VMware 2011 Annual Report Download - page 24

Table of Contents
Since the second quarter of 2009, we have invoiced and collected in certain non-U.S. Dollar denominated currencies, thereby conducting a
portion of our revenue transactions in currencies other than the U.S. Dollar. Although this program may alleviate credit risk from our distributors
during periods when the U.S. Dollar strengthens, it shifts the risk of currency fluctuations to us and may negatively impact our revenues,
anticipated cash flows and financial results due to fluctuations in foreign currency exchange rates, particularly the Euro, the British Pound, the
Japanese Yen and the Australian Dollar relative to the U.S. Dollar. While variability in operating margin may be reduced due to invoicing in
certain of the local currencies in which we also recognize expenses, increased exposure to foreign currency fluctuations will introduce additional
risk for variability in revenue-related components of our consolidated financial statements.
Since July 2009, we have entered into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and
liabilities against movements in certain foreign exchange rates. Although we expect the gains and losses on our foreign currency forward
contracts to generally offset the majority of the gains and losses associated with the underlying foreign-currency denominated assets and
liabilities that we hedge, our hedging transactions may not yield the results we expect. Additionally, we expect to continue to experience foreign
currency gains and losses in certain instances where it is not possible or cost effective to hedge our foreign currency exposures.
We may become involved in litigation and regulatory inquiries and proceedings that could negatively affect us.
From time to time, we are involved in various legal, administrative and regulatory proceedings, claims, demands and investigations relating
to our business, which may include claims with respect to patent, commercial, product liability, employment, class action, whistleblower and
other matters. From time to time, we receive inquiries from government entities regarding the compliance of our contracting and sales practices
with applicable regulations. Such matters can be time-consuming, divert management's attention and resources and cause us to incur significant
expenses. While no formal legal proceedings that could have a material impact on our results of operations or financial condition have been
taken, there can be no assurance that actions will not be taken in the future. Furthermore, because litigation and the outcome of regulatory
proceedings are inherently unpredictable, it is possible that our business, results of operations or financial condition could be negatively affected
by an unfavorable resolution of one or more of such proceedings, claims, demands or investigations.
Our business is subject to a variety of U.S. and international laws and regulations regarding data protection.
Our business is subject to federal, state and international laws and regulations regarding privacy and protection of personal data. We collect
contact and other personal or identifying information from our customers. Additionally, in connection with some of our new product initiatives,
our customers may use our services to store and process personal information and other user data. We post, on our website, our privacy policies
and practices concerning our treatment of personal data. Any failure by us to comply with our posted privacy policies or other federal, state or
international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others
which could have a material adverse effect on our business, results of operations and financial condition. In addition, the increased attention
focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our
business.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the
possibility of fines and penalties, a governmental order requiring that we change our data practices could result, which in turn could have a
material adverse effect on our business. Compliance with such an order may involve significant costs or require changes in business practices
that result in reduced revenue. Noncompliance could result in penalties being imposed on us or we could be ordered to cease conducting the
noncompliant activity.
In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-
regulatory standards that either legally or contractually apply to us or our customers. Any inability to adequately address privacy concerns, even
if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to
us, damage our reputation, inhibit sales and harm our business.
Additionally, our virtualization technology is used by cloud computing vendors, and we have expanded our involvement in the delivery and
provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue
to do so in the future. For example, in April 2011, we entered into an agreement with EMC to acquire certain assets relating to EMC's Mozy
cloud-based data storage and data services, including certain data center assets and a license to certain intellectual property. We also entered into
an operational support agreement with EMC pursuant to which we will take over responsibility for operating the Mozy service on behalf of
EMC. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing contractual
provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against cloud computing
providers who we may partner with. Accordingly, the failure to comply with data protection laws and regulations by our customers and business
partners who provide cloud computing services could have a material adverse effect on our business.
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