VMware 2015 Annual Report Download - page 16

TableofContents
quarterlyoperatingresultsaredifficulttopredicteveninthenearterm.Ifourrevenuesoroperatingresultsfallbelowtheexpectationsofinvestorsorsecurities
analystsorbelowanyguidancewemayprovidetothemarket,thepriceofourClassAcommonstockwouldlikelydeclinesubstantially.
Factorsthatmaycausefluctuationsinouroperatingresultsinclude,amongothers,thefactorsdescribedelsewhereinthisriskfactorssectionandthe
following:
• fluctuationsindemand,adoptionrates,salescycles(whichhavebeenincreasinginlength)andpricinglevelsforourproductsandservices;
• changesincustomers’budgetsforinformationtechnologypurchasesandinthetimingoftheirpurchasingdecisions;
• thetimingofrecognizingrevenuesinanygivenquarter,whichcanbeaffectedbyanumberoffactors,includingproductannouncements,betaprograms
andproductpromotionsthatcancauserevenuerecognitionofcertainorderstobedeferreduntilfutureproductstowhichcustomersareentitledbecome
available;
• thetimingofannouncementsorreleasesofneworupgradedproductsandservicesbyusorbyourcompetitors;
• thetimingandsizeofbusinessrealignmentplansandrestructuringcharges;
• ourabilitytomaintainscalableinternalsystemsforreporting,orderprocessing,licensefulfillment,productdelivery,purchasing,billingandgeneral
accounting,amongotherfunctions;
• ourabilitytocontrolcosts,includingouroperatingexpenses;
• creditrisksofourdistributors,whoaccountforasignificantportionofproductrevenuesandaccountsreceivable;
• ourabilitytoprocesssalesattheendofquarter;
• seasonalfactorssuchastheendoffiscalperiodbudgetexpendituresbyourcustomersandthetimingofholidayandvacationperiods;
• renewalratesandtheamountsoftherenewalsforEAsasoriginalEAtermsexpire;
• thetimingandamountofinternallydevelopedsoftwaredevelopmentcoststhatmaybecapitalized;
• unplannedeventsthatcouldaffectmarketperceptionofthequalityorcost-effectivenessofourproductsandsolutions;and
• ourabilitytoaccuratelypredictthedegreetowhichcustomerswillelecttopurchaseoursubscription-basedofferingsinplaceoflicensestoouron-
premisesofferings.
Breaches of our cybersecurity systems could seriously harm our business.
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penetratedournetwork
securityandourwebsiteinthepastandmaydosointhefuture.Thesecyberattacksthreatentomisappropriateourproprietaryinformation,causeinterruptionsof
ourITservicesandcommitfraud.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tactics.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oursystemsandprocesses.Ourexposuretocybersecuritythreatsandnegativeconsequencesofcybersecuritybreacheswilllikelyincreaseasour
customersconductmorepurchaseandservicetransactionsonline,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parties,andwerelyupondistributors,resellers,systemvendorsandsystemsintegrators
tosellourproductsandservices.Accordingly,ifourcybersecuritysystemsandthoseofourcontractors,partnersandvendorsfailtoprotectagainstbreaches,our
abilitytoconductourbusinesscouldbedamagedinanumberofways,including:
• 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;
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