VMware 2012 Annual Report Download - page 44

Table of Contents
In January 2013, we announced a realignment of our strategy to refocus our resources and investments in support of three growth priorities
that focus on our core opportunities as a provider of virtualization technologies that simplify IT infrastructure: the software-defined data center,
the hybrid cloud and end-user computing. For the SDDC, we plan to continue to invest in the development and delivery of innovations in
networking, security, storage and management as we continue to roll out and enhance the features of our vCloud Suite. For the hybrid cloud we
plan to focus on expanding our capabilities with our partners to deliver enterprise-class cloud services that are complementary to private clouds
in order to enhance our customer's flexibility to run applications on and off premise, as they choose on a compatible, high-quality, secure and
resilient hybrid cloud platform. For end-user computing, we plan to enhance our offerings to enable a virtual workspace for both existing PC
environments and emerging mobile devices in a secure enterprise environment.
We also announced a business plan to streamline our operations, subject to compliance with applicable legal obligations, to rationalize our
portfolio and scale back investments in some areas of our business that we do not believe are directly related to our core growth opportunities.
The plan includes the elimination of approximately 900 positions and personnel, which is expected to result in a charge in the range of $70 to
$80. Any such proposals in countries outside the United States will be subject to a review of efficiency, resources and performance.
Additionally, we are planning an exit of certain lines of business and consolidation of facilities, which are expected to result in a charge in the
range of $20 to $30. The plan is expected to be completed by the end of 2013. Finalization of the plan will be subject to local information and
consultation processes with employee representatives if required by law. The total charge resulting from this plan is expected to be between $90
and $110, with total cash expenditures associated with the plan expected to be in the range of $80 to $90. Despite these changes, we expect our
total headcount to increase during 2013 by approximately 1,000 as we continue to make key investments in support of our long-term growth
objectives. Our plan to exit certain lines of business resulted from an evaluation of our business in January 2013. At the end of 2012, we had
performed an impairment test and determined that the assets associated with these certain lines of business were not impaired.
We continue to see substantial market opportunities in 2013 and beyond to deliver software innovations that bring agility, efficiency and
choice to our customers, while simplifying the infrastructure and IT experience for them. However, we currently expect our rate of year-over-
year growth in both total revenues and license revenues to decline during the first half of 2013 due to several factors, including a difficult
macroeconomic environment, the lack of large deals that we anticipate will close in the first quarter of 2013 as compared to the first quarter of
2012 and our business plan to streamline our operations, which we expect to have a short-term negative impact on our revenues. We currently
expect stronger growth in the second half of 2013 versus the first half of 2013 on a year-over-year comparison basis. During 2013, we expect to
continue to manage our resources prudently, while making key investments in support of our long-term growth objectives.
Results of Operations
As we operate our business in one operating segment, our revenues and operating expenses are presented and discussed at the consolidated
level.
We classify our revenues into two categories, i.e. license revenues and services revenues. See “Critical Accounting Policies” for further
information regarding the accounting for our revenues.
Our current financial focus is on long-term revenue growth to generate free cash flows to fund our expansion of industry segment share and
to evolve our virtualization-based products for data centers, end-user devices and cloud computing through a combination of internal
development and acquisitions. See “Non-GAAP Financial Measures” for further information on free cash flows. In evaluating our results, we
also focus on operating margin excluding certain expenses which are included in our total operating expenses calculated in accordance with
GAAP. The expenses excluded are stock-
based compensation, the net effect of the amortization and capitalization of software development costs
and certain other expenses consisting of amortization of acquired intangible assets, employer payroll taxes on employee stock transactions and
acquisition-related items. We believe these measures reflect our ongoing business in a manner that allows meaningful period-to-period
comparisons. We are not currently focused on short-term operating margin expansion, but rather on investing at appropriate rates to support our
growth and priorities in what may be a substantially more competitive environment.
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