcouldcausethemtodelay,decreaseorcancelpurchasesofourproductsandservices.Evenifcustomersarewillingtopurchaseourproductsand
services,iftheydonotmeetourcreditrequirements,wemaynotbeabletorecordaccountsreceivableorunearnedrevenuesorrecognizerevenuesfromthese
customersuntilwereceivepayment,whichcouldadverselyaffecttheamountofrevenuesweareabletorecognizeandourcashflowsinaparticularperiod.
We may not be able to respond to rapid technological changes with new solutions and services offerings.
Thevirtualization,cloudcomputing,end-usercomputingandSDDCindustriesarecharacterizedbyrapidtechnologicalchange,changingcustomerneeds,
frequentnewsoftwareproductintroductionsandevolvingindustrystandards.Theintroductionofthird-partysolutionsembodyingnewtechnologiesandthe
emergenceofnewindustrystandardscouldmakeourexistingandfuturesoftwaresolutionsobsoleteandunmarketable.Cloudcomputinghasproventobea
disruptivetechnologythatisalteringthewaythatbusinessesconsume,manageandprovidephysicalITresources,applications,dataandITservices.Wemaynot
beabletoestablishorsustainourthoughtleadershipinthecloudcomputingandenterprisesoftwarefields,andourcustomersmaynotviewourproductsand
servicesasinnovativeandbest-of-breed,whichcouldresultinareductioninmarketshareandourinabilitytocommandapricingpremiumovercompetitor
productsandservices.Wemaynotbeabletodevelopupdatedproductsandservicesthatkeeppacewithtechnologicaldevelopmentsandemergingindustry
standards,thataddresstheincreasinglysophisticatedneedsofourcustomersorthatinteroperatewithneworupdatedoperatingsystemsandhardwaredevices.
Ourabilitytoreactquicklytonewtechnologytrendsandcustomerrequirementsisnegativelyimpactedbythelengthofourdevelopmentcyclefornew
productsandservicesandproductandserviceenhancements,whichhasfrequentlybeenlongerthanweoriginallyanticipated.Thisisdueinparttotheincreasing
complexityofourproductofferingsasweincreasetheirinteroperability,introducethemintoproductsuitesandmaintaintheircompatibilitywithmultipleIT
resourcesutilizedbyourcustomers,whichcansignificantlyincreasethedevelopmenttimeandeffortnecessarytoachievetheinteroperabilityofproductsuite
componentswhilemaintainingproductquality.Ifweareunabletoevolveoursolutionsandofferingsintimetorespondtoandremainaheadofnewtechnological
developments,ourabilitytoretainorincreasemarketshareandrevenuesinthevirtualization,cloudcomputing,end-usercomputingandSDDCindustriescouldbe
materiallyadverselyaffected.WithrespecttoourSDDCproducts,ifwefailtointroducecompellingnewfeaturesinfutureupgradestoourVMwarevSphere
productline,managethetransitiontohybridcloudplatforms,developnewortightlyintegrateexistingapplicationsforourvirtualizationtechnologythataddress
customerrequirementsforintegration,automationandmanagementoftheirITsystemswithpubliccloudresources,overalldemandforproductsandservices
basedonVMwarevSpheremaydecline.
We are exposed to foreign exchange risks.
BecauseweconductbusinessincurrenciesotherthantheU.S.dollarbutreportouroperatingresultsinU.S.dollars,wefaceexposuretofluctuationsin
currencyexchangerates.In2015,approximately30%ofoursaleswereinvoicedandcollectedinnon-U.S.dollardenominatedcurrencies.Therealizedgainorloss
onforeigncurrencytransactionsisdependentuponthetypesofforeigncurrencytransactionsthatweenterinto,theexchangeratesassociatedthesetransactions
andchangesinthoserates,thenetrealizedgainorlossonourforeigncurrencyforwardcontracts,andotherfactors.Althoughwehedgeaportionofourforeign
currencyexposure,asignificantfluctuationinexchangeratesbetweentheU.S.dollarandforeigncurrenciesmayadverselyaffectouroperatingresults.For
example,weexperiencedameasurablenegativeimpacttoourrevenuesin2015duetoexchangeratefluctuations,andweexpectafurthernegativeimpactto2016
revenuesandunearnedrevenuesandcashflows.ThefurtherweakeningofforeigncurrencyexchangeratesagainsttheU.S.dollarwouldlikelyresultinadditional
adverseimpactonourrevenues.
Our operating results may fluctuate significantly.
Ouroperatingresultsmayfluctuateduetoavarietyoffactors,manyofwhichareoutsideofourcontrol.Asaresult,comparingouroperatingresultsona
period-to-periodbasismaynotbemeaningful,andourpastresultsshouldnotberelieduponasanindicationofourfutureperformance.Inaddition,asignificant
portionofourquarterlysalestypicallyoccursduringthelasttwoweeksofthequarter,whichgenerallyreflectscustomerbuyingpatternsforenterprisetechnology.
Asaresult,our
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