Oracle's hardware business is all about the software

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?

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.