VMware 2009 Annual Report Download - page 19

Table of Contents
We rely on distributors, resellers, x86 system vendors and systems integrators to sell our products, and our failure to effectively develop,
manage or prevent disruptions to our distribution channels and the processes and procedures that support them could cause a reduction in
the number of end users of our products.
Our future success is highly dependent upon maintaining and increasing the number of our relationships with distributors, resellers, x86
system vendors and systems integrators. By relying on distributors, resellers, x86 system vendors and systems integrators, we may have little or
no contact with the ultimate users of our products, thereby making it more difficult for us to establish brand awareness, ensure proper delivery
and installation of our products, service ongoing customer requirements, estimate end user demand and respond to evolving customer needs.
Recruiting and retaining qualified channel partners and training them in the use of our technology and product offerings requires
significant time and resources. In order to develop and expand our distribution channel, we must continue to expand and improve our processes
and procedures that support our channel, including our investment in systems and training, and those processes and procedures may become
increasingly complex and difficult to manage. The time and expense required for sales and marketing organizations of our channel partners to
become familiar with our product offerings, including our new product developments, may make it more difficult to introduce those products to
end users and delay end user adoption of our product offerings.
We generally do not have long-term contracts or minimum purchase commitments with our distributors, resellers, x86 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. Our competitors may be effective in providing incentives to existing and potential channel partners to favor products of our competitors or
to prevent or reduce sales of our products. Certain x86 system vendors now offer competing virtualization products preinstalled on their server
products. Additionally, our competitors could attempt to require key distributors to enter into exclusivity arrangements with them or otherwise
apply their pricing or marketing leverage to discourage distributors from offering our products. Accordingly, our channel partners may choose
not to offer our products exclusively or at all. Our failure to maintain and increase the number of relationships with channel partners would likely
lead to a loss of end users of our products which would result in us receiving lower revenues from our channel partners. Two of our distributors
accounted for 16% and 15% of our revenues in fiscal year 2009 and 16% and 18% in 2008. Our agreements with distributors are typically
terminable by either party upon 90 days’ prior written notice to the other party, and neither party has any obligation to purchase or sell any
products under the agreements. While 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 results of operations until such time as we arrange to replace these distribution services
with the services of existing or new distributors.
The concentration of our product sales among a limited number of distributors and the weakness in credit markets increases our potential
credit risk. Additionally, weakness in credit markets could affect the ability of our distributors, resellers and customers to comply with the
terms of credit we provide in the ordinary course of business. Accordingly, if our distributors, resellers and customers find it difficult to
obtain credit or comply with the terms of their credit obligations, it could cause significant fluctuations or declines in our product revenues.
One distributor accounted for 16% of revenues in both fiscal years 2009 and 2008, respectively. Additionally, another distributor
accounted for 15% and 18% of revenues in fiscal years 2009 and 2008, respectively. We anticipate that sales of our products to a limited number
of distributors will continue to account for a significant portion of our total product revenues for the foreseeable future. The concentration of
product sales among certain distributors increases our potential credit risks. For example, approximately 44% of our total accounts receivable as
of December 31, 2009 was from three distributors. Some of our distributors may experience financial difficulties, which could adversely impact
our collection of accounts receivable. One or
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