VMware 2014 Annual Report Download - page 27

Table of Contents
The concentration of our product sales among a limited number of distributors increases our potential credit risk. Additionally, weakness in
credit markets could affect the ability of our distributors, resellers and customers to comply with the terms of credit we provide in the
ordinary course of business. Accordingly, if our distributors, resellers and customers find it difficult to obtain credit or comply with the terms
of their credit obligations, it could cause significant fluctuations or declines in our product revenues.
Three of our distributors each accounted for 10% or more of our consolidated revenues during the year ended of 2014 . We anticipate that
sales of our products to a limited number of distributors will continue to account for a significant portion of our total product revenues for the
foreseeable future. The concentration of product sales among certain distributors increases our potential credit risks. For example, approximately
42% of our total accounts receivable as of December 31, 2014 was from these three distributors. Some of our distributors may experience
financial difficulties, which could adversely impact our collection of accounts receivable. One or more of these distributors could delay
payments or default on credit extended to them. Our exposure to credit risks of our distributors may increase if our distributors and their
customers are adversely affected by global or regional economic conditions. Additionally, we provide credit to distributors, resellers, and certain
end-user customers in the normal course of business. Credit is generally extended to new customers based upon a credit evaluation. Credit is
extended to existing customers based on ongoing credit evaluations, prior payment history, and demonstrated financial stability. We often allow
distributors and customers to purchase and receive shipments of products in excess of their established credit limit. We are unable to recognize
revenues from such shipments until the collection of those amounts becomes reasonably assured. Any significant delay or default in the
collection of significant accounts receivable could result in an increased need for us to obtain working capital from other sources, possibly on
worse terms than we could have negotiated if we had established such working capital resources prior to such delays or defaults. Any significant
default could result in a negative impact on our results of operations and delay our ability to recognize revenue.
We may become involved in litigation and regulatory inquiries and proceedings that could negatively affect us.
From time to time, we are involved in various legal, administrative and regulatory proceedings, claims, demands and investigations relating
to our business, which may include claims with respect to commercial, product liability, intellectual property, employment, class action,
whistleblower and other matters. In the ordinary course of business, VMware also receives inquiries from and has discussions with government
entities regarding the compliance of its contracting and sales practices with laws and regulations. Such matters can be time-consuming, divert
management’s attention and resources and cause us to incur significant expenses. While no formal legal proceedings that we expect to have a
material impact on our financial condition or results of operations have been commenced, there can be no assurance that actions will not be taken
in the future, and final resolution of such claims could be materially different from our current estimates. Furthermore, because litigation and the
outcome of regulatory proceedings are inherently unpredictable, it is possible that our business, financial condition or results of operations could
be negatively affected by an unfavorable resolution of one or more of such proceedings, claims, demands or investigations.
Our business is subject to a variety of U.S. and international laws and regulations regarding data protection.
Our business is subject to federal, state and international laws and regulations regarding privacy and protection of personal data. As Internet
commerce continues to evolve, regulation by federal, state and foreign governments or agencies in the areas of data privacy and data security is
likely to increase. Other nations have data privacy laws that, in some respects, are more stringent than privacy standards in the United States. As
we expand our operations in these countries, our liability exposure and the complexity and cost of compliance with data and privacy
requirements will likely increase. We collect contact and other personal or identifying information from our customers. Additionally, in
connection with some of our product initiatives, including our web-based services, mobile services and our vCloud Air offering, we expect that
our customers may increasingly use our services to store and process personal information and other regulated data. We post, on our websites,
and, where appropriate, within our products, our privacy policies and practices concerning our treatment of personal data. We also often include
privacy commitments in our contracts. Any failure by us to comply with our posted privacy policies, other federal, state or international privacy-
related or data protection laws and regulations, or the privacy commitments contained in our contracts could result in proceedings against us by
governmental entities or others, which could have a material adverse effect on our business, financial condition and results of operations. In
addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or
otherwise impact the growth of our business.
It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in
addition to the possibility of fines and penalties, a governmental order requiring that we change our data practices could result, which in turn
could have a material adverse effect on our business. Compliance with such an order may involve significant costs or require changes in business
practices that result in reduced revenues. Noncompliance could result in penalties being imposed on us or we could be ordered to cease
conducting the noncompliant activity.
In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-
regulatory standards that either legally or contractually apply to our customers or us. Any inability to adequately
25