VMware 2015 Annual Report Download - page 19

TableofContents
vigorouslydefendthelawsuit,anadverseoutcometothisorotherclaimscouldhaveamaterialadverseimpactonourintellectualpropertyrights,ouroperating
resultsandfinancialcondition.
The evolution of our business requires more complex go-to-market strategies, which involve significant risk.
OurincreasingfocusondevelopingandmarketingITmanagementandautomationandIaaS(includingsoftware-definednetworking,vCloudAir,vCloudAir
Networkandintegratedvirtualdesktopandmobiledevice)offeringsthatenablecustomerstotransformtheirITsystemsrequiresagreaterfocusonmarketingand
sellingproductsuitesandmoreholisticsolutions,ratherthansellingonaproduct-by-productbasis.Consequently,wehavedeveloped,andmustcontinueto
develop,newstrategiesformarketingandsellingourofferings.Additionally,thedurationofsalescyclesforourofferingshasincreasedasourcustomers’
purchasingdecisionsbecomemorecomplexandrequireadditionallevelsofapproval.Inaddition,marketingandsellingnewtechnologiestoenterprisesrequires
significantinvestmentoftimeandresourcesinordertoeducatecustomersonthebenefitsofournewproductofferings.Theseinvestmentscanbecostlyandthe
additionaleffortrequiredtoeducatebothcustomersandourownsalesforcecandistractfromtheireffortstosellexistingproductsandservices.
Our success depends upon our ability to develop appropriate business and pricing models.
Ifwecannotadaptourbusinessmodelstokeeppacewithindustrytrends,includingtheindustry-widetransitiontocloud-basedcomputing,ourrevenuescould
benegativelyimpacted.Certainofournewproductinitiatives,suchasourvCloudAirandSaaSofferings,haveasubscriptionmodel.Asweincreaseouradoption
ofsubscription-basedpricingmodelsforourproducts,wemayfailtosetpricingatlevelsappropriatetomaintainourrevenuestreamsorourcustomersmay
choosetodeployproductsfromourcompetitorsthattheybelievearepricedmorefavorably.Inaddition,wemayfailtoaccuratelypredictsubscriptionrenewal
ratesortheirimpactonoperatingresults,andbecauserevenuesfromsubscriptionsarerecognizedforourservicesoverthetermofthesubscription,downturnsor
upturnsinsalesmaynotbeimmediatelyreflectedinourresults.Additionally,ascustomerstransitiontoourhybridcloudandSaaSproductsandservices,our
revenuegrowthratemaybeadverselyimpactedduringtheperiodoftransitionaswewillrecognizelessrevenueupfrontthanwewouldotherwiserecognizeas
partofthemulti-yearlicensearrangementsthroughwhichwetypicallysellourestablishedofferings.Finally,asweoffermoreservicesthatdependonconverting
usersoffreeservicestousersofpremiumservicesandconvertingpurchasersofouron-premisesproductstoourSaaSofferings,andassuchservicesgrowinsize,
ourabilitytomaintainorimproveandtopredictconversionrateswillbecomemoreimportant.
Our products and services are highly technical and may contain errors, defects or security vulnerabilities.
Ourproductsandservicesarehighlytechnicalandcomplexand,whendeployed,havecontainedandmaycontainerrors,defectsorsecurityvulnerabilities.
Someerrorsinourproductsorservicesmayonlybediscoveredafteraproductorservicehasbeeninstalledandusedbycustomers.Undiscoveredvulnerabilitiesin
ourproductsorservicescouldexposeourcustomerstohackersorotherunscrupulousthirdpartieswhodevelopanddeployviruses,wormsandothermalicious
softwareprogramsthatcouldattackourproductsorservices.Inthepast,VMwarehasbeenmadeawareofpublicpostingsbyhackersofportionsofoursource
code.Itispossiblethatthereleasedsourcecodecouldexposeunknownsecurityvulnerabilitiesinourproductsandservicesthatcouldbeexploitedbyhackersor
others.WemayalsoinheritunknownsecurityvulnerabilitieswhenweintegratetheproductsorservicesofothercompaniesintoVMwareproductsorservices.
Actualorperceivederrors,defectsorsecurityvulnerabilitiesinourproductsorservicescouldharmourreputationandleadsomecustomerstoreturnproductsor
services,reduceordelayfuturepurchasesorusecompetitiveproductsorservices.
Failure to effectively manage our product and service lifecycles could harm our business.
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customerdissatisfactionandcontractualliabilities,whichcouldadverselyaffectourbusinessandoperatingresults.
Our success depends on the interoperability of our products and services with those of other companies.
Thesuccessofourproductsdependsuponthecooperationofhardwareandsoftwarevendorstoensureinteroperabilitywithourproductsandoffercompatible
productsandservicestoendusers.Inaddition,weintendtoextendthefunctionalityofvariousproductstoworkwithnativepubliccloudapplications,whichmay
requirethecooperationofpubliccloudvendors.Totheextentthathardware,softwareandpubliccloudvendorsperceivethattheirproductsandservicescompete
withoursorthoseofourcontrollingstockholder,EMCorDellInc.(“Dell”),whichhassignedanagreementtoacquireEMC,theymayhaveanincentiveto
withholdtheircooperation,declinetoshareaccessorselltoustheirproprietaryAPIs,protocolsorformats,orengageinpracticestoactivelylimitthe
functionality,compatibilityandcertificationofourproducts.Inaddition,vendorsmayfailtocertifyorsupportorcontinuetocertifyorsupportourproductsfor
theirsystems.Ifanyoftheforegoingoccurs,ourproductdevelopmenteffortsmaybedelayedorforeclosedanditmaybedifficultandmorecostlyforusto
achieve
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