Oracle 2010 Annual Report Download - page 29

Table of Contents
• our hardware systems business has higher expenses as a percentage of revenues, and thus has been less profitable, than our software business. We
have reported, and may continue to report, lower overall operating margins as a percentage of revenues, and we may not achieve our profit margin
levels that we attained prior to our acquisition of Sun;
• we face a greater risk of potential write-downs and impairments of inventory, higher warranty expenses than we had historically encountered in our
existing software and services businesses, and higher amortization from, and potential impairment of, intangible assets associated with our hardware
systems business. Any of these items could result in material charges and adversely affect our operating results; and
• we may forgo sales opportunities, customers and revenues as a result of our reducing the resale of third party products and services for which Sun
historically acted as a reseller.
Our strategy of transitioning to a mixed direct and indirect sales model for our hardware systems products may not succeed and could result in lower
hardware revenues or profits. Disruptions to our software indirect sales channel could affect our future operating results. Although we will continue to sell
our hardware systems products through indirect channels, including independent distributors and value added resellers, we have enhanced our direct sales
coverage for our hardware products and intend that our direct sales force will sell a larger portion of our hardware products in the future than they do now. These
direct sales efforts, however, may not be successful. Our relationships with some of our channel partners may deteriorate because we are reducing our reliance on
some of these partners for sales of our hardware products, are modifying our approach and timing to the manufacturing of our products and are altering certain of
Sun’s legacy business practices with these channel partners, which could result in reduced demand from the channel partners or certain customer segments
serviced by these channel partners. Some hardware revenues from channel partners may not be replaced by revenues generated from our own sales personnel or
may not be replaced as quickly as we expect. In addition, we may not be able to hire qualified hardware salespeople, sales consultants and other personnel for our
direct sales model at the rate or in the numbers we need to generate the hardware revenues and profit margins we have projected for future periods. Even if we
can meet our hiring needs, these salespeople may not be able to achieve our sales forecasts for our hardware business. If we experience any of these risks, our
hardware revenues or profits may decline.
Our software indirect channel network is comprised primarily of resellers, system integrators/implementers, consultants, education providers, internet service
providers, network integrators and independent software vendors. Our relationships with these channel participants are important elements of our software
marketing and sales efforts. Our financial results could be adversely affected if our contracts with channel participants were terminated, if our relationships with
channel participants were to deteriorate, if any of our competitors enter into strategic relationships with or acquire a significant channel participant or if the
financial condition of our channel participants were to weaken. There can be no assurance that we will be successful in maintaining, expanding or developing our
relationships with channel participants. If we are not successful, we may lose sales opportunities, customers and revenues.
We may experience foreign currency gains and losses. We conduct a significant number of transactions in currencies other than the U.S. Dollar. Changes in
the value of major foreign currencies, particularly the Euro, Japanese Yen and British Pound relative to the U.S. Dollar can significantly affect revenues and our
operating results. Generally, our revenues and operating results are adversely affected when the dollar strengthens relative to other currencies and are positively
affected when the dollar weakens.
In addition, we incur foreign currency transaction gains and losses, primarily related to sublicense fees and other intercompany agreements among us and our
subsidiaries that we expect to cash settle in the near term, which are charged against earnings in the period incurred. We have a program, which primarily utilizes
foreign currency forward contracts to offset the risks associated with these foreign currency exposures that we may suspend from time to time. This program was
suspended for part of fiscal 2011 but was reactivated during our second quarter of fiscal 2011. As a part of this program, we enter into foreign currency forward
contracts so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in order to
mitigate the risks and volatility associated with our foreign currency transaction gains or
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Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠