VMware 2007 Annual Report Download - page 46

Table of Contents
revenue to continue to grow throughout 2008, we expect the rate of growth to decelerate due primarily to the size and scale of our business.
Changes in current market and economic conditions could impact this outlook.
We divide our license revenues into two classes: (1) Virtualization Platforms and (2) Virtual Infrastructure Automation and Management.
Our Virtualization Platforms include a hypervisor for system partitioning that provides the capability to safely, securely and efficiently run
multiple operating systems with their applications simultaneously while providing resource guarantees. These products provide the core
functionality and the enabling capabilities for our second class of products, Virtual Infrastructure Automation and Management, to automate
system infrastructure services, such as resource management, availability, mobility and security, manage a virtualized environment and automate
the interaction between various IT constituencies and the virtual infrastructure for a specific set of point solutions. Revenues from Platforms
were $347.9, $281.3, and $204.7 in 2007, 2006, and 2005, respectively. As a percentage of license revenues, revenues from Platforms were 38%,
57% and 71% in 2007, 2006 and 2005, respectively. Revenues from Automation and Management were $557.5, $210.6, and $82.3 in 2007,
2006, and 2005 respectively. As a percentage of license revenues, revenues from the Automation and Management class were 62%, 43% and
29% in 2007, 2006 and 2005, respectively. The stronger growth in the Automation and Management class is due to our end-user customers’
demand for software that capitalizes on the benefits of the virtualization platform to drive more efficient, reliable, and flexible system
infrastructure. Late in the second quarter of 2006, we introduced several new products in the Automation and Management class which were the
chief drivers of the growth in that class. We expect that the Automation and Management class of products will continue to grow more rapidly
than the Platforms class throughout 2008.
We sell our products through a network of channel partners, which includes distributors, resellers, x86 system vendors and systems
integrators. More than 70% of our orders for each of the three years presented occurred through our 15 largest direct channel partners, including
one distributor which represented 23%, 29% and 30% of our revenue in 2007, 2006 and 2005, respectively. Additionally, another distributor
represented 12% of our revenue in 2007. As we expand geographically, we may add additional direct channel partners; however, approximately
90% of the increases in orders in 2007 and 2006 resulted from increased sales volumes through our existing direct channel partners. These
increases were driven by several factors, including greater demand for our virtualization product offerings attributable to wider market
acceptance of virtualization as part of an organization’s IT infrastructure, a broadened product portfolio and expansion of our indirect channel
partner network.
We have nearly 10,000 indirect channel partners as of December 31, 2007, an increase of nearly 6,000 from December 31, 2006. Over
1,500 and 1,000 new indirect channel partners were added during 2006 and 2005, respectively. These indirect channel partners obtain software
licenses and services from our distributors and x86 system vendors and market and sell them to end-
user customers. In addition, we have a direct
sales force that complements these efforts. Our sales force works with our channel partners to introduce them to customers and new sales
opportunities. Our channel partners also introduce our sales force to their customers.
The percentage of orders greater than fifty thousand dollars in 2007, compared to 2006, increased modestly, and we experienced an
increase in the percentage of orders greater than fifty thousand dollars in 2006 as compared to 2005. License orders from our distributors and
end-user customers which were greater than fifty thousand dollars were approximately 32% of license revenues in 2007, approximately 30% of
license revenues in 2006 and approximately 23% of license revenues in 2005. Although we remain a high-volume transaction business, we
believe an increase in the number of orders greater than fifty thousand dollars in the comparative periods is a result of broader acceptance of
virtualization solutions for organizations’ IT infrastructure, a trend toward end-user customers using our products broadly across their
organizations, and a result of more customers entering into multi-year enterprise license agreements. We anticipate this trend will continue.
Geographically, international revenue was $605.2 or 46% of 2007 total revenue. In 2006, international revenue was 44% of total 2006
revenue, and in 2005, international revenue represented 46% of total 2005 revenue. Although there is not a significant change between each
period, we believe the slight increase in
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