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June 19, 2012

Oracle grows despite hardware division slump

Sun Microsystems integration not going too well at Ellison's firm, as hardware revenue continues to dive

By Steve Evans

Oracle has rush-released its latest financial results and, for the most part, they are stronger than expected. While revenue and profit both climbed the company’s hardware business continued to struggle.

For the forth quarter of fiscal 2012 Oracle recorded revenue of $10.9bn, up 1% from $10.7bn a year ago. The company said the strong dollar hurt revenue outside the US; if that had not been the case revenue would have seen a 5% rise.

New software license revenue surged 7% to $4bn while software license updates and product support also climbed, rising 5% to $4.1bn.

However, there was bad news for the Redwood Shores, California-based firm. Its hardware division, acquired when it bought Sun Microsystems for $5.6bn, continues to struggle.

Revenue from its hardware systems products dropped 16% to $977m, while hardware systems support revenue fell 11% to $600m. In total its hardware division pulled in revenue of just under $1.6bn, a 14% decline from the same quarter a year previously.

Speaking to CBR recently, Oracle president Mark Hurd, said the company is still expecting big things from its hardware division.

"You’ve got some currency effects in there," he told CBR. Inside the hardware business there are several factors at play. There were businesses that Sun did that were OEM’ed from third parties, and some of those we began to phase out, such as storage. So that revenue was on the decline. But our Engineered Systems lines are growing, from zero to relatively big numbers."

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In statement, Hurd expanded on that point about Oracle Engineered Systems, its preconfigured hardware and software platform.

"Our engineered systems business is now operating at well over a billion dollar revenue run rate," he said. "For the year, the Exadata, Exalogic, Exalytics, SPARC SuperCluster and the Oracle Big Data Appliance product group grew over 100% year-over-year."

Net income was also up, rising 8% from $3.2bn a year ago to $3.5bn this time.

For its full fiscal year total revenue climbed 4% to $37.1bn, new software license revenues were up 7% to $9.9bn and software license updates and product support revenues were up 10% to $16.2bn. For the year hardware systems products dropped 13% to $3.8bn and hardware systems support fell 3% to $2.5bn. Total revenue from the hardware division for the year was $6.3bn, down 9% on the year before.

In a statement Ellison said the company was banking on its new cloud platform to increase revenues over the next few quarters. "The development of Oracle Cloud is strategic to increasing the size and profitability of Oracle’s software business. "Our Oracle Cloud SaaS business is nearly at a billion dollar revenue run rate, the same size as our engineered systems hardware business. The combination of engineered systems and the Oracle Cloud will drive Oracle’s growth in FY 2013."

Oracle is somewhat of a latercomer to the cloud space. In fact, Ellison spent years dismissing it before embarking on his U-turn by acquiring companies such as RightNow Technologies, Taleo, Vitrue and Collective Intellect. The company recently announced a total revamp of its cloud strategy, including the re-engineering of more than 100 of its applications to make the cloud-ready.

Stay tuned to CBR for an upcoming in-depth look at Oracle and whether Mark Hurd can help Larry Ellison reinvent itself for the cloud era.

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