VMware 2015 Annual Report Download - page 34

TableofContents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thefollowingmanagement'sdiscussionandanalysis(“MD&A”)isprovidedinadditiontotheaccompanyingconsolidatedfinancialstatementsandnotesto
assistinunderstandingourresultsofoperationsandfinancialcondition.
Period-over-periodchangesarecalculatedbasedupontherespectiveunderlying,non-roundeddata.Unlessthecontextrequiresotherwise,wearereferringto
VMware,Inc.anditsconsolidatedsubsidiarieswhenweusetheterms“VMware,”the“Company,”“we,”“our”or“us.”
Overview
Theinformationtechnology(“IT”)industryistransforming,movingfromahardware-basedtraditionalmodeltooneofasoftware-definedinfrastructure.We
arealeaderinvirtualizationandcloudinfrastructuresolutionsutilizedbyorganizationstohelptransformthewaytheybuild,deliverandconsumeITresources.
Wedevelopandmarketourproductandserviceofferingswithinthreemainproductgroups,whicharediscussedinmoredetailbelowandalloworganizationsto
leveragesynergiesandmanageITresourcesacrosscomplexmulti-cloud,multi-deviceenvironments.Ourthreemainproductgroupsare:
• SDDCorSoftware-DefinedDataCenter
• HybridCloudComputing
• End-UserComputing
Weselloursolutionsusingenterpriseagreements(“EAs”)oraspartofournon-EA,ortransactional,business.EAsarecomprehensivevolumelicense
offerings,offeredbothdirectlybyusandthroughcertainchannelpartnersthatalsoprovideformulti-yearmaintenanceandsupport.
SDDCorSoftware-DefinedDataCenter
OurSDDCtechnologiesarethebasisfortheprivatecloudenvironmentandprovidethecapabilitiesforourcustomerstoextendtheirprivatecloudtothe
publiccloudandtohelpthemrun,manage,secure,andconnectalltheirapplicationsacrossallcloudsanddevices.Historically,themajorityofourlicensesales
havebeenfromVMwarevSphere,whichisincludedinourcomputeproductcategorywithinourSDDCproductgroup.However,themarketforourcompute
productsisreachingmaturity,andVMwarevSpherelicensesaleshavebeendeclining.AsthetransformationoftheITindustrycontinues,weexpectthatour
growthoflicensesaleswithintheSDDCproductgroupwillbeincreasinglyderivedfromsalesofournewerproducts,suitesandservicessolutionsacrossour
SDDCportfolio.During2015wesawasignificantincreaseincustomersdeployingtheVMwareSDDCstackofcompute,networking,storage,andmanagement.
Additionally,wehaveexperiencedcontinuedgrowthinsalesvolumes,productionuse,andnumberofcustomerswhohavepurchasedVMwareNSX(“NSX”),our
networkvirtualizationsolution,throughout2015.WealsocontinuetoseegrowthinsalesvolumesandincreaseincustomercountofourVirtualSAN(“vSAN”)
productandothernewerofferings.
HybridCloudComputing
Ourcloudstrategyhasthreecomponents:(i)continuetoexpandbeyondcomputevirtualizationintheprivatecloud,(ii)extendtheprivatecloudintothe
publiccloud,and(iii)connectandsecureendpointsacrossarangeofpublicclouds.
HybridcloudcomputingiscomprisedofVMwarevCloudAirNetwork(“vCAN”)ServiceProvidersProgramandVMwarevCloudAir(“vCloudAir”)
offerings.Revenuesderivedfromtheseofferingsgrewduring2015.WeplantonarrowthefocusofvCloudAirtoprovidespecializedcloudsoftwareandservices
uniquetoVMwarethataredistinctfromthoseofferedbyothercloudproviders.
OnDecember14,2015,weannouncedthatwewillnotbeparticipatingintheformationoftheVirtustreamCloudServicesBusinesspreviouslyannouncedby
usandEMConOctober20,2015.
End-UserComputing
Ourend-usercomputingsolutionscontinuetoexperiencestronggrowth.ThesesolutionsincludeourHorizonworkplacesuitesandenterprisemobile
managementofferings,ledbyourAirWatchmobilesolutions.AirWatchisatthecenterofourbusinessmobilityproductportfolio.AirWatchsecuresandmanages
thedeliveryofcloudapplicationstousersacrossaworldofheterogeneousproductdevices.Currently,ourAirWatchbusinessmodelsincludeanon-premise
solutionthatweofferthroughthesaleofperpetuallicensesandanoff-premisesolutionthatweofferassoftware-as-a-service(“SaaS”).AirWatchproductsand
servicescontinuedtocontributetothegrowthofourend-usercomputingproductgroupduring2015.OurinvestmentsinAirWatchresultedinincreasedoperating
expensesduring2015,primarilydrivenbyemployee-relatedcosts,includingexpenseswerecognizedinconnectionwithinstallmentpaymentstocertainkey
employeesaspartoftheacquisition,aswellasamortizationofpurchasedintangibleassets.
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