Oracle 2014 Annual Report Download - page 45

Table of Contents
Our networking and data center fabric products, including Oracle Virtual Networking, and Oracle InfiniBand and Ethernet technologies, are used
with our server and storage products and are integrated into our management tools to help enterprise customers improve infrastructure
performance, reduce cost and complexity and simplify storage and server connectivity.
We offer hardware products and services designed for specific industries. Our point-of-sale hardware offerings include point-of-sale terminals
and related hardware that are designed for managing businesses within the food and beverage, hotel and retail industries, among others. Our
hardware products and services for communications networks include network signaling, policy control and subscriber data management
solutions, and session border control technology, among others.
The majority of our hardware systems products are sold through indirect channels, including independent distributors and value added resellers.
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 materials procurement, assembly, testing and quality control of our Oracle Engineered
Systems and certain of our enterprise and data center servers and storage systems. For all other manufacturing, we generally rely on third party
manufacturing partners to produce our hardware related components and hardware products and we may involve our internal manufacturing
operations in the final assembly, testing and quality control processes for these components and products. We distribute most of our hardware
products either from our facilities or partner facilities. We strive to reduce costs by simplifying our manufacturing processes through increased
standardization of components across product types and a “build-to-order” manufacturing process in which products generally are built only
after customers have placed firm orders.
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, among other factors, 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 hardware 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 priced as a
percentage of the net hardware systems products fees, 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
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