Oracle(s orcl) execs love to talk about their aspirations for the company’s server business. Only they shy away from the “s word”– they prefer to use the term “engineered systems” to describe the honking big Exadatas, Exalogics, Exa-whatevers stuffed with CPUs, storage, Infiniband connectivity, oh, and lots of Oracle software. (The Register reports on the latest “exa-box” here.)
On the company’s second quarter earnings call in December, Oracle CEO Larry Ellison said Oracle’s $7.4 billion acquisition of Sun Microsystems made it “a leader in the highly profitable Engineered Systems segment of the hardware business.” In his view, that’s a better, more lucrative place to be than in “low-margin undifferentiated products like commodity X86 servers.” Leave that race to the bottom to the Dells of the world, he seems to say. (In fact at one point during Oracle’s Sun acquisition, he actually did say that.)
Here’s the problem, since it entered the hardware business, Oracle hasn’t sold enough engineered systems to make up for lost sales of lower-end machines, according to third-party researchers. Its hardware revenue and unit share is headed south.
For the fourth calendar quarter of 2012, Oracle server revenue was down 18 percent year over year according to both Gartner(s it) and IDC. Meanwhile, as GigaOM’s Jordan Novet reported last week, the “other” server vendors — companies like Quanta and Wistron — saw their aggregate revenue rise nearly 22 percent in the fourth quarter compared to the year-ago period.
In units, the “other” category saw 35 percent growth. These are the types of servers that sell into huge web-scale data centers run by Facebook(s fb) and Amazon(s amzn). This is not a new thing: In the third quarter of 2012, Gartner numbers showed Oracle’s server revenue off 22.5 percent while “other” servers revenue was up 27 percent. Oracle’s own figures reinforce this narrative. In its third quarter, ending in November 30, 2012, Oracle hardware systems revenue fell 23 percent to $734 million from $953 million for the year-ago period.
The IDC findings are below. Obviously, Oracle sees huge potential in these high-end boxes — Nomura Securities’ analyst Rick Sherlund said “the Exaseries of servers are growing about 100 percent, but that has not been enough to offset the loss of the other business yet.” The question is how patient Oracle is prepared to be.
I’ve reached out for comment and will update this if one is forthcoming. Update: An Oracle spokeswoman declined to comment, citing the company’s quiet period before its next earnings report. Here’s the thing, while Oracle regroups and repositions its server business, the trajectory for “other” servers is way up and Oracle keeps heading in the other direction. It’ll be interesting to see if there’s any indication of a change on Oracle’s third quarter earnings call March 20.
This story was updated at 9:40 a.m. PDT with a statement from Oracle.