Oracle 2011 Annual Report Download - page 30

We continually focus on improving our cost structure by hiring personnel in countries where advanced technical
expertise is available at lower costs. When we make adjustments to our workforce, we may incur expenses
associated with workforce reductions that delay the benefit of a more efficient workforce structure. We may also
experience increased competition for employees in these countries as the trend toward globalization continues,
which may affect our employee retention efforts and increase our expenses in an effort to offer a competitive
compensation program. Our compensation program includes stock options, which are an important tool in
attracting and retaining employees in our industry. If our stock price performs poorly, it may adversely affect our
ability to retain or attract employees. In addition, because we expense all stock-based compensation, we may in
the future change our stock-based and other compensation practices. Some of the changes we consider from time
to time include a reduction in the number of employees granted options, a reduction in the number of options
granted per employee and a change to alternative forms of stock-based compensation. Any changes in our
compensation practices or changes made by competitors could affect our ability to retain and motivate existing
personnel and recruit new personnel.
Our sales to government clients subject us to risks including early termination, audits, investigations,
sanctions and penalties. We derive revenues from contracts with the U.S. government, state and local
governments and their respective agencies, which may terminate most of these contracts at any time, without
cause. There is increased pressure for governments and their agencies, both domestically and internationally, to
reduce spending. Our federal government contracts are subject to the approval of appropriations being made by
the U.S. Congress to fund the expenditures under these contracts. Similarly, our contracts at the state and local
levels are subject to government funding authorizations. Additionally, government contracts are generally subject
to audits and investigations which could result in various civil and criminal penalties and administrative
sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits,
suspension of payments, fines and suspensions or debarment from future government business.
We may need to change our pricing models to compete successfully. The intense competition we face in the
sales of our products and services and general economic and business conditions can put pressure on us to change
our prices. If our competitors offer deep discounts on certain products or services or develop products that the
marketplace considers more valuable, we may need to lower prices or offer other favorable terms in order to
compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our
software license updates and product support fees and hardware systems support fees are generally priced as a
percentage of our net new software license fees and net new hardware systems products fees, respectively. Our
competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount
our new license prices.
Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as
our sales force implements and our customers adjust to the new pricing policies. Some of our competitors may
bundle products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and
product implementations. These practices could, over time, significantly constrain the prices that we can charge
for certain of our products. If we do not adapt our pricing models to reflect changes in customer use of our
products or changes in customer demand, our revenues could decrease. Additionally, increased distribution of
applications through application service providers, including SaaS providers, may reduce the average price for
our products or adversely affect other sales of our products, reducing our revenues unless we can offset price
reductions with volume increases. The increase in open source software distribution may also cause us to change
our pricing models.
Our periodic workforce restructurings can be disruptive. We have in the past restructured or made other
adjustments to our workforce, including our direct sales force on which we rely heavily, in response to
management changes, product changes, performance issues, acquisitions and other internal and external
considerations. In the past, sales force and other restructurings have generally resulted in a temporary lack of
focus and reduced productivity. These effects could recur in connection with future acquisitions and other
restructurings and our revenues could be negatively affected.
We might experience significant errors or security flaws in our software products and services. Despite
testing prior to their release, software products frequently contain errors or security flaws, especially when first
introduced or when new versions are released. The detection and correction of any security flaws can be time
28