We have limited experience in predicting our quarterly hardware systems products
revenues. 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 and storage 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. 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
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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
$5 millionand $4 millionfor the three months ended August 31, 2013and 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.
Our services business is comprised of the remainder of our operating segments and offers consulting services, managed cloud services and education services. Our services business, which represented 11% of our total revenues on a trailing 4-quarter basis, has lower margins than our software 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 consulting line of business is designed to help our customers more successfully architect and deploy our products. Our consulting services include business and IT strategy alignment, enterprise architecture planning and design, initial product implementation and integration, and ongoing product enhancements and upgrades. The amount of consulting revenues recognized tends to lag the amount of our software and hardware systems products revenues by several quarters since consulting services, if purchased, are typically segmentable from the products to which they relate and are performed after the customer's purchase of the products. Our services revenues as they relate to consulting services are dependent upon general economic conditions and the level of our product revenues, in particular the new software licenses sales of our application products.