VMware 2014 Annual Report Download - page 21

Table of Contents
The failure by customers to renew large license agreement transactions on a satisfactory basis could materially adversely affect our business,
financial condition, operating results and cash flow.
Our core customers are large enterprises with multi-year enterprise license agreements, each of which involves substantial aggregate fee
amounts. The failure to renew those transactions in the future, at a dollar value at least equal to the original agreement, or to replace those
enterprise license agreements with new transactions of similar scope, on terms that are commercially attractive to us could materially adversely
affect our business, financial condition, operating results and cash flow.
Our current research and development efforts may not produce significant revenues for several years, if at all.
Developing our products and services is expensive. Our investment in research and development may not result in marketable products or
services or may result in products and services that take longer to generate revenues, or may generate less revenues, than we anticipate. Our
research and development expenses were approximately 21% of our total revenues during both 2014 and 2013 . Our future plans include
significant investments in software research and development and related product opportunities. We believe that we must continue to dedicate a
significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not receive
significant revenues from these investments for several years, if at all.
Our products and services are sold using ELAs and through our transactional business, and this strategy may not drive long-term sales and
revenue growth.
We sell our products and services through two primary means, which we refer to as our ELA and our non-ELA, or transactional, sales.
ELAs are comprehensive long-term license agreements that provide for multi-year maintenance and support and constitute an increasing
percentage of total overall sales. We believe that ELAs help us grow our business by building long-term relationships with our enterprise
customers.
In recent periods, 25% to 40% of our overall sales each quarter have been comprised of ELAs. These are generally larger size transactions,
typically driven by our direct sales force and are primarily attractive to our larger enterprise customers.
Transactional sales, in contrast, tend to be smaller in scope, shorter in duration with a standard one-year maintenance term, and are
principally driven by our sales channel partners. Historically, they have represented 60% to 75% of our overall sales.
Our year-over-year overall sales, ELA sales and our transactional sales all increased in 2014 compared to 2013. Although our transactional
business has increased during 2014, as we develop and add new product and service capabilities to our higher-end product offerings, and as our
ELA volume continues to grow, we may not be successful in our strategy to increase the value of the products and services sold through the
transactional business. Consequently, we may not be able to increase sales
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the introduction of new pricing and packaging models for our product offerings;
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the timing of the announcement or release of upgrades or new products and services by us or by our competitors;
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our ability to maintain scalable internal systems for reporting, order processing, license fulfillment, product delivery, purchasing, billing
and general accounting, among other functions;
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our ability to control costs, including our operating expenses;
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changes to our effective tax rate;
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the increasing scale of our business and its effect on our ability to maintain historical rates of growth;
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our ability to attract and retain highly skilled employees, particularly those with relevant experience in software development and sales;
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our ability to conform to emerging industry standards and to technological developments by our competitors and customers;
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renewal rates and the amounts of the renewals for ELAs as original ELA terms expire;
• the timing and amount of software development costs that may be capitalized beginning when technological feasibility has been
established and ending when the product is available for general release;
• unplanned events that could affect market perception of the quality or cost-
effectiveness of our products and solutions; and
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the recoverability of benefits from goodwill and acquired intangible assets, and the potential impairment of these assets.