VMware 2007 Annual Report Download - page 47

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Table of Contents
international revenue in 2007 was primarily attributable to our focus on our international sales and marketing efforts to address the global market
of virtualization.
Although many of the Company’
s products are available individually, they are generally sold in product bundles which encompass most of
the Company’s products. As we develop new products, they are typically sold as a new component to a bundle of products. Customers generally
purchase the most recent bundle. Late in the fourth quarter of 2007, we released Virtual Infrastructure 3.5 and added different functionality to
each of our product bundles. We maintained the price on our Enterprise product bundle, but lowered the price on our Standard product bundle by
20%. The impact of this pricing change was not significant in the fourth quarter, however this change could have an impact in the future
depending on if customers elect to purchase the Standard product bundle over the Enterprise product bundle. Late in the second quarter of 2006,
we introduced a new Enterprise product bundle which largely replaced the previous product bundle. We added three unique products to this
bundle and increased the corresponding list price by 15%. This price increase was partially offset by decreasing prices on certain core platform
products. In some cases, we began providing these products for free. The impact of pricing on revenue growth in 2006 compared to 2005 was
less than 10% of the overall increase in revenue.
As hardware and processors become more powerful, we will have to adapt our product and service offerings to take advantage of the
increased capabilities. If we are unable to do so, then our revenue and market share could be adversely affected.
Services Revenues. Services revenues were $420.4 in 2007, $212.0 in 2006 and $100.1 in 2005, representing year-over-year increases of
$208.4 or 98% in 2007 and $111.9 or 112% in 2006. Services revenues consist of software maintenance and professional services revenues. The
increases in services revenues in 2007 and 2006 were primarily attributable to growth in our software maintenance revenues. This growth
reflects the increase in our license revenues and renewals to customer contracts. Professional services revenues increased due to growing demand
for design and implementation services and training programs, as end-user organizations deployed virtualization across their organizations.
Given the reasons cited above including the increased number of multi-year enterprise license agreements, we expect that service revenue will
compose a larger proportion of our revenue mix and revenue growth in 2008.
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