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Oracle net income rises 18 percent, but hardware sales slump

Added on Mar 21, 2012 by Chris Kanaracus

Oracle on Tuesday said third-quarter net income rose 18 percent to US$2.5 billion, while revenues grew 3 percent to $9 billion. However, hardware systems revenues sagged 16 percent to $869 million.

New software license revenues, which are considered a key indicator of IT executives' current attitudes toward new projects and spending, jumped 7 percent to $2.4 billion.

Earlier in the year, Oracle had posted second-quarter results that showed only 2 percent growth in new software license revenue. That was viewed by market watchers as a harbinger of possible bad news for the vendor.

"It's clear from these [third-quarter] numbers that Q2 was an aberration," co-president Safra Catz said during a conference call on Tuesday. "We feel good about all of our product lines."

Oracle sought to place the third-quarter hardware results into a certain context, as officials have repeatedly stated the company has no interest in competing in the commodity hardware market, and instead is focusing on specialized systems like the Exadata database machine, which provide higher profit margins.

"This past quarter Oracle delivered the hardware and software for our new extreme-performance Exalytics In-Memory Machine," Oracle CEO, Larry Ellison said in a statement. "At the core of Exalytics is our new in-memory database technology capable of instantaneous big data analysis; questions are answered at the speed of thought."

"And unlike SAP's HANA in-memory appliance, Exalytics runs your existing applications," Ellison claimed.

"Hardware revenue for our engineered systems grew 139 percent this quarter and going into Q4, we have a record pipeline," Oracle co-president Mark Hurd said in a statement.

Oracle's fourth-quarter hardware revenue should total between $870 million and $980 million, Catz said on the call.

"Next fiscal year, our hardware business will be a growth story," Ellison said during the call. "We're pretty confident."

Oracle is also hoping its recently launched next-generation Fusion Applications will help it take market share from competitors like SAP over time.

Oracle's Public Cloud, which was announced at the OpenWorld conference in October, will be available in the fourth quarter, Ellison said. The offering will include Fusion Applications, cloud versions of Oracle's database and WebLogic application server, and the Oracle Social Network.

"We feel we've addressed our customers' most serious concern about cloud computing: Security," Ellison said. "Salesforce.com does not provide this level of security in their cloud."

When Oracle executives began discussing the company's Fusion Applications product, they launched into Oracle's time-honored tradition of bashing rival SAP.

Oracle's plans to offer Fusion Applications from the cloud as well as in on-premises form will prove to be another advantage for the company on top of its security capability, Ellison said. "As the cloud grows in popularity, we thank God we sit here with complete ERP [enterprise resource planning] applications written for the cloud and SAP has yet to start," Ellison said.

"Applications sold to big businesses are the bulk of SAP's revenue," he added. "If you're a large customer that wants to run financial applications in the cloud, SAP can't help you. It will take years for SAP to catch up."

SAP has taken a different approach to selling SaaS (software as a service), delivering cloud-based ERP suites such as Business ByDesign for smaller companies as well as divisions of large enterprises and focusing on specialized add-on cloud applications for large enterprises now running its on-premises Business Suite.

"We welcome the chance to compete in the market on Fusion as Oracle customers face costly migrations," SAP spokesman Jim Dever said in an interview after Oracle's conference call.

Ellison also heaped scorn on SAP's HANA in-memory database platform, for which SAP has reported rapid sales growth since its release last year.

"I don't think SAP is equipped to compete with us in the database business," Ellison said. "This is our core competency, database management."

In addition, Oracle's Exalytics appliance incorporates the TimesTen in-memory database, which Oracle has been working on for quite some time, Ellison added.

"We've been working on in-memory technology for a decade," he said. "They just brought this out of the lab."

So far, HANA has been aimed primarily at analytic workloads, but SAP plans to make it support transactional applications as well. The vendor has said HANA will run core modules of the Business Suite by the end of this year. That move could pave the way for SAP to replace Oracle's database, which now supports many Business Suite implementations.

Ellison was sharply skeptical of those plans. "I know on their roadmap they say it will compete with the Oracle database," he said. "They'll never make it that far down the road. It will never even begin to compete with the Oracle database."

Nor is Oracle seeing any competition from HANA these days among the customers it's talking to, Hurd claimed.

"We've been looking out in the market, we see all the rhetoric and the noise," he said. "I don't want to make it seem like we're in denial. I just can't find them."

Hurd's comments should be placed in the proper context, said analyst Curt Monash of Monash Research. For one thing, SAP isn't trumpeting HANA as having replaced Oracle yet, he said. In addition, Oracle may not be talking to SAP loyalists. "I don't think Oracle [analytics] is heavily marketed to those highly loyal SAP users that would be early HANA adopters," Monash said.

SAP spokesman Dever also downplayed Ellison and Hurd's comments.

"Oracle says it sees no threat from SAP HANA, yet spent nearly 10 minutes of a 45-minute conference call talking about it," he said. "In this case, actions speak louder than words."


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