Oracle 2013 Annual Report Download - page 41

Table of Contents
and $22 million in fiscal 2014, 2013 and 2012, respectively. To the extent underlying cloud SaaS and PaaS contracts are renewed with us
following an acquisition, we will recognize the revenues for the full values of these contracts over their respective contractual periods.
Cloud Infrastructure-as-a-Service: Our cloud infrastructure-as-a-service offerings (IaaS), which represented 1% of our total revenues in each
of fiscal 2014 and 2013 and 2% in fiscal 2012, provide deployment and management offerings for our software and hardware and related IT
infrastructure including virtual machine instances that are subscription-based and designed for computing and reliable and secure object storage;
Oracle Engineered Systems hardware and related support that are deployed in our customers’ data centers for a monthly fee; and comprehensive
software and hardware management and maintenance services arrangements for customer IT infrastructure for a stated term that is hosted at our
data center facilities, select partner data centers or physically on-premise at customer facilities.
Software License Updates and Product Support:
Customers that purchase software license updates and product support are granted rights to
unspecified product upgrades and maintenance releases and patches released during the term of the support period, as well as technical support
assistance. Our software license updates and product support contracts are generally one year in duration and substantially all of our customers
renew their software license updates and product support contracts annually. The growth of software license updates and product support
revenues is primarily influenced by three factors: (1) the percentage of our software support contract customer base that renews its software
support contracts, (2) the amount of new software support contracts sold in connection with the sale of new software licenses and (3) the amount
of software support contracts assumed from companies we have acquired.
Software license updates and product support revenues, which represented 47%, 46% and 43% of our total revenues in fiscal 2014, 2013 and
2012, respectively, is our highest margin business unit. Our software support margins during fiscal 2014 were 89% and accounted for 77% of
our total margins over the same period. Our software license updates and product support margins have been affected by fair value adjustments
relating to software support obligations assumed in business combinations (described further below) and by amortization of intangible assets.
However, over the longer term, we believe that software license updates and product support revenues and margins will grow for the following
reasons:
We recorded adjustments to reduce software support obligations assumed in business combinations to their estimated fair values at the
acquisition dates. As a result, as required by business combination accounting rules, we did not recognize software license updates and product
support revenues related to software support contracts that would have been otherwise recorded by the acquired businesses as independent
entities in the amounts of $3 million, $14 million and $48 million in fiscal 2014, 2013 and 2012, respectively. To the extent underlying software
support contracts are renewed with us following an acquisition, we will recognize the revenues for the full values of the software support
contracts over the respective support periods, the majority of which are one year.
Hardware Systems Business
Our hardware systems business is comprised of two operating segments: (1) hardware systems products and (2) hardware systems support. Our
hardware business represented 14% of our total revenues in each of fiscal 2014 and 2013 and 17% in fiscal 2012. We expect our hardware
business to have lower operating margins as a
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substantially all of our customers, including customers from acquired companies, renew their software support contracts when eligible
for renewal;
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substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses,
resulting in a further increase in our software support contract base. Even if new software licenses revenues growth was flat, software
license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming
contract renewal and cancellation rates and foreign currency rates remained relatively constant since substantially all new software
licenses transactions result in the sale of software license updates and product support contracts, which add to our software support
contract base; and
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our acquisitions have increased our software support contract base, as well as the portfolio of products available to be licensed and
supported.