VMware 2009 Annual Report Download - page 28

Table of Contents
increased service and warranty cost, any of which could adversely affect our business, financial condition and results of operations.
Undiscovered vulnerabilities in our products could expose them to hackers or other unscrupulous third parties who develop and deploy viruses,
worms, and other malicious software programs that could attack our products. Actual or perceived security vulnerabilities in our products could
harm our reputation and lead some customers to return products, to reduce or delay future purchases or use competitive products. End users, who
rely on our products and services for the interoperability of enterprise servers and applications that are critical to their information systems, may
have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally. Any security breaches
could lead to interruptions, delays and data loss and protection concerns. In addition, we could face claims for product liability, tort or breach of
warranty, including claims relating to changes to our products made by our channel partners. Our contracts with customers contain provisions
relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and
time-consuming and may divert management’s attention and adversely affect the market’s perception of us and our products. In addition, if our
business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, financial
condition and results of operations could be adversely impacted.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our
common stock.
We have complied with Section 404 of the Sarbanes-Oxley Act of 2002 by assessing, strengthening and testing our system of internal
controls. Even though our system of internal controls has achieved compliance with Section 404, we need to continue to maintain our processes
and systems and adapt them to changes as our business changes and we rearrange management responsibilities and reorganize our business
accordingly. We may seek to automate certain processes to improve efficiencies and better ensure ongoing compliance but such automation may
itself disrupt existing internal controls and introduce unintended vulnerability to error or fraud. This continuous process of maintaining and
adapting our internal controls and complying with Section 404 is expensive and time-consuming, and requires significant management attention.
We cannot be certain that our internal control measures will continue to provide adequate control over our financial processes and reporting and
ensure compliance with Section 404. Furthermore, as our business changes and as we expand through acquisitions of other companies, our
internal controls may become more complex and we will require significantly more resources to ensure our internal controls overall remain
effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating
results or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm identify material
weaknesses, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our
stock price. In addition, if we are unable to continue to comply with Section 404, our non-compliance could subject us to a variety of
administrative sanctions, including the suspension or delisting of our common stock from the New York Stock Exchange and the inability of
registered broker-dealers to make a market in our common stock, which could reduce our stock price.
Problems with our information systems could interfere with our business and operations.
We rely on our information systems and those of third parties for processing customer orders, delivery of products, providing services and
support to our customers, billing and tracking our customers, fulfilling contractual obligations, and otherwise running our business. Any
disruption in our information systems and those of the third parties upon whom we rely could have a significant impact on our business. In
addition, we continuously work to enhance our information systems. The implementation of these types of enhancements is frequently disruptive
to the underlying business of an enterprise, which may especially be the case for us due to the size and complexity of our business. Any
disruptions relating to our systems enhancements, particularly any disruptions impacting our operations during the implementation period, could
adversely affect our business in a number of respects. Even if we do not encounter these adverse effects, the implementation of these
enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements
as planned, our financial position, results of operations, and cash flows could be negatively impacted.
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