VMware 2015 Annual Report Download - page 20

TableofContents
functionalityandservicelevelsthatwouldmakeourservicesattractivetoendusers,anyofwhichcouldnegativelyimpactourbusinessandoperatingresults.
Disruptions to our distribution channels could harm our business.
Ourfuturesuccessishighlydependentonourrelationshipswithdistributors,resellers,systemvendorsandsystemsintegrators,whichaccountforasignificant
portionofourrevenue.Recruitingandretainingqualifiedchannelpartnersandtrainingthemintheuseofourtechnologyandproductofferingsrequiressignificant
timeandresources.Ourfailuretomaintaingoodrelationshipswithchannelpartnerswouldlikelyleadtoalossofendusersofourproductsandservices,which
wouldadverselyaffectourrevenue.Wegenerallydonothavelong-termcontractsorminimumpurchasecommitmentswithourdistributors,resellers,system
vendorsandsystemsintegrators,andourcontractswiththesechannelpartnersdonotprohibitthemfromofferingproductsorservicesthatcompetewithours.
Threeofourdistributorseachaccountedfor10%ormoreofourconsolidatedrevenuesduring2015.Althoughwebelievethatwehaveinplace,orwouldhave
inplacebythedateofanysuchtermination,agreementswithreplacementdistributorssufficienttomaintainourrevenuesfromdistribution,ifweweretolosethe
distributionservicesofasignificantdistributor,suchlosscouldhaveanegativeimpactonouroperatingresultsuntilsuchtimeaswearrangetoreplacethese
distributionserviceswiththeservicesofexistingornewdistributors.
Our vCloud Air and SaaS offerings rely on third-party providers for data center space and colocation services.
OurvCloudAirandSaaSofferingsrelyuponthird-partyproviderstosupplydatacenterspace,equipmentmaintenanceandothercolocationservices.
Althoughwehaveenteredintovariousagreementsfortheleaseofdatacenterspace,equipmentmaintenanceandotherservices,thirdpartiescouldfailtoliveupto
thecontractualobligationsunderthoseagreements.Thefailureofathird-partyprovidertopreventservicedisruptions,datalossesorsecuritybreachesmayrequire
ustoissuecreditsorrefundsorindemnifyorotherwisebeliabletocustomersorthirdpartiesfordamagesthatmayoccur.Additionally,ifthesethird-party
providersfailtodeliverontheirobligations,ourreputationcouldbedamaged,ourcustomerscouldloseconfidenceinusandourabilitytomaintainandexpand
ourvCloudAirandSaaSofferingswouldbeimpaired.
Joint ventures may not yield expected benefits and outcomes.
Asweexpandourofferingsintonewtechnologiessuchasthepubliccloudandseekmoreefficientmethodsofmarketingourproductsandservicesinregions
wherelocalpartnerscanoperatemoreeasily,wesometimesrelyuponjointventureswithestablishedprovidersofITproductsandservicesinparticularregions,
forexampleasserviceproviders.Jointventuresareinherentlyriskyandtherequirementsforcloseongoingcooperationandcommitmentsfromthejointventure
partnersandagreementtodevoteadequateresourcesoftenpresentsignificantchallenges.Jointventurescanalsobedifficulttomanage,giventhepotentially
differentinterestsofjointventurepartners.Accordingly,therecanbenoguaranteethatourjointventureswillachievetheirintendedobjectives.Ifweareunableto
continueourstrategicalignmentwithjointventurepartnersorobtainthecooperationandcommitmentswearerelyingupon,ourabilitytosuccessfullyexpandour
offeringsgloballyandincertainregionsmaydiminish.
SaaS offerings, which involve various risks, constitute an important part of our business.
AswecontinuetodevelopandofferSaaSversionsofourproducts,wewillneedtocontinuetoevolveourprocessestomeetanumberofregulatory,
intellectualproperty,contractualandservicecompliancechallenges.Thesechallengesincludecompliancewithlicensesforopensourceandthirdpartysoftware
embeddedinourSaaSofferings,maintainingcompliancewithexportcontrolandprivacyregulations,includingHIPAA,protectingourservicesfromexternal
threats,maintainingthecontinuousservicelevelsanddatasecurityexpectedbyourcustomers,preventingtheinappropriateuseofourservicesandadaptingour
go-to-marketefforts.
We are involved in litigation and regulatory inquiries and proceedings that could negatively affect us.
Fromtimetotime,weareinvolvedinvariouslegal,administrativeandregulatoryproceedings,claims,demandsandinvestigationsrelatingtoourbusiness,
whichmayincludeclaimswithrespecttocommercial,productliability,intellectualproperty,breachofcontract,employment,classaction,whistleblowerand
othermatters.Intheordinarycourseofbusiness,wealsoreceiveinquiriesfromandhavediscussionswithgovernmententitiesregardingthecomplianceofour
contractingandsalespracticeswithlawsandregulations.
Wehavebeen,andexpecttocontinuetobe,subjecttointellectualpropertyinfringementclaims,includingclaimsbyentitiesthatdonothaveoperating
businessesoftheirownandthereforelimitourabilitytoseekcounterclaimsfordamagesandinjunctiverelief.Inadditiontomonetaryjudgments,ajudgment
couldalsoincludeaninjunctionorothercourtorderthatcouldpreventusfromofferingourproducts.Inaddition,wemightberequiredtoseekalicensefortheuse
ofsuchintellectualproperty,whichmaynotbeavailableoncommerciallyreasonabletermsoratall.Alternatively,wemayberequiredtodevelopnon-infringing
technology,whichcouldrequiresignificanteffortandexpenseandmayultimatelynotbesuccessful.Thirdpartiesmayalsoassertinfringementclaimsagainstour
customersandchannelpartners,whichcouldrequireustoinitiateor
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