Oracle earnings hurt by falling hardware sales

Oracle's earnings have been subdued by a sharp fall in hardware sales and lacklustre growth in revenue, though the company has high hopes for its hardware business in the future
Written by Jack Clark, Contributor on

Oracle's earnings have been hit by a contraction in hardware sales and sluggish growth in overall revenue.

The California-based company reported its earnings for the second quarter of its 2012 fiscal year on Tuesday.

Oracle generated $2.2bn (£1.4bn) in net income, up 22 percent on the previous quarter's $1.8bn, and 17 percent compared to the year's previous quarter. Revenue growth was tepid, with the company reporting $8.8bn, up two percent on the previous year's quarter, and up around 4.7 percent on the last quarter.

Hardware sales took a big hit, contracting by 7.4 percent on the previous quarter and 14 percent year-on-year with revenues of $953m. Chief executive Larry Ellison was plucky about Oracle's prospects.

"Sales of our engineered systems accelerated in Q2," Ellison said in a statement. "Exadata growth was well over 100 percent compared to last year, and Exalogic grew more than 100 percent on a sequential basis. We shipped our first SPARC SuperCluster in Q2 and expect to begin deliveries of our Exalytics system and the Oracle Big Data Appliance in Q3."

Since Oracle bought Sun Microsystems in early 2010 the company has been attempting to grow its hardware business. The company's tactic relies on the success of its engineered systems — appliances like Exadata and Exalogic that see the company developing its hardware and software to work well together. This growth is yet to materialise — poor hardware sales dampened the company's previous quarter's earnings.

"We went through a microprocessor transition," Ellison said on a conference call discussing the results. "Some people were looking at buying [Sparc] T3 [processors], delayed and qualified T4 and are buying T4. I think that hurt us a bit, and that definitely hurt us a bit in Q2."

Oracle launched its first range of Sparc SuperCluster T4 servers in September.

"We think the hardware business could turn around and show growth as soon as Q4," Ellison said. "I think I'm very confident that we'll show double-digit growth next year because we have all of these new products out."

Slow growth

During the preceding quarter Oracle launched a number of engineered systems, including the Oracle Exalytics appliance; a revamped version of Exadata called the Oracle Database Appliance; and the Oracle Big Data Appliance.

The company's bread-and-butter software products, such as Oracle Database, the Fusion suite of applications, and Solaris operating system, fared little better. New software licence revenues grew at two percent, year-on-year, to $2bn, and software licence updates and support grew nine percent to $4bn.

The slow growth in new revenues was due to "an increase in last-minute additional approvals required for previously-scheduled and expected deals," Safra Catz, the company's chief financial officer, said on the conference call.

No mention was made on the call of Oracle's new product category the Oracle Public Cloud, which was announced at Oracle OpenWorld in October. Oracle Public Cloud sees the company enter into competition with cloud stalwarts like Google, Microsoft and Amazon Web Services.

Oracle's chief rival SAP showed equally tepid numbers in its recent earnings statements. SAP's third-quarter revenues of €3.4bn (£2.8bn) were up around three percent on the previous quarter's €3.3bn.

Oracle's other main rival, Salesforce.com, had better growth, with third-quarter results on 17 November that showed revenues of $584m, up 6.9 percent on the previous quarter.

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