Oracle 2013 Annual Report Download - page 43

Table of Contents
Our hardware systems products revenues, cost of hardware systems products and hardware systems operating margins that we report are affected
by our strategy for and the competitive position of our hardware systems products, the strength of general economic and business conditions,
governmental budgetary constraints, certain of our acquisitions and foreign currency rate fluctuations. In addition, our operating margins for our
hardware systems products segment have been and will be affected by the amortization of intangible assets.
Our quarterly hardware systems products revenues are difficult to predict. The timing of customer orders and delays in our ability to timely
manufacture or deliver a few large hardware transactions could substantially affect the amount of hardware systems products revenues, expenses
and operating margins that we report.
Hardware Systems Support:
Our hardware systems support offerings provide customers with software updates for software components that
are essential to the functionality of our server, storage and networking products, such as Oracle Solaris and certain other software products, and
can include product repairs, maintenance services and technical support services. Typically, our hardware systems support contract arrangements
are invoiced to the customer at the beginning of the support period and are one year in duration. We continue to evolve hardware systems
support processes that are intended to proactively identify and solve quality issues and to increase the amount of new and renewed hardware
systems support contracts sold in connection with the sales of our hardware systems products. Our hardware systems support revenues that we
report are influenced by a number of factors, including the volume of purchases of hardware products, the mix of hardware products purchased,
whether customers decide to purchase hardware systems support contracts at or in close proximity to the time of hardware product sale, the
percentage of our hardware systems support contract customer base that renews its support contracts and our acquisitions. Substantially all of
these factors are heavily influenced by our customers’ decisions to either maintain or upgrade their existing hardware systems’ infrastructure to
newly developed technologies that are available.
Our hardware systems support margins have been and will be affected by certain of our acquisitions and related accounting, including fair value
adjustments relating to hardware systems support obligations assumed, and by the amortization of intangible assets. As required by business
combination accounting rules, we recorded adjustments to reduce our hardware systems support revenues for contracts assumed from our
acquisitions to their estimated fair values. These amounts would have been recorded as hardware systems support revenues by the acquired
businesses as independent entities in the amounts of $11 million, $14 million and $30 million for fiscal 2014, 2013 and 2012, respectively. To
the extent underlying hardware systems support contracts are renewed with us following an acquisition, we will recognize the revenues for the
full values of the hardware systems support contracts over the respective support periods.
Services Business
Our services business, which represented 10% of our total revenues in fiscal 2014 and 11% in each of fiscal 2013 and 2012, is comprised of the
remainder of our operating segments. Our services business has lower margins than our software and cloud and hardware businesses. Our
services revenues are impacted by certain of our acquisitions, general economic conditions, governmental budgetary constraints, personnel
reductions in our customers’ IT departments, tighter controls over discretionary spending and the growth in our software and hardware systems
products revenues. Our services business’ offerings include:
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consulting services that are designed to help our customers and global system integrator partners more successfully architect and deploy
our products including IT strategy alignment, enterprise architecture planning and design, initial product implementation and
integration, and ongoing product enhancements and upgrades. We utilize a global, blended delivery model to optimize value for our
customers and partners, consisting of on-premise consultants from local geographies, industry specialists and consultants from our
global delivery and solution centers;
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advanced customer support services, which are provided on-premise and remotely to our customers to enable increased performance
and higher availability of their Oracle products and services; and
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education services for Oracle products and services, including training and certification programs that are offered to customers, partners
and employees through a variety of formats, including instructor-led classes at our education centers, live virtual training, self-paced
online training, private events and custom training.