Oracle 2011 Annual Report Download - page 28

losses. Although we have resumed our foreign currency forward contract program, a large portion of our
consolidated operations are international and we expect that we will continue to realize gains or losses with
respect to our foreign currency exposures, net of gains or losses from our foreign currency forward contracts. For
example, we will experience foreign currency gains and losses in certain instances if it is not possible or cost
effective to hedge our foreign currency exposures or should we suspend our foreign currency forward contract
program in the future. Our ultimate realized loss or gain with respect to currency fluctuations will generally
depend on the size and type of cross-currency exposures that we enter into, the currency exchange rates
associated with these exposures and changes in those rates, whether we have entered into foreign currency
forward contracts to offset these exposures and other factors. All of these factors could materially impact our
results of operations, financial position and cash flows, the timing of which is variable and generally outside of
our control.
The future operating results of our hardware systems business will depend on our ability to manage our
component inventory to meet the demands of our hardware systems customers and to avoid component
inventory write-downs. We depend on suppliers to design, develop, manufacture and deliver on a timely basis
the necessary components for our hardware products. While many of the components purchased are standard,
some components (standard or otherwise) require long lead times to manufacture and deliver. Furthermore, there
are some components that can only be purchased from a single vendor due to price, quality, technology or other
business constraints. As a result, our supply chain operations could be disrupted or negatively impacted by
natural disasters such as the recent earthquake and tsunami in Japan, political unrest or other factors affecting the
countries or regions where these single source component vendors are located. We may be unable to purchase
these items from the respective single vendors on acceptable terms or may experience significant delays or
quality issues in the delivery of necessary parts or components from a particular vendor. If we had to find a new
supplier for these parts and components, hardware systems product shipments could be delayed, which would
adversely affect our hardware systems revenues. We could also experience fluctuations in component prices
which, if unanticipated, could negatively impact our hardware systems business cost structure. These factors may
make it difficult for us to plan and procure appropriate component inventory levels in a timely fashion to meet
customer demand for our hardware products. Therefore we may experience component inventory shortages
which may result in production delays or customers choosing to purchase fewer hardware products from us or
systems products from our competitors. We negotiate supply commitments with vendors early in the
manufacturing process to ensure we have sufficient components for our hardware products to meet anticipated
customer demand. We must also manage our levels of older component inventories used in our hardware
products to minimize inventory write-offs or write-downs. If we have excess inventory, it may be necessary to
write-down the inventory, which would adversely affect our operating results. If one or more of the risks
described above occurs, our hardware systems business and related operating results could be materially and
adversely affected.
We expect to continue to depend on third party manufacturers to build certain hardware systems products and
third party logistics providers to deliver our products. As such, we are susceptible to manufacturing and
logistics delays that could prevent us from shipping customer orders on time, if at all, and may result in the
loss of sales and customers. We outsource the manufacturing, assembly and delivery of certain of our
hardware products to a variety of companies, many of which are located outside the United States. Our reliance
on these third parties reduces our control over the manufacturing and delivery process, exposing us to risks,
including reduced control over quality assurance, product costs, product supply and delivery delays as well as the
political and economic uncertainties of the international locations where certain of these third party
manufacturers have facilities and operations. Any manufacturing disruption or logistics delays by these third
parties could impair our ability to fulfill orders for these hardware systems products. If we are unable to manage
our relationships with these third parties effectively, or if these third parties experience delays, disruptions,
capacity constraints, regulatory issues or quality control problems in their operations, or fail to meet our future
requirements for timely delivery, our ability to ship and/or deliver certain of our hardware systems products to
our customers could be impaired and our hardware systems business could be harmed.
We have simplified our supply chain processes by reducing the number of third party manufacturing partners on
which Sun had historically relied and the number of locations where these third party manufacturers build our
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