This article is more than 1 year old

Oracle defies the economy – and the curse of Sun

Preps four new systems

Declining hardware sales, a rocky global economy, and a tough compare with the prior quarter did not slow down Oracle much in its first quarter of fiscal 2012 ended August 31. But these factors did slow it down a little. However, it was not enough to keep Oracle's profits from rising nicely as the company wrings costs out of the Sun Microsystems business it acquired in early 2010 and benefits from its control over a large expanse of the software landscape.

In the quarter, Oracle's overall sales were up 12 per cent, to $8.37bn, but net income was up 36 per cent, to $1.84bn. Safra Catz, one of the two co-presidents at Oracle, said in a conference call with Wall Street analysts that sales were up across all geographies and general product categories, but later in the call Larry Ellison, Oracle's co-founder and CEO, said that the company's x64-based server business was down, and intentionally so.

If you think Oracle cares about x64 machines over the long haul, apparently you need to think again. "I don't care if our commodity server business goes to zero," Ellison said emphatically. "We don't make any money on it."

Ellison reminded Wall Street again that over the long haul – which means years – Oracle wants to sell "engineered systems" that have a larger portion of Oracle's own intellectual property in them and therefore bring it more profits than peddling a bunch of x64-based machines.

Mark Hurd, Oracle's other co-president and formerly the top exec at rival Hewlett-Packard, said that the Exadata database cluster and Exalogic Web application serving cluster businesses helped Sun's high-end server business (meaning those clusters as well as Sparc Enterprise M series machines that are rebadged Fujitsu gear) grow revenues in the double digits. Hurd said that Oracle had 150 unique customers buying its Exadata or Exalogic products in the quarter, but declined to give a sales figure; he said that of these, 100 of the customers had never bought either of these machines before.

Later in the call, Ellison said that sales of x64 servers were down in the quarter while Exadata/Exalogic sales almost doubled compared to a year ago. Sparc server sales were "up a little," Ellison said. He added that this year would still be one of transition for the Oracle hardware business, with the company focusing on selling clustered systems tuned for Oracle software that had better margins than commodity x64 servers, and that in fiscal 2013, Oracle expected its overall hardware business to begin growing again. "We could be back to our pre-Sun margins quite quickly," Catz said on the call.

But the Sun hardware transition is not over, and hardware systems sales fell by 5 per cent in the quarter, to $1.03bn. However, Oracle chopped operating expenses by 15 per cent, to $472m, in fiscal Q2, which means an extra $35m was there ahead of corporate overhead costs to help push up Oracle's overall profits. The gross margins on hardware rose to 54 per cent, up from 48 per cent in the year-ago period. Hardware support, which includes support for Solaris and Linux as well as for the underlying system hardware, grew by 4 per cent, to $645m, and that means the overall Sun business was down only 1 per cent, to $1.67bn.

Oracle has been hinting that it has system announcements coming up, and Ellison said on the call that indeed the Sparc T4 processor was on deck for next week and so was a new "fault tolerant SuperCluster" based on it. This SuperCluster will feature the Solaris 11 Unix operating system as well as the Exadata storage system (which, incidentally, runs on Linux and x64 servers).

Ellison said that it would be launching four new engineered systems in the next few weeks, culminating in a "big data" system, presumably a Hadoop appliance based on either x64 or Sparc T servers, at the OpenWorld conference in San Francisco in early October. It is not clear what the other two engineered systems will be, but there is some talk about Oracle kicking out an Exadata mini suitable for SMB customers.

Oracle is mostly still a software company, of course, and against a very tough compare the Oracle software business did very well indeed against a tough compare, with sales up 17 per cent, to $5.52bn in fiscal Q2. New software license sales rose by 17 per cent, to $1.5bn, and software license updates and software support grew by the same amount to just over $4bn. Application software sales rose by 23 per cent in the quarter, and were up an astonishing 60 per cent in Europe; database and middleware sales together were up 7 per cent.

The company's services business – which includes professional services, application hosting, consulting, and other stuff – had $1.18bn in revenues in the quarter, up 10 per cent.

Looking ahead to the second quarter of fiscal 2012, co-president Catz said that Oracle expected hardware sales to be flat to down 5 per cent as it works through issues in its supply chain and product transitions. Gross margins are expected to improve on hardware again, however. New software licenses sales are expected to be up between 6 and 16 per cent. Overall revenue should be up between 5 and 9 per cent and earnings per share should fall between 44 and 46 cents. ®

More about

TIP US OFF

Send us news


Other stories you might like