Oracle 2014 Annual Report Download - page 31

Table of Contents
Our hardware systems offerings are complex products, and if we cannot successfully manage this complexity, the results of our hardware
systems business will suffer.
Designing, developing, manufacturing and introducing new hardware systems products are complicated
processes. The development process for our hardware systems products is uncertain and requires a high level of innovation. After the
development phase, we must be able to forecast customer demand and manufacture new hardware systems products in sufficient volumes to
meet this demand and do so in a cost effective manner. Our “build-to-order” manufacturing model, in which our hardware systems products
generally are not built until after customers place orders, may from time to time experience delays in delivering our hardware systems products
to customers in a timely manner. These delays could cause our customers to purchase hardware products and services from our competitors. We
must also manage new hardware product introductions and transitions to minimize the impact of customer delayed purchases of existing
hardware systems products in anticipation of new hardware systems product releases. It is also possible that we could experience design or
manufacturing flaws which could delay or prevent the production of the components for which we have previously committed to pay or need to
fulfill orders from customers and could also prevent the production of our hardware products or cause our hardware products to be returned,
recalled or rejected resulting in lost revenues, increases in warranty costs or costs related to remediation efforts, damage to our reputation,
penalties and litigation.
We depend on suppliers to design, develop, manufacture and deliver on a timely basis the necessary technologies and components for our
hardware products, and there are some technologies and components that can only be purchased from a single vendor due to price, quality,
technology, availability or other business constraints. As a result, our supply chain operations could be disrupted or negatively impacted by
natural disasters, political unrest, port stoppages or other transportation disruptions or slowdowns or other factors affecting the countries or
regions where these single source component vendors are located or where the products are being shipped. We may be unable to purchase these
items from the respective single vendors on acceptable terms or may experience significant delays or quality issues in the delivery of necessary
technologies, parts or components from a particular vendor. If we had to find a new supplier for these technologies, parts and components,
hardware systems product shipments could be delayed, which would adversely affect our hardware systems revenues. We could also experience
fluctuations in component prices which, if unanticipated, could negatively impact our hardware systems business cost structure. Additionally, we
could experience changes in shipping and logistics of our hardware products, which could result in fluctuations in prices and negatively impact
our hardware systems margins. These factors may make it difficult for us to plan and procure appropriate component inventory levels in a timely
fashion to meet customer demand for our hardware products. Therefore, we may experience component inventory shortages which may result in
production delays or customers choosing to purchase fewer hardware products from us or systems products from our competitors. We negotiate
supply commitments with vendors early in the manufacturing process to ensure we have sufficient technologies and components for our
hardware products to meet anticipated customer demand. We must also manage our levels of older component inventories used in our hardware
products to minimize inventory write-offs or write-downs. If we have excess inventory, it may be necessary to write-down the inventory, which
would adversely affect our operating results. If one or more of the risks described above occurs, our hardware systems business and related
operating results could be materially and adversely affected.
We are susceptible to third party manufacturing and logistics delays, which could result in the loss of sales and customers. We outsource
the design, manufacturing, assembly and delivery of certain of our hardware products to a variety of companies, many of which are located
outside the United States. Our reliance on these third parties reduces our control over the design, manufacturing and delivery process, exposing
us to risks, including reduced control over quality assurance, product costs, product supply and delivery delays as well as the political and
economic uncertainties and natural disasters of the international locations where certain of these third party manufacturers have facilities and
operations. Some countries may raise national security concerns or
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practices and go-to-market strategies that we may alter as a part of our integration efforts, which may significantly impact our estimated
revenues and profits from the acquired company; (iii) leverage different platforms or competing technologies that we may encounter
difficulties in integrating; or (iv) utilize unique manufacturing processes that affect our ability to scale these acquired products within
our own manufacturing operations.