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Oracle net income rises 18%, but hardware sales slump

Oracle tries to soften the hardware blow, emphasizing the company's focus on specialized systems, not commodity boxes

By Chris Kanaracus
March 20, 2012 07:43 PM ET

IDG News Service - Oracle on Tuesday said third-quarter net income rose 18 percent to $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.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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