Oracle Begins Expanded Direct Sales Plan For Sun Products

"Incrementally, starting this quarter, we will be more direct," said Oracle president Charles Phillips during the company's third-quarter earnings call Thursday. Noting that Sun relied on the channel for about 65 percent of its revenue, in contrast to Oracle's 40 percent, Phillips said: "We will be shifting that to a more direct strategy, especially among the larger customers."

For the third quarter ended Feb. 28 Oracle reported total revenue of $6.4 billion, up 17 percent from $5.5 billion last year. That includes a little more than one month of revenue from Sun Microsystems, which Oracle acquired Jan. 26.

Excluding Sun, Oracle's revenue grew 7 percent in the quarter. Net income, however, was down 10 percent to $1.2 billion compared to $1.3 billion in last year's third quarter.

At the time of the acquisition Oracle indicated that it would put more emphasis on direct sales to its largest customers. Phillips at the time said the shift applied to some 1,700 big customers while CEO Larry Ellison referred to some 4,000 customers. Thursday Phillips said that for the moment the focus on direct sales applies to the vendor's 1,000 biggest customers.

"We want the partners to find new business and not show up in the same accounts with us all the time," Phillips said on the earnings call. Resellers will "shift away from fulfillment and [instead] expand the market. We're going to direct them into the midmarket and into areas where we don't have good coverage."

Catz also said Oracle has shifted hardware manufacturing to a build-to-order model, even extending that to the company's reseller partners, rather than maintaining inventory of Sun server products.

In another change, Oracle executives said the company is cutting back on selling third-party products that Sun had carried. Ellison cited storage servers from Hitachi Data Systems and Veritas backup software from Symantec. "We don't make any money selling that," Ellison added. "What we make money at is selling our own storage."

Catz said Oracle is currently "winding down" those relationships. But she also said that Oracle has not discontinued any Sun products.

Oracle executives painted a picture of a smooth integration between Sun Microsystems' operations and those of Oracle in the two months since the acquisition.

"We believe the Oracle-Sun acquisition is off to a very strong start," Catz said. "I think we're ahead on all fronts, operationally, both [in terms of] our business practices being adopted, really as of day-one, and just operationally the way we work with our customers has already changed."

Phillips said the Oracle and Sun sales forces have been integrated and sales territories reorganized. Customer data stored in Sun's IT systems have been converted to Oracle's IT systems, he said, and standard sales forecasting and pipeline management processes developed.

For the first time, Oracle's earnings statement included line items for hardware product sales. Hardware systems products generated $273 million in revenue while hardware systems support brought in $458 million in revenue " altogether accounting for 7 percent of Oracle's total sales in the quarter.

New software license sales in the third quarter were up 13 percent to $1.7 billion -- up 10 percent without including Sun. Total software revenue, including product updates and support, was slightly more than $5.0 billion, up 13 percent from $4.4 billion in the same time last year.

In the press release announcing Oracle's earnings results Ellison said the company's new application license sales were up 21 percent and contrasted that with the 15 percent drop in software sales archrival SAP reported for its fourth quarter ended Dec. 31.

"Every quarter we grab huge chunks of market share from SAP," Ellison said in his statement. "But SAP is well ahead of us in the number of CEOs for this year, announcing their third and fourth, while we only had one," he said in a dig at recent changes in SAP's top management ranks.

In the earnings call Ellison said SAP is very dependent on sales of ERP applications, which he said is a mature, slow-growing market, in contrast to Oracle's more diversified application product portfolio.

Ellison put in a plug for Oracle's next-generation Fusion application products that, after years of development, will become generally available later this calendar year. "Were we late with Fusion? Yes," he said. "We did not want to make the mistake of trying to rush this thing out early. I'd rather be late than deliver a product that isn't extremely high quality."