Oracle CEO Larry Ellison said his company will continue to phase out its x86 server business in favor of high-end SPARC systems optimized to run Oracle applications.
When
Oracle executives were positioning the company to buy Sun Microsystems in late
2009, they stressed that the plan was to abandon the low-end commodity server
business, instead focusing on high-end systems bundled with Oracle's own
enterprise software.
During a
conference call Sept. 20 with analysts and journalists to announce fiscal
first-quarter 2012 results, Oracle executives reiterated that point, noting
that while the company's Exadata, Exalogic and high-end SPARC businesses saw
double-digit growth during the period, x86 server revenue continued to tumble.
And according to CEO Larry Ellison, that's fine with him.
"I
don't care if our commodity X86 business goes to zero," Ellison said. "We
don't make any money selling those things. We have no interest in selling other
people's IP. x86 includes Intel IP [and] Microsoft IP. We don't make money
selling that. Sun sold that stuff, and we are phasing out that business. We
have no interest in it whatsoever. We have interest in selling systems that
include our IP. That's how we're going to drive the profitability of our
overall hardware business."
Oracle's
high-end hardware business will reach profitability, and the margins will
continue to grow and eventually will enable the software giant of reach its
goal of getting back to its pre-Sun acquisition profit margins, Ellison said.
In a
quarter in which Oracle saw revenue jump 12 percent, to $8.4 billion, and net
income rise 36 percent, to $1.8 billion, that hardware business-based on the
systems inherited in the $7.4 billion acquisition of Sun-was a lone drag.
However,
both Ellison and co-President Mark Hurd said they are unconcerned with the
falling revenues in the low-margin commodity x86 systems. The company makes
money on the high-end systems-Hurd said gross margins in the hardware business
rose from 48 percent to 54 percent-and that is where the focus will stay.
"We're
not as focused ... on the hardware growth as we are in growing the right things
in the product line," Hurd said, adding that the result has been better
margins and market share growth.
That
focus will be on display at the Oracle OpenWorld 2012 show in San Francisco
Oct. 2-6, when the company will unveil the latest high-end system, which
Ellison called the SPARC SuperCluster. The
SPARC SuperCluster, first discussed by Oracle officials late last year,
will be a highly scalable rack-based system that will run Oracle database
software and other offerings. It will be powered by Oracle's upcoming SPARC T4
processor, an eight-core chip optimized for Oracle software that Ellison said
will be five times faster than the current SPARC T3.
In a
Sept. 20 note, Elizabeth Hedstrom Henlin, an analyst with Technology Business
Research, said Oracle's hardware business "is at a point of inflection."
"Continued
inconsistency in growth and performance may indicate that the Oracle hardware
business is evolving into the stalking horse for growing software sales,"
Henlin wrote. "Though Oracle executives have clearly stated that the path
to corporate profitability lies in 'selling systems that include [Oracle's] IP,'
software remains by far the stronger business and the core of Oracle's growth."
Ellison
has argued that software will continue to be the focus at Oracle, but that
having a hardware unit with systems optimized for Oracle applications will enable
the company to offer bundled solutions and let it compete more directly with
the likes of IBM and Hewlett-Packard.
Oracle
executives earlier this year took another step in boosting their hardware
business when they announced the company will no
longer develop software for Intel's Itanium platform, a move they said was
driven by conversations in which Intel engineers told them the plan was to soon
end Itanium development in favor of the Xeon chips.
Intel
executives quickly disputed Oracle's statements, saying they have a roadmap
that will take Itanium development through at least the end of the decade.
Officials at HP, by far the largest consumer of Itanium chips, accused Oracle
of putting their joint customers at risk in an attempt to hurt HP and bolster
its own SPARC hardware business. HP sued Oracle, saying the company breached an
agreement to support technologies used by their joint customers. The two
vendors share about 140,000 customers.
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