Oracle's hardware business is all about the software

Oracle's hardware business is all about the software

Summary: Oracle's hardware business fell short of expectations in the fourth quarter and executives had a parade of answers to allay any concerns. Do you buy them?

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Oracle's hardware business fell short of expectations in the fourth quarter and executives had a parade of answers to allay any concerns.

In an otherwise strong quarter, Oracle's hardware business delivered revenue of $1.2 billion, down 6 percent from a year ago. Analysts were expecting anywhere from $1.29 billion to $1.35 billion. For lesser companies, these hardware worries would have been a big deal. Bluster aside, Oracle's explanations almost sound plausible, but future quarters will tell the tale.

Let's look at the top reasons why Oracle's hardware revenue wasn't up to snuff and the explanations behind the shortfall.

The we're "more profit aware" answer. Safra Catz, Oracle president and CFO, said that the company is running Sun's business in a way that makes sense. Catz said:

Compared to Q4 a year ago, we have made a big move away from selling products at a loss or reselling other companies' products. Rather, we are focused on selling value-added systems, where Sun's differentiation is very clear to our customers. For example, non-Sun storage was down significantly; Sun storage in tape grew very well. And of course, Exadata and Exalogic continue to show fantastic growth.

Oracle's hardware growth will become obvious later this year, said Catz. We'll be waiting.

Our complete lineup isn't out yet. Oracle CEO Larry Ellison said that the company will unveil a bevy of Exadata appliances at its Oracle OpenWorld powwow in the fall. That'll get growth going.

Exadata and Exalogic hardware revolves around the attach rate. Oracle president Mark Hurd said that the attach rate---extras such as software, services and maintenance---is promising for the company's hardware business. Hurd wasn't going to cough up a lot of detail, but that didn't stop Ellison from talking. Ellison said the attach rate for Exalogic and Exadata is 100 percent.

The best database combination you can buy is the Oracle database running on the Exadata machine. So we actually sell more database software because of Exadata. We sell more middleware software because of Exalogic. It's a virtuous circle that we plan to fully exploit this current fiscal year.

The "why sweat hardware now because we're riding big data wave" answer. Ellison said:

There's a lot of misunderstanding about what Hadoop is and is it a replacement for a database? So, Hadoop is not a replacement for a database. It's an adjunct to the database, which we think is very, very important. It really is a tool for Java programmers. And we're the world leader in Java technology, and we are building a big data accelerator to attach to our Exalogic box, which comes out also this fall.

One analyst quipped that he can't wait for the "Exadoop" box later this year.

The stay tuned answer. Oracle executives said they are ramping salespeople to sell more hardware and that it'll take time to move Sun from a valueless revenue model. Catz referred to Hurd and said:

We have Mark here. It's not like he doesn't know how to sell hardware. He'd probably sell $100 million of hardware in an afternoon here, and maybe folks would be happier, but we just would make less money. I just don't think that would really make anyone happy. We'd like to do it the better way.

Topics: Hardware, Oracle, Software

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  • RE: Oracle's hardware business is all about the software

    Oracle raises the bar on bull**** with each earnings call. Imagine McDonalds explaining 'we want to sell fewer burgers but to higher margin customers. We want to do it right and get the attach rate of fried, milkshakes and apple pies'.
    It's time to start asking the HARD questions about Oracle's application strategy...imagine your car maker announced a strategy of 'coexistence' for your car's engine and fuel cell...and they just want you to run and license both.

    Just ridiculous...if this was Microsoft or SAP, they would be publicly executed.
    Is it 1975 again? No...and Oracle's position that commodity hardware is 'meaningless low margin' is their undoing. Mark my words: Linux Private Cloud on Intel boxes. 'Big Iron 2.0' and 'Fusion Coexistence' may well be on Oracle's tombstone.
    aidensteel@...
    • RE: Oracle's hardware business is all about the software

      @aidensteel@...

      That's what my take on it is... Oracle is a great database server, sparcs are great hardware. But sparcs can do a lot more than just Oracle and Java. They've effectively taken sparc servers out of other niche markets where they've had great penetration. I suppose the people who want sparcs will just buy Fujitsu if they don't want to pay the Oracle tax.
      snoop0x7b
      • RE: Oracle's hardware business is all about the software

        @snoop0x7b

        "Great penetration?" Sun had 33% of the hardware server market back in 2000, basically only on Sparc... Now Oracle/Sun is in single digit hardware revenue market share for their entire hardware line... The Sparc/Itanium market share has been shrinking dramatically over the last decade and was in major decline BEFORE Oracle bought Sun at a bargain basement price.

        The mid-range market(Sparc, Itanium, Power) is going the way of the mainframe market, where there will only be one left standing... and the survivor there appears to be Power. Everything else will eventually move to x86.
        scotth_z
      • RE: Oracle's hardware business is all about the software

        @scotth_z below,

        "...and the survivor there appears to be Power. Everything else will eventually move to x86...."

        Don't forget that IBM has officially said that AIX will be killed:
        http://news.cnet.com/2100-1001-982512.html

        Earlier, the IBM POWER6 cpu was much faster than x86, and POWER6 servers costed 5-10x more.

        Today, the new POWER7 is only 10% faster than x86 and costs 3x more:
        http://www.anandtech.com/show/4285/westmereex-intels-flagship-benchmarked

        The next year, Intel IvyBridge will be 40% faster than today.

        We see that x86 is getting faster, and getting better RAS. This means that soon the x86 will be faster than IBM POWER. Which means IBM has to lower price of future POWER to cost only 1-2x more than x86. Then there is no reason to buy POWER. POWER is no high margin business any more. So why would IBM loose money on POWER? That is the time IBM will kill off POWER and AIX.

        AIX only runs on POWER. If POWER is slower than x86, there is no reason to sell POWER. Better to use commodity cheap and fast x86. And then IBM will kill of POWER. And also, kill off AIX. Just as IBM has officially stated above.


        But Solaris runs excellent on x86. And it is open sourced (Open Indiana), so it can not be killed by Oracle. Even if SPARC is killed, Solaris on x86 will live.
        Orvar
      • RE: Oracle's hardware business is all about the software

        @Orvar

        1st off... this article and comments were about HARDWARE... not OS's.
        2nd off... the cnet article you cited says that steve mills expects that Linux will become the dominant nix down the road back in 2003. There is nothing in the article that says that IBM will withdraw AIX. Power has passed Sparc a long time ago in market share... and AIX passed Solaris as the leader among the traditional nix systems in revenue. Linux has expanded mostly on Solaris's market share. It appears that IBM not you, knows/knew where the nix market is going.

        Also, you don't seem to have a clue on how PROFITS are generated within these companies...
        PROFITS in the market are being generated by SOFTWARE(read middleware), SERVICES and CONSULTING followed by HARDWARE... Operating Systems are a COST Center... and have traditionally been used to drive hardware sales.

        IBM understood this over a decade ago. They also understood that margins would vanish on the lower end of the hardware spectrum(read x86) and that the x64 market would be erroded by x86. IBM has positioned their x64 to survive(key word SURVIVE, not thrive)... because they know that eventually the x64 marketplace will de-evolve into one surviving hardware vendor, and the rest becoming novelty items. They went through this with the mainframe market, so they know exactly where it will go. IBM mainframes survived and are still making boatloads of money for IBM. The rest of the mainframe manufacturers have disappeared or have a market share that makes them more of a novelty, rather than a niche(Bull and Unisys still make mainframes, HP still runs Tandem, but on Itanium,x86). The same thing will happen to the traditional UNIX market.

        Even then, where do you think Solaris will be in 10 years time. Linux and Windows Server are increasing their presence in the enterprise environment. Since Oracle's x86 are not tied to Solaris, and Solaris doesn't have enough market share to stand alone and make a significant profit for Oracle, how much money do you think Oracle will invest in Solaris, long term or will Solaris go the way of Tandem?
        scotth_z
  • RE: Oracle's hardware business is all about the software

    Oracle sucks! Everything they touch is tainted. Avoid them at all costs!
    timspublic1@...
  • RE: Oracle's hardware business is all about the software

    Oracle has the worst technical support of any software vendor I have ever worked with. It takes weeks and months to get resolution to any technical issue. I will never ever buy another Oracle product again!!!!
    CowboyJake
  • RE: Oracle's hardware business is all about the software

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  • RE: Oracle's hardware business is all about the software

    yea, hardware sales are pretty bad thus proving that in an era of cloud computing customers no longer need their own servers so buying Sun is proving to be a huge miscalculation. But facts never bothered Larry. Thanks!
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  • RE: Oracle's hardware business is all about the software

    The figures Oracle just released show hardware sales are pretty bad thus proving that in an era of cloud computing customers no longer need their own servers so buying Sun is proving to be a huge miscalculation. But facts never bothered Larry. Thanks for sharing !
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  • RE: Oracle's hardware business is all about the software

    Microsoft is still on the top in the software business. Oracle is running in the software market competition. Well,Competition is every where,from <a href="http://www.cityapartment.ca">apartment for rent</a> to the market in <a href="http://www.findtorontohome.com">Toronto homes for sale</a>. It hasn't been easy for Microsoft too but they are still where they are right now. I think Oracle should evaluate their products. As a consumer, I do that all the time like how I always check <a href="http://www.onlinehomereports.com">how much is my house worth</a> so by the time I sell my house I will know how to market it and the price to sell it.
    francessam
  • RE: Oracle's hardware business is all about the software

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    martyi
  • RE: Oracle's hardware business is all about the software

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