There is no doubt that Oracle is a formidable force in the industry, and the company delivered credible top-line results in Q1 of FY 2014, with overall revenue up 2% year-over-year, at the lower end of guidance, but set against a negative foreign exchange climate. Bottom-line results were also healthy, beating non-GAAP earnings per share estimates and up 12% year-over-year. The company’s traditionally strong software business operations delivered sufficient growth to keep the company on a positive tack. The hardware business is a different story, and has paralleled the lackluster performance of Oracle Team USA in the early races of America’s Cup, which kept CEO Larry Ellison away from the September 18 earnings call as well as parts of Oracle OpenWorld.
While Oracle president Mark Hurd continued to tout the strong unit growth of engineered systems, claiming nearly 800 shipments in the quarter, hardware business revenue was down 14% year-over-year, 13% in constant currency. In line with Oracle’s business strategy, hardware support revenue was up 5%, 3% in constant currency. In the Q &A section of the earnings call, Hurd further clarified, “It doesn’t look right that hardware support is growing now 5%. I might add our margins have improved dramatically with the growth rate. But it is because that we now have high Oracle content products, and we are attaching support to those products regularly when we sell them. Once we start growing the top line in hardware, that will even be a further catalyst to our hardware support.”
This is a marked change in the hubris expressed by Oracle executives who have regularly made claims, and consistently failed to deliver results, that show the hardware business will return to growth in a predictable time frame. Perhaps Oracle Team USA’s disappointing early performance in the America’s Cup has delivered a much-needed dose of reality to Oracle’s executives that the current IT market is more complex and challenging than they may have previously imagined. It remains to be seen whether Oracle’s hardware business can produce the kind of turnaround that Oracle Team USA has delivered to the America’s Cup.
Oracle continues to be the most vulnerable server and virtualization vendor
With 20% of study respondents that are Oracle customers actively considering switching vendors, and a further 27% possibly considering a change, the likelihood of Oracle returning to overall hardware business growth remains a challenge. If hardware growth remains elusive for Oracle, then a significant contribution from hardware support revenue will also be limited.
By contrast, vulnerability for Cisco remains very low, and despite all the public drama surrounding the privatization of Dell, the company remains the next least vulnerable in the server and virtualization arena.
Anecdotal commentary illustrates the mostly negative sentiments expressed by TheInfoPro respondent community about Oracle’s products and business strategy:
- “I don’t really like Oracle as a company. A little slimy. They do produce a good product. A lot of it [the slimy factor] is business support, practically forcing everyone to buy their support, not through third parties, and [then] charging an arm and a leg for it [support]. It’d be hard for us to switch from Oracle hardware, a lot invested.” – LE, Public Sector
- “Would like to see a switch for small-medium workloads to x86 and Linux, which have lower entry and maintenance costs. Also, I don’t like Oracle’s business model.” – LE, Telecom/Technology
- “Oracle is a database company. They did not have a clue in making a turnkey solution. They have created a lot of anxiety around here. Now that they are going down the x86 path, we feel a bit better since it is more of a commodity item. Oracle’s ‘shop’ is still in ‘churn.’ They are still trying to integrate the Sun purchase, it is still haunting them. Oracle still has the attitude of ‘we are Oracle, take it or leave it!’” – LE, Industrial/Manufacturing
- “They’re in trouble. Oracle, as a whole, they’re among the most innovative companies, but it’s very, very difficult to do business with them. They don’t care about the customer and aren’t good at listening. They profess to wanting to be an Apple – a completely closed environment – and that’s a major concern to us. The desire to push the engineered solution is having a negative impact.” – LE, Telecom/Technology