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Oracle server hardware revenue drops, Ellison shrugs it off

Oracle server hardware revenue dropped double digits again, but the company doesn’t care. Why?

Oracle reported a strong financial quarter on Tuesday, although its server hardware revenue dropped sharply, an indication that the company is “abandoning some customers,” according to one analyst.

Total revenue was up 3%, while software license revenue was up 7%. But hardware revenue dropped 16%, in part “due to the continued reduction in some of our defocused product lines,” according to Oracle President Safra Catz. Those defocused products mainly include commodity x86 Sun servers. Oracle CEO Lawrence Ellison put it even more bluntly.

“That we just don’t care about,” he said.

Constellation Research analyst Frank Scavo said the move away from commodity x86 definitely means the company is abandoning some customers. But he said Oracle has likely done enough research to know how it will affect their business. And he doesn’t think it will affect other parts of Oracle’s business in the database and application spaces.

“Exchanging hardware platforms is much less of a disruption than migrating a database or application,” Scavo said. “Their database and application business is a lot more sticky than their hardware business.”

What Oracle wants to sell is more “sticky” hardware – namely its Exa- line of products: Exadata, Exalogic, and Exalytics. Oracle President Mark Hurd reported triple-digit growth of Exalogic, a quadrupling of bookings for Exalogic, and the “fastest ramp of any engineered system” Oracle has released in Exalytics.

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According to a recent reader survey, 6% of respondents said they have Exadata or will adopt it in 2012. Only 3% have Exalogic or plan to adopt it in 2012.

Speaking of server appliances, Oracle executives spent some time dismissing SAP HANA, that company’s in-memory appliance. SAP has touted HANA as a competitor to Oracle in in-memory technology, and a future competitor to Oracle Database. Ellison and Hurd scoffed at the notion, with Hurd saying that Oracle’s Exalytics in-memory BI machine is going into a market with little competition.

Yet, some observers aren’t so casually dismissing SAP’s chances in the marketplace.

“If they’re not concerned about SAP HANA, why did they spend so much time talking about it?” Scavo said. “They even came back to it when it wasn’t mentioned. HANA today is not a replacement for Oracle Database, but SAP is trying to move in that direction.”

Then to the cloud. Ellison announced that the Oracle Public Cloud – which Ellison referred to in the call as the Oracle Secure Cloud – will be generally available in the next few months. It includes Fusion Human Capital Management, Fusion Customer Relationship Management, Oracle Database, and Oracle Social Network.

Ellison took other opportunities to knock competitors, saying the multitenancy of isn’t attractive to all. He added that large customers are often “unwilling to accept the security risks inherent in multi-tenant public Internet clouds.”

“It’s clear that Oracle intends to take the security angle as a marketing point,” Scavo commented. “For very large companies there is a greater comfort level with having dedicated resources that they control.”

Scavo, however, said that most vendors’ cloud computing products are more secure than companies’ own data centers. He said most cloud vendors are certified to the highest level of security, and so he doesn’t buy that cloud computing is less secure.

“I argue that it is more secure,” he said.

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