Oracle 2011 Annual Report Download - page 31

consuming and costly. Errors in our software products could affect the ability of our products to work with other
hardware or software products, could delay the development or release of new products or new versions of
products and could adversely affect market acceptance of our products. If we experience errors or delays in
releasing new software products or new versions of software products, we could lose revenues. In addition, we
run our own business operations, Oracle Cloud Services and other outsourcing services, support and consulting
services, on our products and networks and any security flaws, if exploited, could affect our ability to conduct
our business operations. End users, who rely on our software products and services for applications that are
critical to their businesses, may have a greater sensitivity to product errors and security vulnerabilities than
customers for software products generally. Software product errors and security flaws in our products or services
could expose us to product liability, performance and/or warranty claims as well as harm our reputation, which
could impact our future sales of products and services. In addition, we may be legally required to publicly report
security breaches of our services, which could adversely impact future business prospects for those services.
We may not receive significant revenues from our current research and development efforts for several years,
if at all. Developing software and hardware products is expensive, and the investment in product development
often involves a long return on investment cycle. We have made and expect to continue to make significant
investments in research and development and related product opportunities. Accelerated product introductions
and short product life cycles require high levels of expenditures for research and development that could
adversely affect our operating results if not offset by revenue increases. We believe that we must continue to
dedicate a significant amount of resources to our research and development efforts to maintain our competitive
position. However, we do not expect to receive significant revenues from these investments for several years, if
at all.
We may face numerous risks in connection with our strategic alliance with Fujitsu. Oracle has had a
relationship with Fujitsu for many years. We have recently renegotiated a number of agreements with Fujitsu
Limited with respect to collaborative sales and marketing efforts and the joint development and manufacturing of
some of our server products. The agreements contemplate that Oracle and Fujitsu dedicate substantial financial
and human resources and, as a result, the future performance of our hardware systems business may be impacted
by the success or failure of this relationship.
If we fail to satisfy certain development or supply obligations under the agreements, or if we otherwise violate
the terms of the agreements, we may be subject to contractual or legal penalties. Further, if Fujitsu encounters
potential problems in its business, such as intellectual property infringement claims, supply and manufacturing
difficulties, including difficulties that may result from the recent earthquake and tsunami in Japan, difficulties in
meeting development milestones or financial challenges, these problems could impact our strategic relationship
with Fujitsu and could result in a material adverse effect on our hardware systems business. There can be no
assurance that our strategic relationship with Fujitsu will be successful, or that the economic terms of the
agreements establishing the relationship will ultimately prove to be favorable to us. The occurrence of any of
these risks could have a material adverse effect on our hardware systems business.
Business disruptions could affect our operating results. A significant portion of our research and development
activities and certain other critical business operations are concentrated in a few geographic areas. We are a
highly automated business and a disruption or failure of our systems could cause delays in completing sales and
providing services, including some of our Cloud Services offerings. A major earthquake, fire or other
catastrophic event that results in the destruction or disruption of any of our critical business or information
technology systems could severely affect our ability to conduct normal business operations and, as a result, our
future operating results could be materially and adversely affected.
There are risks associated with our outstanding and future indebtedness. As of May 31, 2011, we had an
aggregate of $15.9 billion of outstanding indebtedness that will mature between the remainder of calendar 2011
and calendar 2040, and we may incur additional indebtedness in the future. Our ability to pay interest and repay
the principal for our indebtedness is dependent upon our ability to manage our business operations, generate
sufficient cash flows to service such debt and the other factors discussed in this section. There can be no
assurance that we will be able to manage any of these risks successfully.
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