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Summary:

Oracle’s still fighting to recover, recoup and profit from its $7.4 billion buyout of Sun Microsystems three years ago. In its first quarter, Oracle’s overall hardware business was off 24 percent year over year despite “triple-digit growth” in engineered systems like Exadata.

Oracle CEO Larry Ellison

Oracle’s plan to wring software-like profit from its hardware business still hasn’t panned out nearly three years after it bought Sun Microsystems’ server-and-storage business for $7.4 billion. And that’s got to bug CEO Larry Ellison who is a bear on execution and profitability.

Revenue from Oracle hardware systems sales fell 24 percent to $779 million year over year in both GAAP and non-GAAP terms for Oracle’s first quarter ending August 31. It’s hard to put a pretty face on that, but Oracle tried. Co-president Safra Catz said sales of “engineered systems” — the Exadata, Exalogic data center appliances — grew at triple digit rates. That sounds good but not good enough to offset falling sales of bread-and-butter lower end servers and systems.

Make no mistake, the clock is ticking on this hardware situation. Oracle was able to buy and integrate huge software companies like PeopleSoft and Siebel Systems profitably but some analysts wonder if Sun was one purchase too many.

Oracle co-president Mark Hurd, aka “the hardware guy” said he expects growth in Oracle’s overall hardware business in the fourth quarter. “We’re very focused right now because we’ve got hot products … And in the hardware business, if you just think about the products that we’ve released over the course of the past 18 months, Exadata, Exalogic, Exalytics, T4, ZFS, where we release new products, we drive growth,” he said. A transcript of the call is here.

That wait-till-next-quarter (or two or three) message is starting to get worrisome. When the Sun deal happened, Oracle execs said they expected to incorporate that company as profitably as it had other acquisitions. One small problem — Sun was a hardware company and as Oracle is finding out, hardware is not software.

In his research report Nomura Securities’ analyst Rick Sherlund wrote:

The hardware business (which has dragged down overall revenue growth for the company by about 2 percentage points) was down 24% vs expectations of down 14%. The strategic Exa-Series high-performance engineered systems sustained growth of over 100%, but was offset by another sharper-than-expected decline in commodity hardware. We had expected a turnaround in hardware in Q2 (Nov), but this is now likely pushed out to Q3 (Feb) or Q4 (May).

For Oracle’s first quarter the company broke out “cloud revenue” for the first time combining cloud software subscriptions with new software licenses. I’m unclear on how all that computes, but Catz pegged cloud revenue at $222 million. That figure will get more meaningful as quarter by quarter comparisons become available.

But, for a company led by a CEO who used to mock the use of the term “cloud,” Oracle has come a long way. ZDNet’s Larry Dignan points out execs used the term 34 times on the call.

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  1. The lights will go out on the Sun soon.

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