VMware 2011 Annual Report Download - page 27

Table of Contents
source licenses. Software solutions that are substantially or mostly based on open source software subject us to a number of risks and challenges:
If we are unable to successfully address the challenges of integrating offerings based upon open source technology into our business, our
ability to realize revenues from such offerings will be negatively affected and our development costs may increase.
Our sales cycles can be long and unpredictable, our sales efforts require considerable time and expense and timing of sales is subject to
changing purchasing behaviors of our customers. As a result, our sales are difficult to predict and may vary substantially from quarter to
quarter, which may cause our operating results to fluctuate significantly.
The timing of our revenues is difficult to predict. Our sales efforts involve educating our customers about the use and benefit of our
products, including their technical capabilities, potential cost savings to an organization and advantages compared to lower-
cost products offered
by our competitors. Customers typically undertake a significant evaluation process that has in the past resulted in a lengthy sales cycle which
typically lasts several months, and may last a year or longer. We spend substantial time, effort and money on our sales efforts without any
assurance that our efforts will produce any sales. In addition, product purchases are frequently subject to budget constraints, multiple approvals,
and unplanned administrative, processing and other delays. Moreover, the greater number of competitive alternatives, as well as announcements
by our competitors that they intend to introduce competitive alternatives at some point in the future, can lengthen customer procurement cycles,
cause us to spend additional time and resources to educate end users on the advantages of our product offerings and delay product sales.
Economic downturns and uncertainty can also cause customers to add layers to their internal purchase approval processes, adding further time to
a sales cycle. These factors can have a particular impact on the timing and length of our ELA sales cycles.
Additionally, our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter's total sales
occur in the last month, weeks and days of each quarter. Similarly, our yearly sales have historically reflected a disproportionate percentage of
the year's sales in the fourth fiscal quarter. These patterns make prediction of revenues, earnings and working capital for each financial period
especially difficult and uncertain and increase the risk of unanticipated variations in financial condition and results of operations. We believe this
uneven sales pattern is a result of many factors including the following:
If sales expected from a specific customer for a particular quarter are not realized in that quarter or at all, our results could
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• If open source software programmers, most of whom we do not employ, do not continue to develop and enhance open source
technologies, our development expenses could be increased and our product release and upgrade schedules could be delayed.
• One of the characteristics of open source software is that anyone can modify the existing software or develop new software that
competes with existing open source software. As a result, competition can develop without the degree of overhead and lead time required
by traditional proprietary software companies. It is also possible for new competitors with greater resources than ours to develop their
own open source solutions, potentially reducing the demand for, and putting price pressure on, our solutions.
• It is possible that a court could hold that the licenses under which our open source products and services are developed and licensed are
not enforceable or that someone could assert a claim for proprietary rights in a program developed and distributed under them. Any
ruling by a court that these licenses are not enforceable, or that open source components of our product or services offerings may not be
liberally copied, modified or distributed, may have the effect of preventing us from distributing or developing all or a portion of our
products or services. In addition, licensors of open source software employed in our offerings may, from time to time, modify the terms
of their license agreements in such a manner that those license terms may no longer be compatible with other open source licenses in our
offerings or our end-user license agreement or terms of service, and thus could, among other consequences, prevent us from continuing
to distribute the software code subject to the modified license or terms of service.
• Actions to protect and maintain ownership and control over our intellectual property could adversely affect our standing in the open
source community, which in turn could limit our ability to continue to rely on this community, upon which we are dependent, as a
resource to help develop and improve our open source products and services.
•
the tendency of customers to wait until late in a quarter to commit to a purchase in the hope of obtaining more favorable pricing;
• the fourth quarter influence of customers spending their remaining capital budget authorization prior to new budget constraints in the
first nine months of the following year; and
•
seasonal influences, such as holiday or vacation periods.