VMware 2007 Annual Report Download - page 42

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Table of Contents
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction
with our annual consolidated financial statements and notes thereto which appear elsewhere in this Annual Report on Form 10-K.
This section and other parts of this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the Federal
securities laws, about our business and prospects. The forward-looking statements do not include the potential impact of any mergers,
acquisitions, divestitures, securities offerings or business combinations or other developments in our business that may be announced or
consummated after the date hereof. Any statements contained herein that are not statements of historical fact may be deemed to be forward-
looking statements. Without limiting the foregoing, the words “outlook,” “believes,” “plans,” “intends,” “expects,” “goals,” “potential,”
“continues,” “may,” “will,” “should,” “seeks,” “predicts,” “estimates,” “anticipates” and similar expressions are intended to identify forward-
looking statements, although not all forward-looking statements contain these words. Our future results may differ materially from our past
results and from those projected in the forward-
looking statements due to various uncertainties and risks, including those described in Item 1A of
Part I (Risk Factors). The forward-
looking statements speak only as of the date of this Annual Report and undue reliance should not be placed on
these statements. We disclaim any obligation to update any forward-looking statements contained herein after the date of this Annual Report.
All dollar amounts expressed as numbers in this MD&A (except per share amounts) are in millions.
Certain tables may not add due to rounding.
Overview
Our primary source of revenue is the licensing of virtualization software and related support and services through a variety of distribution
channels for use by businesses and organizations of all sizes and across numerous industries in their information technology infrastructure. Our
virtualization solutions run on industry-standard desktops and servers and support a wide range of operating system and application
environments, as well as networking and storage infrastructure. We have developed a multi-channel distribution model to expand our presence
and reach various segments of the market. In 2007, 2006 and 2005, we derived over 75% of our revenues from our channel partners, which
include distributors, resellers, x86 systems vendors and system integrators. We have also developed a network of nearly 10,000 indirect channel
partners who fulfill orders through our direct channel partners. A majority of our revenue results from contracts that include both perpetual
software licenses and ongoing software maintenance contracts. License revenue is recognized when the elements of revenue recognition are
complete. Maintenance revenue is recognized ratably over the term of the maintenance period, and includes renewals of maintenance sold after
the initial maintenance period expires. We also recognize revenue from professional services provided to our customers.
We have achieved significant revenue growth to date and are focused on extending our growth by broadening our product portfolio,
enabling choice for customers and driving standards, expanding our network of technology and distribution partners, increasing market
awareness and promoting the adoption of virtualization. In addition to selling to new customers, we are also focused on expanding the use of our
products within our existing customer base, as much of our license revenue is based on a per desktop or per server arrangement. We believe it is
important that as we grow our sales, we continue to invest in our corporate infrastructure, including customer support, information technology
and general and administrative functions. We expect our spending in research and development to increase as we add computer scientists,
software engineers, and employees involved in product development and maintenance and continue to enable choice for customers and drive
standards. We believe that equity incentives tied directly to the performance of VMware will help us compete for top-
level engineering and other
talent. We also intend to continue to invest in hardware, networking and software tools to increase the efficiency of our research and
development efforts.
38
ITEM 7.
MANAGEMENT
’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION