VMware 2012 Annual Report Download - page 22

Table of Contents
Should any of the above events occur, we could be subject to significant claims for liability from our customers, regulatory actions from
governmental agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position
could be significantly harmed. Also, the regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to
data breaches that result in losses of personally identifiable or credit card information of users of our services can be significant in terms of fines
and reputational impact and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant
costs in order to upgrade our cybersecurity systems and remediate damages. Consequently, our financial performance and results of operations
could be adversely affected.
Our products are highly technical and may contain errors, defects or security vulnerabilities which could cause harm to our reputation and
adversely affect our business.
Our products are highly technical and complex and, when deployed, have contained and may contain errors, defects or security
vulnerabilities. Some errors in our products may only be discovered after a product has been installed and used by customers. Any errors, defects
or security vulnerabilities discovered in our products after commercial release could result in loss of revenues or delay in revenue recognition,
loss of customers and 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. In the past, VMware has been made aware of
public postings by hackers of portions of our source code. It is possible that the released source code could expose unknown security
vulnerabilities in our products that could be exploited by hackers or others. 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 and customers and channel partners may seek indemnification
from us for their losses and those of their customers. 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.
Operating in foreign countries subjects us to additional risks that may harm our ability to increase or maintain our international sales
operations and investments.
Revenues from customers outside the United States comprised approximately 52% of our total revenues in the years ended 2012 and 2011 ,
respectively. We have sales, administrative, research and development and technical support personnel in numerous countries worldwide. We
expect to continue to add personnel in additional countries. Additionally, our investment portfolio includes investments in non-U.S. financial
instruments and holdings in non-U.S. financial institutions, including European institutions. Our international operations subject us to a variety
of risks, including:
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sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen;
• our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business
operations could be seriously damaged until such systems can be restored and secured;
• our ability to process customer orders and electronically deliver products and services could be degraded, and our distribution channels
could be disrupted, resulting in delays in revenue recognition;
• defects and security vulnerabilities could be exploited or introduced into our software products, thereby damaging the reputation and
perceived reliability and security of our products and potentially making the data systems of our customers vulnerable to further data
loss and cyberincidents; and
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personally identifiable data of our customers, employees and business partners could be stolen or lost.
• the difficulty of managing and staffing international offices and the increased travel, infrastructure and legal compliance costs
associated with multiple international locations;
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increased exposure to foreign currency exchange rate risk;
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difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets;
•
difficulties in delivering support, training and documentation in certain foreign markets;