Oracle 2011 Annual Report Download - page 19

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Key competitive factors in each of the segments in which we currently compete and may compete in the future
include: total cost of ownership, performance, scalability, reliability, security, functionality, efficiency, ease of
management and quality of technical support. Our product sales (and the relative strength of our products versus
those of our competitors) are also directly and indirectly affected by the following, among other things:
• the broader “platform” competition between our industry standard Java technology platform and the
.NET programming environment of Microsoft;
• operating system competition among, primarily, our Oracle Solaris operating system, Microsoft’s
Windows Server, UNIX (including HP-UX from HP and AIX from IBM) and Linux;
• the adoption of SaaS, hosted or cloud software offerings;
• the adoption of commodity servers and microprocessors;
• the adoption of open source alternatives to commercial software by enterprise software customers;
• products, features and functionality developed internally by customers and their IT staff;
• products, features or functionality customized and implemented for customers by consultants, systems
integrators or other third parties; and
• attractiveness of offerings from business processing outsourcers.
For more information about the competitive risks we face, refer to Item 1A. “Risk Factors.”
Manufacturing
To produce our hardware systems 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 our 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 systems products either from
our facilities or partner facilities. Our manufacturing processes are based on standardization of components
across product types, centralization of assembly and distribution centers and a “build-to-order” methodology in
which products are built only after customers have placed firm orders. Production of our hardware products
requires that we purchase materials, supplies, product subassemblies and full assemblies from a number of
vendors. For most of our hardware products, we have existing alternate sources of supply or such sources are
readily available. However, we do rely on sole sources for certain of our hardware products. For example, we
have a long-standing relationship with Fujitsu Limited for the development, manufacturing and marketing of
certain of our SPARC server components and products. As a result, we continue to monitor the situation in Japan
caused by the recent earthquake and tsunami and will continue to evaluate the resulting potential risks of
disruption to our supply chain operations. Refer to “Risk Factors” included in Item 1A. of this Annual Report for
additional discussion of the challenges we encounter with respect to the sources and availability of supplies for
our products and the related risks to our business.
Research and Development
We develop the substantial majority of our products internally. In addition, we have extended our product
offerings and intellectual property through acquisitions of businesses and technologies. We also purchase or
license intellectual property rights in certain circumstances. Internal development allows us to maintain technical
control over the design and development of our products. We have a number of United States and foreign patents
and pending applications that relate to various aspects of our products and technology. While we believe that our
patents have value, no single patent is essential to us or to any of our principal business segments. Research and
development expenditures were $4.5 billion, $3.3 billion and $2.8 billion in fiscal 2011, 2010 and 2009,
respectively, or 13% of total revenues in fiscal 2011 and 12% of total revenues in each of fiscal 2010 and 2009.
Rapid technological advances in hardware and software development, evolving standards in computer hardware
and software technology, changing customer needs and frequent new product introductions and enhancements
characterize the software and hardware markets in which we compete. We plan to continue to dedicate a
significant amount of resources to research and development efforts to maintain and improve our current product
and services offerings.
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