Oracle Corp. presented an upbeat report regarding the Oracle-Sun merger during its fourth-quarter earnings call last week, but a deeper look at the results reveals that not
“With customers, it’s what have you done for me lately,” said Tom Becchetti, a Unix and storage engineer at a large manufacturing firm in the Midwest. “The competition keeps coming up with newer and better technology.”
As a prime example, Oracle President Safra Catz said during an earnings call that “Sun hardware systems revenue came in well” at $1.2 billion for the quarter that ended May 31, the first full one since Oracle acquired Sun. While that number is higher than it was in Sun’s last quarterly earnings report, it grew only by a small amount. In addition, Sun’s hardware revenues were at an all-time low in its last standalone quarter. At its peak, Sun regularly posted quarterly hardware revenues of more than $2 billion.
Becchetti said that confidence in Sun products has eroded over the last 18 months and that Oracle has a lot of work to do if it expects to regain the confidence of IT buyers. He added that the roadmaps Oracle has divulged for Sparc and Solaris since the Oracle-Sun merger haven’t been good enough.
“The announcement was vague and not very helpful,” Becchetti said, regarding a recent Solaris roadmap. “So yeah, I’m not seeing anything ground-shaking there.”
When Oracle completed its acquisition of Sun in January, CEO Larry Ellison said he expected Sun to turn a profit in its first full quarter under Oracle. That vow came after multiple quarters of Sun running in the red, and it raised eyebrows.
“To make them profitable, that seemed like a crazy statement to me,” Scott Myers, senior systems administrator for Tucson Electric Power Co., said last week.
Oracle did manage to keep its promise: Catz said that Sun contributed $400 million to operating income in the fourth quarter. And Oracle isn’t just eliminating jobs at Sun. Later in the call, Oracle President Charles Phillips said the company’s announcement at the time of the Oracle-Sun merger earlier this year that it was hiring new workers caught a lot of people’s attention. And Ellison said Oracle plans to more than double the Sun sales force.
But the company is doing a lot of cutting as well. In March, Oracle filed a report with the federal government detailing a $325 million restructuring plan related to the Oracle-Sun merger, with a large chunk of the cost being for employee severance packages. Oracle then amended the restructuring plan earlier this month, saying the tab could rise by as much as $825 million, with up to $650 million of that being for severance costs.
So while Sun may now be profitable, it’s unclear how pared down the organization is.
Despite these difficult merger bumps, Becchetti said Oracle still has a chance to turn Sun around if it focuses on improving the quality of Sun’s systems.
“I’ve seen it happen before,” he said. “EMC storage subsystems used to be kind of crappy. They had a lot of failures. But then there was a big quality push, and that’s really what gave EMC a boost in the storage world. It’s too bad, but the industry seems to be getting away from that [emphasis on] quality just to drive better revenue.”
Mark Fontecchio can be reached at email@example.com.