Oracle 2009 Annual Report Download - page 40

Table of Contents
Hardware Systems Support: Customers that purchase our hardware systems products may also elect to purchase our hardware systems support offerings. Our
hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our systems
and storage products, including Solaris, and can include product repairs, maintenance services, and technical support services. Typically, our hardware systems
support contract arrangements are invoiced to the customer at the beginning of the support period and are one year in duration. The growth of our hardware
systems support revenues is influenced by a number of factors, including the volume of purchases of hardware products, the mix of hardware products purchased,
and the percentage of our hardware systems support contract customer base that renews its support contracts. All of these factors are heavily influenced by our
customers’ decisions to either maintain or upgrade their existing hardware systems’ infrastructure to newly developed technologies that are available.
Our hardware systems support margins have been and will be affected by fair value adjustments relating to hardware systems support obligations assumed
through, and by the amortization of intangible assets resulting from, our acquisition of Sun. As required by business combination accounting rules, we recorded
adjustments to reduce our hardware systems support revenues for contracts assumed from our acquisition of Sun to their estimated fair values as of the
acquisition date by an aggregate of $128 million for fiscal 2010. This amount would have been recorded as hardware systems support revenues by Sun as a
standalone entity. To the extent underlying hardware systems support contracts are renewed with us following an acquisition, we will recognize the revenues for
the full values of the hardware systems support contracts over the support periods.
Services Business
Our services business consists of consulting, On Demand and education. As a result of our acquisition of Sun, we expanded and enhanced our customer base and
services offerings, which we believe will increase our revenues and expenses in comparison to recent periods. Our services business, which represented 14%,
19% and 20% of our total revenues in fiscal 2010, 2009 and 2008, respectively, has significantly lower margins than our software business. The proportion of our
services revenues relative to our total revenues in fiscal 2010 was affected by our entry into the hardware systems business as a result of our acquisition of Sun.
Consulting: Our consulting line of business primarily provides services to customers in enterprise architecture design and implementation; business/IT strategy
alignment; business process simplification; solution integration; and product implementation, enhancements, and upgrades. The amount of consulting revenues
recognized tends to lag the amount of our software and hardware systems products revenues by several quarters since consulting services, if purchased, are
typically segmentable from the products with which they relate and are performed after the customer’s purchase of the products. Our consulting revenues are
dependent upon general economic conditions and the level of product revenues, in particular the new software license sales of our application products. To the
extent we are able to grow our products revenues, in particular our software application product revenues, we would also generally expect to be able to eventually
grow our consulting revenues.
On Demand: On Demand includes our Oracle On Demand and our Advanced Customer Services offerings. As a result of our acquisition of Sun, we increased
the volume and breadth of our On Demand services offerings, primarily with additional Advanced Customer Services offerings, including staff augmentation and
managed services, to architect, implement and manage customer IT environments. 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. While we have grown the base of customers that purchase certain of our On Demand services through our organic growth and the acquisition of Sun,
we continue to focus on managing our expenses to increase our margins and margins as a percentage of our revenues. We have made and plan to continue to
make investments in our On Demand business to support current and future revenue growth, which historically has negatively impacted On Demand margins and
could do so in the future.
Education: The purpose of our education services is to further the adoption and usage of our software and hardware products by our customers and to create
opportunities to grow our product revenues. Education revenues are impacted by certain of our acquisitions (including our acquisition of Sun), general economic
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Source: ORACLE CORP, 10-K, July 01, 2010 Powered by Morningstar® Document Research℠