VMware 2013 Annual Report Download - page 24

Table of Contents
disclosures related to the U.S. Internet and communications surveillance could also make foreign customers reluctant to purchase cloud computing products
and services from U.S.-based companies and impair our growth rate in foreign markets.
Our failure to manage any of these risks successfully could negatively affect our reputation, limit our growth, harm our operations and reduce our
international sales.
If operating system and hardware vendors do not cooperate with us or we are unable to obtain early access to their new products, or access to certain
information about their new products to ensure that our solutions interoperate with those products, our product development efforts may be delayed or
foreclosed.
Our products interoperate with Windows, Linux and other operating systems and the hardware devices of numerous manufacturers. Developing products
that interoperate properly requires substantial partnering, capital investment and employee resources, as well as the cooperation of the vendors and developers
of the operating systems and hardware. Operating system and hardware vendors may not provide us with early access to their technology and products, assist
us in these development efforts or share with or sell to us any application programming interfaces, or APIs, formats or protocols we may need. If they do not
provide us with the necessary early access, assistance or proprietary technology on a timely basis, we may experience product development delays or be
unable to expand our products into other areas. To the extent that software or hardware vendors develop products that compete with ours or those of our
controlling stockholder, EMC Corporation (“EMC”), they may have an incentive to withhold their cooperation, decline to share access or sell to us their
proprietary APIs, protocols or formats, or engage in practices to actively limit the functionality, compatibility and certification of our products. To the extent
that we enter into collaborations or joint development and marketing arrangements with certain hardware and software vendors, vendors who compete with
our collaborative partners may similarly choose to limit their cooperation with us. In addition, hardware or operating system vendors may fail to certify or
support or continue to certify or support our products for their systems. If any of the foregoing occurs, our product development efforts may be delayed or
foreclosed and our business and results of operations may be adversely affected.
We rely on distributors, resellers, system vendors and systems integrators to sell our products and services, and our failure to effectively develop, manage
or prevent disruptions to our distribution channels and the processes and procedures that support them could cause a reduction in the number of end
users of our products and services.
Our future success is highly dependent upon maintaining and increasing the number of our relationships with distributors, resellers, system vendors and
systems integrators. Because we rely on distributors, resellers, system vendors and systems integrators, we may have little or no contact with the ultimate
users of our products and services, thereby making it more difficult for us to establish brand awareness, ensure proper delivery and installation of our
products and services, service ongoing customer requirements, estimate end-user demand and respond to evolving customer needs.
Recruiting and retaining qualified channel partners and training them in the use of our technology and product offerings requires significant time and
resources. In order to develop and expand our distribution channel, we must continue to expand and improve our processes and procedures that support our
channel, including our investment in systems and training, and those processes and procedures may become increasingly complex and difficult to manage.
The time and expense required for sales and marketing organizations of our channel partners to become familiar with our product and service offerings,
including our new product and service developments, may make it more difficult to introduce those products and services to end users and delay end-user
adoption of our product and service offerings.
We generally do not have long-term contracts or minimum purchase commitments with our distributors, resellers, system vendors and systems
integrators, and our contracts with these channel partners do not prohibit them from offering products or services that compete with ours. Our competitors
may be effective in providing incentives to existing and potential channel partners to favor products and services of our competitors or to prevent or reduce
sales of our products and services. Certain system vendors now offer competing virtualization products preinstalled on their server products and services.
Additionally, our competitors could attempt to require key distributors to enter into exclusivity arrangements with them or otherwise apply their pricing or
marketing leverage to discourage distributors from offering our products and services. Accordingly, our channel partners may choose not to offer our
products and services exclusively or at all. Our failure to maintain and increase the number of relationships with channel partners would likely lead to a loss
of end users of our products and services, which would result in us receiving lower revenues from our channel partners. Three of our distributors each
accounted for 10% or more of revenues during 2013 . Our agreements with distributors are typically terminable by either party upon 30 to 90 days’ prior
written notice to the other party, and neither party has any obligation to purchase or sell any products or services under the agreements. While we believe that
we have in place, or would have in place by the date of any such termination, agreements with replacement distributors sufficient to maintain our revenues
from distribution, if we were to lose the distribution services of a significant distributor, such loss could have a negative impact on our results of operations
until such time as we arrange to replace these distribution services with the services of existing or new distributors.
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