VMware 2012 Annual Report Download - page 43

Table of Contents
All dollar amounts expressed as numbers in this MD&A (except share and per share amounts) are in millions.
Overview
We are the leader in virtualization infrastructure solutions utilized by organizations to help transform the way they build, deliver and
consume information technology (“IT”) resources. Our primary source of revenues is from the licensing and support of these solutions to
organizations of all sizes and across numerous industries. The benefits of our solutions to our customers include substantially lower IT costs,
cost-effective high availability across a wide range of applications and a more automated and resilient systems infrastructure capable of
responding dynamically to variable business demands.
We pioneered the development and application of virtualization technologies with x86 server-based computing, separating application
software from the underlying hardware. Since then, we have introduced a broad and proven suite of virtualization technologies that address a
range of complex IT problems that include cost and operational inefficiencies, facilitating access to cloud computing capacity, business
continuity, and corporate end-user computing device management. In 2012, we articulated a vision for the software-defined data center
(“SDDC”), where increasingly infrastructure is virtualized and delivered as a service, and the control of this data center is entirely automated by
software. To further this vision, in the third quarter of 2012, we released the VMware vCloud Suite, which is the first integrated solution
designed to meet the requirements of the SDDC by pooling industry-standard hardware and running compute, networking, storage and
management functions in the data center as software-defined services.
Our solutions are based upon our core virtualization technology and are organized into two main product groups: Cloud Infrastructure and
Management and End-User Computing. The Cloud Infrastructure and Management product group is based upon our flagship virtualization
platform, VMware vSphere. VMware vSphere not only decouples the entire software environment from its underlying hardware infrastructure
but also enables the aggregation of multiple servers, storage infrastructures and networks into shared pools of resources that can be delivered
dynamically, securely and reliably to applications as needed. The Cloud Infrastructure and Management group also encompasses the VMware
vCloud Suite and various Cloud Management solutions that are optimized to work with vSphere environments and are designed to simplify and
automate management of dynamic cloud infrastructures that enable enterprises to build, manage and automate their own private clouds. Our
End-User Computing product group has solutions designed to enable a user-centric approach to personal computing, ensuring secure access to
applications and data from a variety of devices and locations, and addresses the needs of IT departments by delivering existing end-
user assets as
a managed service.
We also offer Cloud Application Platform solutions to help organizations build, run and manage enterprise applications in public, private or
hybrid clouds optimized for vSphere. In December 2012, we launched the Pivotal Initiative with EMC Corporation (“EMC”), our majority
stockholder, pursuant to which both companies plan to commit technology, people and programs. The Pivotal Initiative is focused on Big Data
and Cloud Application Platforms. Big Data, which is a primary contributor to the pace of overall data growth, refers to the large repositories of
corporate and external data, including unstructured information created by new applications, social media and other web repositories.
We have developed a multi-channel distribution model to expand our presence and reach various segments of the market. We derive a
significant majority of our sales from our indirect sales channel, which includes distributors, resellers, system vendors and systems integrators.
Sales to our channel partners often involve three tiers of distribution: a distributor, a reseller and an end-user customer. Our sales force works
collaboratively with our channel partners to introduce them to end-user customer accounts and new sales opportunities. As we expand
geographically, we expect to continue to add additional channel partners.
We expect to grow our business by building long-term relationships with our customers through the adoption of enterprise license
agreements (“ELAs”). ELAs are comprehensive volume license offerings offered both directly by us and through certain channel partners that
provide for multi-year maintenance and support at discounted prices. Under a typical ELA, a portion of the revenues is attributed to the license
revenues and the remainder is primarily attributed to software maintenance revenues. In addition, the initial maintenance period is typically
longer for ELAs than for other types of license sales. ELAs enable us to build long-term relationships with our customers as they commit to our
virtual infrastructure solutions in their data centers. ELAs also provide a base from which to sell additional products, such as our application
platform products, our end-user computing products and our cloud infrastructure and management products. ELAs comprised between one-
quarter and one-third of our overall sales during 2012 and 2011, with the balance represented by our non-ELA, or transactional business. In
2012, our overall sales growth rate declined compared to 2011, with the growth rate in transactional sales lower than the growth rate in ELAs. In
2013, we intend to also focus our selling and marketing efforts to improve the growth rate of our transactional business.
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ITEM 7. MANAGEMENT’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS