Oracle 2006 Annual Report Download - page 17

Table of Contents
Item 1A. Risk Factors
We operate in a rapidly changing economic and technological environment that presents numerous risks,
many of which are driven by factors that we cannot control or predict. The following discussion, as well as
our “Critical Accounting Policies and Estimates” discussion in Item 7, highlights some of these risks.
Economic, political and market conditions can adversely affect our revenue growth and profitability. Our
business is influenced by a range of factors that are beyond our control and that we have no comparative
advantage in forecasting. These include:
• general economic and business conditions;
• the overall demand for enterprise software and services;
• governmental budgetary constraints or shifts in government spending priorities; and
• general political developments.
A general weakening of the global economy, or a curtailment in government or corporate spending, could
delay and decrease customer purchases. In addition, the war on terrorism, the war in Iraq and the potential for
other hostilities in various parts of the world, potential public health crises, as well as natural disasters,
continue to contribute to a climate of economic and political uncertainty that could adversely affect our
revenue growth and results of operations. These factors generally have the strongest effect on our sales of
software licenses, and to a lesser extent, also affect our renewal rates for software license updates and product
support.
We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors. Our
revenues, and particularly our new software license revenues, are difficult to forecast, and as a result our
quarterly operating results can fluctuate substantially. We use a “pipeline” system, a common industry
practice, to forecast sales and trends in our business. Our sales personnel monitor the status of all proposals
and estimate when a customer will make a purchase decision and the dollar amount of the sale. These
estimates are aggregated periodically to generate a sales pipeline. Our pipeline estimates can prove to be
unreliable both in a particular quarter and over a longer period of time, in part because the “conversion rate”
of the pipeline into contracts can be very difficult to estimate. A contraction in the conversion rate, or in the
pipeline itself, could cause us to plan or budget incorrectly and adversely affect our business or results of
operations. In particular, a slowdown in information technology spending or economic conditions generally
can reduce the conversion rate in particular periods as purchasing decisions are delayed, reduced in amount or
cancelled. The conversion rate can also be affected by the tendency of some of our customers to wait until the
end of a fiscal period in the hope of obtaining more favorable terms, which can also impede our ability to
negotiate and execute these contracts in a timely manner. In addition, for newly acquired companies, we have
limited ability to predict how their pipelines will convert into sales or revenues for one or two quarters
following the acquisition and their conversion rate post-acquisition may be quite different from their historical
conversion rate. Because a substantial portion of our new software license revenue contracts is completed in
the latter part of a quarter, and our cost structure is largely fixed in the short term, revenue shortfalls tend to
have a disproportionately negative impact on our profitability. A delay in even a small number of large new
software license transactions could cause our quarterly new software licenses revenues to fall significantly
short of our predictions.
Our success depends upon our ability to develop new products and services, integrate acquired products
and services and enhance our existing products and services. Rapid technological advances and evolving
standards in computer hardware, software development and communications infrastructure, changing and
increasingly sophisticated customer needs and frequent new product introductions and enhancements
characterize the enterprise software market in which we compete. If we are unable to develop new products
and services, or to enhance and improve our products and support services in a timely manner or to position
and/or price our products and services to meet market demand, customers may not buy new software licenses
or renew software license updates and product support. In addition, information technology standards from
both consortia and formal standards-setting forums as well as de facto marketplace standards are rapidly
evolving. We cannot provide any assurance that the standards on which we choose to develop new products
will allow us to compete effectively for business opportunities in emerging areas.
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Source: ORACLE CORP, 10-K, June 29, 2007 Powered by Morningstar® Document Research℠