In my continuing obsession with Oracle’s(s orcl) hardware business, I took a peek at the software giant’s second quarter earnings. And the hardware portion wasn’t pretty.
Total hardware system revenue, including support, was unchanged year over year, at $1.3 billion; revenue from hardware products alone was down 3 percent to $714 million year over year. To be fair, Oracle execs warned of this in their first quarter call, in September. At that time, Co-president Safra Catz said that for the second quarter: “Hardware product revenue could range from negative 9 percent to positive 1 percent in constant dollars and negative 11 percent to negative 1 percent in reported dollars.”
Given that context things weren’t so bad. In a statement issued in advance of the earnings call Wednesday, Catz’s Co-president Mark Hurd said the company’s hardware business — including support — actually grew 2 percent in constant currency, a measure that strips out the impact of currency fluctuations on a company’s results. Hurd also cited “double-digit revenue growth” in the various Exa-boxes (Exadata, Exalogic et al.) The SPARC SuperCluster and Oracle’s Big Data Appliance upped the ante, he added, showing “triple-digit growth.”
Still, it’s hard to believe that anyone in Oracle’s executive suite is pleased with these numbers. While Oracle always maintains that it makes good profit on the boxes it does sell, its market share continues to erode. In IDC’s latest numbers — for the second calendar quarter of 2013 — Oracle server revenue was off 16 percent year over year. (Silver lining from Oracle’s point of view, IBM’s number was off 19.4 percent.) What may be most worrisome to all the legacy hardware guys is that the no-name white-box vendors in aggregate saw revenue soar a whopping 45.2 percent. Cisco(s csco) was also up 42.8 percent, but that’s growth off a small (and new) base.
Before the naysayers jump on me for letting IBM off the hook, just remember, IBM has been in the hardware business since Hector was a pup, but Oracle opted to buy into this really tough business by plunking more than $7 billion for Sun Microsystems just a few years ago.
The white box numbers reflect that big web-scale companies are opting more for commodity, inexpensive servers as opposed to high-margin scale up servers (like Oracle’s exa-boxes and HP’s Moonshot servers, etc.) Granted some enterprise workloads that will flow to those scale-up servers, but it’s unclear to me how much of that work there will be going forward.