Oracle 2015 Annual Report Download - page 46

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 certain 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 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 products. 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 products revenues, cost of hardware products and hardware operating margins that we report are affected by our strategy for and the competitive
position of our hardware 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 products segment have been and will be affected by the amortization of
intangible assets.
Our quarterly hardware 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 products revenues, expenses and operating margins that we
report.
Hardware Support: Our hardware 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 support contract arrangements are priced as a percentage of the net hardware 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 support processes that are intended to proactively identify and solve
quality issues and to increase the amount of new and renewed hardware support contracts sold in connection with the sales of our hardware products. Our hardware
support revenues that we report are influenced by a number of factors, including the volume of purchases of hardware products, the pricing and mix of hardware
products purchased, whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale, the percentage
of our hardware 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 infrastructure to newly developed technologies that are available.
Our hardware support margins have been and will be affected by certain of our acquisitions and related accounting, including fair value adjustments relating to
hardware support obligations assumed and by the amortization of intangible assets, both of which are discussed further below under “Supplemental Disclosure
Related to Certain Charges.”
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