Oracle 2007 Annual Report Download - page 32

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Table of Contents
• Our acquisitions have increased our support contract base, as well as the portfolio of products available to be
licensed.
We record adjustments to reduce support obligations assumed in business acquisitions to their estimated fair values at
the acquisition dates. As a result, as required by business combination accounting rules, we did not recognize
software license updates and product support revenues related to support contracts that would have been otherwise
recorded by the acquired businesses as independent entities in the amount of $179 million, $212 million and
$391 million in fiscal 2008, 2007 and 2006, respectively. To the extent underlying support contracts are renewed
with us following an acquisition, we will recognize the revenues for the full value of the support contracts over the
support periods, the majority of which are one year.
Services Business
Our services business consists of consulting, On Demand and education. Our services business, which represented
20%, 21% and 20% of our total revenues in fiscal 2008, 2007 and 2006, respectively, has significantly lower margins
than our software business.
Consulting: Consulting revenues have increased primarily due to an increase in application implementations
resulting from higher sales of new software applications over the past year and our recent acquisitions. We expect
consulting revenues to continue to grow as consulting revenues tend to lag software revenues by several quarters
since consulting services, if purchased, are typically performed after the purchase of new software licenses and our
new software license growth rates have generally increased over the last several quarters in comparison to the
corresponding prior year periods.
On Demand: On Demand includes Oracle On Demand, CRM on Demand, as well as Advanced Customer Services
offerings. We believe that our On Demand offerings provide our customers flexibility in how they manage their IT
environments and an additional opportunity to lower their total cost of ownership and can therefore provide us with a
competitive advantage. We have made and plan to continue to make investments in our On Demand business to
support current and future revenue growth, which has negatively impacted On Demand margins and may continue to
do so in the future.
Education: The purpose of our education services is to further the adoption and usage of our software products by
our customers and to create opportunities to grow our software revenues. Education revenues have been impacted by
personnel reductions in our customers’ information technology departments, tighter controls over discretionary
spending and greater use of outsourcing solutions. However, education revenues and expenses have increased in
recent periods in comparison to the corresponding periods of the prior year as a result of additional education
offerings related to our acquired products.
Acquisitions
An active acquisition program is another important element of our corporate strategy. Over the last four fiscal years,
we have invested billions of dollars, including $9.4 billion in fiscal 2008, to acquire a number of complementary
companies, products, services and technologies such as BEA Systems, Inc. in fiscal 2008, Hyperion Solutions
Corporation in fiscal 2007, Siebel Systems, Inc. in fiscal 2006 and PeopleSoft, Inc. in fiscal 2005. We believe our
acquisition program supports our long-term strategic direction, strengthens our competitive position, expands our
customer base, provides greater scale to accelerate innovation, grows our revenues and earnings, and increases
stockholder value. We expect to continue to acquire companies, products, services and technologies. See Note 2 of
Notes to Consolidated Financial Statements for additional information related to our recent acquisitions.
We believe we can fund additional acquisitions with our internally available cash, cash equivalents and marketable
securities, cash generated from operations, amounts available under our existing debt capacity, additional borrowings
or from the issuance of additional securities. We estimate the financial impact of any potential acquisition with regard
to earnings, operating margin, cash flow and return on invested capital targets before deciding to move forward with
an acquisition.
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Source: ORACLE CORP, 10-K, July 02, 2008 Powered by Morningstar® Document Research℠