Oracle 2011 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2011 Oracle annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

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
38