VMware 2012 Annual Report Download - page 28

Table of Contents
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.
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.
Acquisitions could disrupt our business, cause dilution to our stockholders and harm our business, financial condition and results of
operations.
We have acquired in the past and plan to acquire in the future other businesses, products or technologies. For example, in 2012 we
completed a number of acquisitions, including acquisitions of Wanova, Dynamic Ops and Nicira. In 2011 we completed acquisitions of Digital
Fuel, NeoAccel, Packet Motion, Shavlik, SlideRocket, Socialcast and WaveMaker. We may not be able to find suitable acquisition candidates,
and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen
our competitive position or achieve our goals, or they may be viewed negatively by customers, financial markets or investors.
Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses and adversely
impact our business, financial condition and results of operations. An acquired business may not deliver the expected results. For example, an
acquisition may not further our strategies or result in expected benefits, which may include benefits relating to enhanced revenues, technology,
human resources, cost savings, operating efficiencies and other synergies. Acquisitions may reduce our cash available for operations, stock
repurchase programs and other uses and could result in an increase in amortization expense related to identifiable intangible assets acquired,
potentially dilutive issuances of equity securities or the incurrence of debt.
Additionally, we have limited historical experience with the integration of acquired companies. There can be no assurance that we will be
able to manage the integration of acquired businesses effectively or be able to retain and motivate key personnel from these businesses. Any
difficulties we encounter in the integration process could divert management from day-to-day responsibilities, increase our expenses and have a
material adverse effect on our business, financial condition and results of operations. We may also face difficulties due to the lack of experience
in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners. Other risks related to
acquisitions include the assumption of the liabilities of the acquired business, including litigation-related liabilities.
If our acquisitions do not meet our expectations, or if our strategic focus subsequently changes, we may choose to abandon certain acquired
product lines and divest from acquired businesses. For example, in January 2013, we announced a plan to streamline our operations that includes
a planned exit of certain lines of business, including SlideRocket. It is generally difficult for an acquirer to completely recover the cost of an
acquisition which is subsequently divested. Accordingly, divestitures of acquired businesses and products may result in us taking charges for
impairment of assets and goodwill, and result in cash expenditures in connection with headcount reductions.
In addition to the risks commonly encountered in the acquisition of a business as described above, we may also experience risks relating to
the challenges and costs of closing a transaction. Further, the risks described above may be exacerbated as a result of managing multiple
acquisitions at the same time. We also seek to invest in businesses that offer complementary products, services or technologies. These
investments are accompanied by risks similar to those encountered in an acquisition of a business.
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• 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.