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Summary:

Oracle, a leader in enterprise software, still hasn’t solved its hardware problem: It claims big margins on what it sells, but revenue continues to fall.

Oracle Exalogic Exadata

Oracle’s hardware woes continued in its first quarter. For the period ending Aug. 31, Oracle saw server revenue off 14 percent to $669 million compared to $779 million for the same time last year.

One relative bright spot was that revenue on hardware support was actually up 5 percent, because the company requires support contracts on all hardware sold and sells its high-end servers with lots of Oracle software.

As Oracle Co-President Mark Hurd told analysts on the earnings call Wednesday night:

“… we realigned our business so that as we sort of shifted to these very high Oracle content products, we now attach support all the  time. And as a result, the growth of support is not symmetrical with the product growth rate.”

As is their usual practice, Oracle execs on the call  (transcript here) stressed that the margin on the hardware they do sell is good.

But they also sounded a note of caution. “Hardware product revenue could range from negative 9% to positive 1% in constant dollars and negative 11% to negative 1% in reported dollars,” Oracle co-president Safra Catz said.

Oracle Hardware Q4

Oracle’s server revenue has now slipped for several consecutive quarters. For its fourth quarter, ended May 31, it was off 13 percent to $849 million from $977 million year-over-year.

  1. You have to realize that its only been 3 years since the Sun acquisition and it takes that long just to develop new processors and systems based on them. Most of the server revenue was being generated by the M-Series (systems selling for up to $5M each), which have become outdated these last two + years. This year, Oracle finally announced and replaced the M-Series with the new SPARC T5 and SPARC M5 systems that started shipping just a few months ago With a greater than 5x price/performance advantage, its clear that Oracle will have to make up lost revenue with additional volume, which Mark said Oracle is doing. Oracle’s Engineered Systems had a 60% sales growth and Oracle’s SPARC T-Series is growing, and as stated by Mark Hurd during the Earnings Call stated “in sort of Q4-ish timeframe, mid-Q4, we released a new set of M products (SPARC M5) we’re pretty excited about. We’ve got a big installed base that we can move. It takes time to get those products certified and tested in customers’ environments, but that’s what happened in the numbers”. High end systems, with high end revenue, has a much longer sales cycle so expect to see revenue increases in next few quarters. The difficult days I believe are behind Oracle now and they are very competitively positioned against its key competitors. Look at IBM’s falling Power Systems revenue #’s and you’ll see that they are a lot worse than Oracles. Same with HP’s BCS division.

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  2. And by the way, revenue in general has dropped due to what I call “Larry’s Law”. Today, Oracle sells for example a SPARC T5-8 at under $300K list price that is 60% more powerful than the previous highest end M9000-64 that sold at ~$3M. That’s a 60% increase in performance but at one tenth the price. So clearly, revenue is going to drop, but in the end, the customers win with significantly better TCO.

    As another example, on the TPC-H @3TB benchmark, Oracle benchmarked a SPARC T5-4 that achieved 409,721.80 QphH at $3.94 $/QphH while the M9000-64 achieved 386,478.30 QphH at $18.19 $/QphH from two years earlier. That’s a 6% improvement in performance BUT at almost 5x better price/performance! This is significant.

    So while Oracle may be doing higher volumes on the SPARC T5 systems than they did on the M-Series, its clear that it will be challenging to sell 10x more systems just to maintain equal revenues. That’s where the Engineered Systems come in to help grow revenue along with the new SPARC M5 systems.

    And so in summary, Oracle is selling radically lower price/performance systems than just a few years ago. That’s what I call “Larrys Law”. Its kind of like Moores Law but with pricing in the equation.

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  3. High margin and shrinking revenue… Hmmm that seems to sum up the issue, and the solution, right there. People don’t want to be extorted by Oracle’s high prices, when lower-cost alternatives exist.

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  4. And yes I work for Oracle but my comments are all my own.

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  5. May be that I live on a different planet.

    Was the M9000-64 the only server that Sun selled?

    I think that they selled very fews of M9000-64, if you compare against Mx000 lower models and T3/T4

    The entry server of Sun was cheaper than the entry server of Oracle.

    Using this comparative all hardware servers must lost money all the years, and this isn’t the case.

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