Oracle 2010 Annual Report Download - page 42

Table of Contents
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.
Hardware Systems Business
As a result of our acquisition of Sun in January 2010, we entered into a new hardware systems business. Our hardware systems business consists of two operating
segments: (1) hardware systems products and (2) hardware systems support. Our hardware business represented 19% and 9% of our total revenues in fiscal 2011
and 2010, respectively, and we expect that it will continue to add a significant amount of revenues and expenses to our results of operations in comparison to our
historical operating results. We expect our hardware business to have lower operating margins as a percentage of revenues than our software business due to the
incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs. We expect to
make investments in research and development to improve existing hardware products and services or develop new hardware products and services.
To produce our hardware products, we rely on both our internal manufacturing operations as well as third party manufacturing partners. Our internal
manufacturing operations consist primarily of final assembly, test and quality control of enterprise and data center servers and storage systems. For all other
manufacturing, we rely on third party manufacturing partners. We distribute most of our hardware products either from our facilities or partner facilities. We are
continuing to focus on reducing costs by simplifying our manufacturing processes through increased standardization of components across product types, through
a reduction of the number of assembly and distribution centers that we rely on and a “build-to-order” manufacturing process in which products are built only after
customers have placed firm orders. In addition, we are focusing on identifying hardware systems support processes that are intended to proactively identify and
solve quality issues and to increase the amount of new hardware systems support contracts sold in connection with the sales of new hardware products.
Hardware Systems Products: Our hardware systems products consist primarily of computer server and storage product offerings and hardware-related
software, including our Oracle Solaris operating system. Our hardware systems component products are designed to be “open,” or to work in customer
environments that may include other Oracle or non-Oracle hardware or software components. We have also engineered our hardware systems products to create
performance and operational cost advantages for customers when our hardware and software products are combined as engineered systems, as with Oracle
Exadata and Oracle Exalogic Elastic Cloud.
We offer a wide range of server systems using our SPARC microprocessor. Our SPARC servers are differentiated by their reliability, security, scalability and
customer environments that they target (general purpose or specialized systems). Our midsize and large servers are designed to offer greater performance and
lower total cost of ownership than mainframe systems for business critical applications and for customers having more computationally intensive needs. Our
SPARC servers run the Oracle Solaris operating system and are designed for the most demanding mission critical enterprise environments at any scale.
We also offer a wide range of x86 servers. These x86 servers are primarily based on microprocessor platforms from Intel Corporation and are also compatible
with Oracle Solaris, Oracle Linux, Microsoft Windows and other operating systems.
Our storage products are designed to securely manage, protect, archive and restore customers’ mission critical data assets and consist of tape, disk,
hardware-related software including file systems software, back-up and archive software and storage management software, and networking for mainframe and
open systems environments.
The majority of our hardware systems products are sold through indirect channels, including independent distributors and value added resellers. We have
enhanced direct sales coverage for our hardware systems products and intend that our direct sales force will sell proportionately more of our hardware systems
products in the future than they do currently.
Our hardware systems products revenues, cost of hardware systems products and operating margins that we report are affected by the strength of general
economic and business conditions, governmental budgetary constraints, the competitive position of our hardware systems products, and our acquisitions and
foreign currency
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Source: ORACLE CORP, 10-K, June 28, 2011 Powered by Morningstar® Document Research℠