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Oracle’s $7.4 billion acquisition of Sun Microsystems in 2010 opened a lot of doors for the enterprise applications vendor, giving it a data center hardware business and the popular Java programming language.
In recent weeks, the deal has led Oracle into the courtroom. Soon after buying Sun in 2010, Oracle sued Google, claiming the search giant violated copyright laws when it used some 11,000 lines of Java code in its Android mobile operating system. After six years of litigation, in which Oracle officials said they planned to ask for $9.3 billion in damages, a federal district court jury in San Francisco on May 26 ruled in favor of Google, handing Oracle a stunning defeat. Oracle lawyers indicated they intended to file an appeal of the case, which some industry observers said could end up with the Supreme Court.
Just days after that ruling, Oracle found itself back in court last week as the defendant in a lawsuit that has roots in the Sun acquisition. In this case—which comes out of a legal dispute that also began in 2010—Hewlett Packard Enterprise (HPE) officials are seeking $3 billion in damages resulting from Oracle’s threat in 2011 to discontinue supporting Intel’s Itanium chip platform with its database technologies.
When Oracle inherited Sun’s data center hardware business through the acquisition, it immediately became a competitor to longtime partner Hewlett-Packard. (HP in November 2015 split in two, creating two new companies, including HPE, which sells enterprise IT solutions and services.) Later in the year, Oracle hired Mark Hurd as president after he was forced to resign as HP’s CEO. The move angered HP executives, and eventually, the two companies reached an agreement over the hiring in which Oracle, among other things, agreed to continue to support HP products as it had before the legal dispute over Hurd.
That part of the agreement became the focus of HP’s legal action against Oracle when the software giant in 2011 announced it was no longer going to support Itanium with its enterprise applications, including its database solutions. Intel’s controversial chip architecture powered most of HP’s high-end servers, and HP officials said that about 140,000 customers ran Oracle’s database applications on those Itanium-based systems.
Oracle officials at the time said they made the decision to end Itanium support because they believed Intel and HP—by far the primary customer for Itanium chips—intended to stop developing Itanium sooner than they had said publically. Officials with both HP and Intel denied the claim, saying they had plans to continue developing Itanium through the end of the decade.
HP executives said Oracle’s announcement was a cynical move designed to build up its newly acquired hardware business by forcing customers to have to move off HP systems. In addition, HP officials claimed that Oracle’s promise in the Hurd agreement to continue to support their products constituted a legally binding contract, something that Oracle executives disputed. In 2012, a state court judge sided with HP and ordered Oracle to continue to support HP’s Itanium-based systems. Oracle agreed to do so.
Oracle Back in Court, This Time vs. HPE
However, HP executives said that the damage to its high-end server business had been done. After Oracle announced it was pulling support of Itanium, HP’s Business Critical Systems unit saw revenues in some ensuing quarters drop more at times more than 30 percent, and filed suit against the software vendor, saying they would seek as much as $4 billion. That number is now $3 billion—which includes not only business lost as a result of Oracle’s decision but also future sales that were lost—as the trial gets under way in California Superior Court in San Jose. Opening arguments were held last week, and the trial is expected to take several weeks.
“Oracle needs to be held accountable for its actions, which caused billions of dollars in damages to HP and significant uncertainty for our customers,” HPE officials said in a statement.
In its own statement to USA Today, Oracle called the amount in damages being sought by HPE “astonishing,” noting the “abundant evidence that the RISC and Itanium market had already been in a widely recognized long decline.”
The non-x86 server market has seen a steady decline over the past several years as Intel has increased its dominance in the system chip space with its x86-based Xeon processors. According to IDC analysts, in the first quarter of this year, revenues in the worldwide x86 server space grew 2.6 percent over the same period in 2015, to $10.6 billion, even as the number of units shipped fell 2.9 percent.
The non-x86 server space—which includes RISC, Itanium and ARM systems, as well as mainframes—saw revenues fall 28.7 percent, to $1.8 billion. These servers represent 14.7 percent of all the system revenue in the first quarter, the analysts said.