Oracle Q2 2011 Results Threaten to Revolutionise the High-End Server Business

Last Thursday Oracle announced its Q2 2011 earnings in an ebullient mood, and with good reason given that their revenues grew by an eye-watering 47%, to $8.6bn. Coming not long after industry bellwethers Cisco and Intel issued disappointing results this is a shot in the arm for technology analysts on Wall Street and, indeed, for the whole sector (showing as it does that there is still solid demand for leading edge Enterprise Solutions.)

Sales of new software licenses were also stronger than expected, with a rise of 21%, and the company also crucially cited improving profitability for the Sun Microsystems business it bought for $7.4bn nearly a year ago.

The stand-out aspect of the call however was the significant threats Oracle expressed towards their competitors, both old and new. Firstly, and most conventionally, Oracle President Safra Catz expressed the usual feeling that SAP continues to lose customers to them, citing that Oracle’s comparative licence revenue had grown 23% over the last two years while SAP’s had declined by 14%. More significantly, Larry Ellison definitively targeted HP’s high-end server business, stating that he thought that “…IBM’s hardware and software technology is quite competitive, while HP’s big servers are slow, expensive and have little or no software value add.” Ellison also went on to state that Sun Oracle benchmarks had a proven 30 million transactions per minute but that HP’s “best ever” was only 4 million. IBM was not let off the hook however as it was clearly stated that once Oracle had pushed HP into the number three slot in the high-end server market, “Then we’ll fight it out with IBM for the number one spot.”

Obviously this is extremely bullish in a market where vultures were circling after the Sun acquisition, with industry watchers muttering dark thoughts about the deal being a Java land-grab that would result in Oracle haemorrhaging cash. In fact Oracle already seems to have been very successful with the integration of Sun, not least as it has improved profitability from this part of the business and released not one but three major new product lines over this time period (Exadata, Exalogic and, in the last quarter, Sparc Superclusters). This is quite incredible when we recall fact that the acquisition only completed in January of this year.

The core of this recent success, and a major focus for the future, seems to be Exadata, and it was this technology that gained much attention on the call, not least as the sales pipe has recently doubled to $2Bn. Indeed, this is probably only the beginning as Oracle start to leverage their relationships with their 295,000 licence customers. The boardrooms at HP and even IBM certainly have food for thought over the coming months, particularly as Ellison stated that the primary focus for competition will be in high-end, high margin Online Transaction Processing (OLTP) and Data Warehousing segments “where the margins are good and we can have a highly differentiated product”.

Since the announcement of Oracle’s intention to acquire Sun in April 2009, many of Rocela’s biggest clients had told us that they wouldn’t commit to Sun platforms. Recently, however, they have changed their minds on Exadata as they can now see clear value. This is obviously very exciting for us as this increasing reliance on Oracle in enterprise deployments will require very careful Software Asset Management in order to maximize the value of these significant investments, an area in which Rocela are the global leaders.

Any readers looking for some guidance on what Oracle’s continuing expansion means for their business, or who are concerned that they may not  have optimal use of Oracle technology within their business should get in touch with us, as we’re always glad to share our expertise.


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