Oracle Hardware Sales Continue Decline, New SPARC Servers In The Wings

Oracle will add to that lineup next week when it debuts new high-end servers, including one powered by a new high-performance SPARC microprocessor.

Oracle reported Tuesday that sales in its first fiscal quarter ended Aug. 31 reached $8.37 billion, up 12 percent from $7.50 billion in the same period one year ago. Net income for the quarter was $1.84 billion, up 36 percent from $1.35 billion one year earlier.

Oracle became a hardware vendor when it acquired Sun Microsystems in January 2010. Since then its hardware sales have been declining. Hardware systems sales in the just-completed quarter were $1.03 billion, down 5 percent from $1.08 billion one year ago. Revenue from hardware systems support was $645 million, up 4 percent from $619 million.

"In Q1 the transition away from selling low-margin commodity servers to selling high-margin engineered systems increased both the gross margins and the overall profitability of our hardware business," said CEO Larry Ellison in a conference call with financial analysts. "In Q2 we will accelerate that trend."

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Those high-margin products include Oracle's Exadata and Exalogic servers and high-end SPARC servers. "We had growth in the core SPARC product line," said Co-President Mark Hurd on the earnings call. He noted that hardware gross margins in the quarter increased to 54 percent from 48 percent in last year's first quarter, a number he said Oracle focuses on more than changes in hardware sales.

"I don't care if our commodity x86 [server] business goes to zero," Ellison said. "We don't make any money selling those things. Sun sold that stuff and we are phasing out that business."

Oracle will expand its line of high-end servers next week with four new high-end systems, including the new SPARC SuperCluster server, based on the new SPARC T4 microprocessor, Ellison said. The T4, which replaces the older T3 microprocessor, is up to five times faster than its predecessor, according to Oracle. The new systems are also expected to get a boost from the upcoming Solaris 11, a new release of the Unix-based operating system.

On the software side of the business, Oracle reported double-digit growth in first-quarter software sales. Software revenue overall was $5.52 billion, up 17 percent from $4.74 billion in the same period one year ago. New software license sales in the quarter were $1.50 billion while revenue from software license updates and product support was $4.02 billion, both up 17 percent from one year earlier.

Revenue from database and middleware products was $3.78 billion in the quarter, up 16 percent from a year earlier. Revenue from applications was $1.74 billion in the quarter, up 17 percent from one year ago.

For the current quarter Oracle is projecting that revenue will grow between 5 percent and 9 percent, said Co-President Safra Catz on the earnings call. She said new software license sales should increase between 6 percent and 16 percent while hardware sales will be flat-to-down by 5 percent.