VMware 2013 Annual Report Download - page 44

Table of Contents
All dollar amounts expressed as numbers in this MD&A (except share and per share amounts) are in millions. Period-over-period changes are calculated
based upon the respective underlying, non-rounded data.
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. We develop and market our product and service offerings within three main product groups, and we also seek to
leverage synergies across these three product areas.
We pioneered the development and application of virtualization technologies with x86 server-based computing, separating application software from the
underlying hardware. The benefits to our customers include lower IT costs and a more automated and resilient systems infrastructure capable of responding
dynamically to variable business demands. Our broad and proven suite of virtualization technologies are designed to establish secure and, reliable IT
environments and address a range of complex IT challenges that include cost reduction, operational inefficiencies, access to cloud computing capacity,
business continuity and corporate end-user computing device management. Our solutions enable organizations to aggregate multiple servers, storage
infrastructure and networks together into shared pools of capacity that can be allocated dynamically, securely and reliably to applications as needed. Once
created, these internal computing infrastructures, or “clouds,” can be dynamically extended by our customers to the public cloud environment. When linked,
this results in a “hybrid” computing cloud of highly available internal and external computing resources that organizations can access on demand. Our
customers' deployments range in size from a single virtualized server for small businesses to thousands of virtual machines for our Fortune 1000 enterprise
customers.
We have articulated a vision for the software-defined data center (“SDDC”), where increasingly infrastructure is virtualized and delivered as a service,
enabling control of the data center to be entirely automated by software. The SDDC is designed to transform the data center into an on-demand service that
addresses application requirements by abstracting, pooling, and automating the services that are required from the underlying hardware. SDDC promises to
dramatically simplify data center operations and lower costs. The VMware vCloud Suite, which is our first integrated solution toward realizing the SDDC
vision and is based upon our VMware vSphere virtualization platform, was initially introduced in late 2012. The VMware vCloud Suite addresses
virtualization of not only CPU and memory, but also networks and associated security services. In addition, the vCloud Suite delivers a new approach to
management, leveraging policy-based automation. VMware vCloud Suite is engineered for hybrid cloud computing so that it federates with other pools of
infrastructure.
We believe that our solutions enable organizations to realize significant operational and cost efficiencies as they transition their underlying legacy IT
infrastructure. We work closely with more than 1,200 technology partners, including leading server, microprocessor, storage, networking, software and
security vendors. We have shared the economic opportunities surrounding virtualization with our partners by facilitating solution development through open
application programming interface (“APIs”) formats and protocols and providing access to our source code and technology. The endorsement and support of
our partners further enhances the awareness, reputation and adoption of our virtualization solutions.
We expect to grow our business by building long-term relationships with our customers, which includes continuing to sell our solutions through
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. 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 and support period is typically longer for ELAs compared to our
transactional business. We believe that ELAs facilitate our objective of building long-term relationships with our customers as they commit to our virtual
infrastructure solutions in their data centers. ELAs comprised 35%, 27% and 26% of our overall sales in 2013 , 2012 and 2011
, respectively, with the balance
primarily represented by our non-ELA, or transactional business.
Pivotal Software, Inc. (
“ Pivotal”, previously known as “ GoPivotal, Inc. ” )
During the year, we transferred certain assets and liabilities to Pivotal in exchange for an ownership interest in Pivotal of approximately 28% as of
December 31, 2013 . In connection with this transaction, we transferred approximately 415 of our employees to Pivotal during 2013. We also entered into an
agreement with Pivotal pursuant to which we are acting as the selling agent of the products and services we contributed to Pivotal in exchange for a
customary agency fee. We have also agreed to provide various transition services to Pivotal, for which we are reimbursed for our costs.
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ITEM 7. MANAGEMENT’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
• SDDC or Software -
Defined Data Center
• End-
User Computing
•
Hybrid Cloud Computing