How are Oracle‘s hardware and software businesses performing? Oracle (ORCL) Q1 2012 financial results, released today, provide answers. Software sales were up 17 percent — impressive, given the weak economy –  but hardware sales dipped 1 percent. One potential reason: Oracle de-emphasized commodity x86 servers to more aggressively promote high-end Exadata, Exalogic and SPARC M-Series servers. In fact, Oracle CEO Larry Ellison said he doesn’t care if Sun’s x86 server business goes to zero, according to Baron’s. Dramatic words. Here’s the update.

Oracle President Mark Hurd essentially echoed Ellison’s statement, though Hurd used kinder words. In a prepared statement Hurd said:

“Our high-end server business — Exadata, Exalogic, and SPARC M-Series — delivered solid double digit revenue growth in Q1. In contrast, revenue declined in our low-end server business. By moving away from low-margin commodity hardware and focusing on high-end servers, we increased our hardware gross margins from 48% to 54%. Our strategy to grow the profitable parts of our hardware business is paying off.”

Also of note, Oracle President and CFO Safra Catz said Oracle’s operating margins rose in Q1 — a rather impressive feat considering the state of the hardware market. Oracle’s Sun business certainly sells x86 servers. But generally speaking, Oracle Channel Chief Judson Althoff frequently shifts the server conversation back to Exadata and Exalogic. As Althoff stated back in January 2011:

The idea, going forward, is to certify an ISV base on the Exadata and Exalogic stack and also work more closely with embedded OEMs. “We’re going to give ISVs the power of choice, running optimized on premise or in the cloud. We believe Exadata and Exalogic are the cloud platforms of the future, whether it’s on premise or off premise.”

Hurd and Althoff are expected to offer more partner and customer updates on Sept. 21, during a web event to promote some sort of new database initiative. And it’s a safe bet Oracle OpenWorld (Oct. 2-6, 2011) will include Exadata and Exalogic ISV updates.

Clearly, Oracle has stopped the bleeding within Sun’s business. But can Oracle CEO Larry Ellison transform Sun’s overall server business into a growth business? And just how well are those Exadata and Exalogic servers selling? The VAR Guy will seek more answers at OpenWorld.

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5 Comments on “Oracle Server Strategy: Less x86, More Exalogic & Exadata”

  1. Bill Bickel Says:
    September 21st, 2011 at 12:35 am

    Wow – Let’s drag them all back into the cave with us !
    SPARC will rule, trust us ! Cuz we own it and it is our IP.
    Seriously, I love it now, as these guys are going to lose for sure hunting down this track. It will take some time due to the application and DB lock-in, but the Exa-game will be the end of them over time.

    The world is not that dumb. These guys are smarter than Digital or Prime or Wang, or Sun dinosaurs before them, but they are 10X greedier.

    Good luck as the next wave sweeps them down into the sand.

    BTW – after seeing the VARGuys write-up I read their earnings call transcript and Q&A on seekingalpha.com. Wow, read that.
    http://seekingalpha.com/article/294885-oracle-s-ceo-discusses-q1-2012-results-earnings-call-sep-20-2011-transcript?part=qanda

    Even with all the financial analysts on the call kissing their behinds on the questions, it was fairly shocking. Everyone is afraid of these bullies. Bullies always get their comeuppance.

  2. The VAR Guy Says:
    September 21st, 2011 at 10:30 am

    Bill: The VAR Guy certainly agrees that “growing” the SPARC market will be a challenge for Oracle. Our resident blogger certainly is not suggesting that SPARC-based systems will become the dominant server platform.

    But, The VAR Guy offers these questions: Could SPARC and Sun have survived without Oracle coming along to buy the company? And doesn’t Oracle deserve some credit for stabilizing Sun’s business?
    -TVG

  3. Steve Bell Says:
    October 1st, 2011 at 11:43 pm

    Here’s some ORCL news for you, VAR Guy — from my Twitter stream (I’m the source of this leak from ORCL exec’s):

    StartupTrekTV – Steve Bell

    Larry Ellison of #Oracle to announce ORCL cloud-based ERP, competing with #SAP and #NetSuite this Wed at #OpenWorld: startuptrek.net

  4. The VAR Guy Says:
    October 2nd, 2011 at 6:32 am

    Steve: The VAR Guy appreciates the tip and he’ll check it out…
    -TVG

  5. Steve Bell Says:
    October 2nd, 2011 at 1:05 pm

    np, VAR Guy.

    it’s a *rare day* when i get ahold of tip before you have already published it… so I’m going to bask in Glory for a bit here… :-) )

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