Income up, hardware sales down at Oracle

Oracle Corp.’s net income for the second quarter ended Nov. 30 rose 17 per cent to $2.2 billion, with software sales rising but hardware-related revenue falling, the company reported Tuesday. Revenue for the quarter rose two per cent to $8.8 billion (all figures U.S.).

New software licence revenues, which are considered a key indicator of growth and customers’ buying attitudes, were up two per cent to $2 billion. Software licence updates and product support rose nine per cent to $4 billion. Hardware systems products revenues dropped 14 per cent to $953 million.

Oracle has de-emphasized commodity hardware in favor of specialized systems like its Exadata database machine, which combine Oracle’s software with servers and other components. It believes that strategy will ultimately be more profitable.

“Sales of our engineered systems accelerated in Q2,” Oracle CEO Larry Ellison said in a statement. “Exadata growth was well over 100 per cent compared to last year, and Exalogic grew more than 100 per cent on a sequential basis. We shipped our first SPARC SuperCluster in Q2 and expect to begin deliveries of our Exalytics system and the Oracle Big Data Appliance in Q3.”

Oracle has also expanded its sales force by more than 1,700 in the first half of the fiscal year, co-president Mark Hurd said in a statement. “We believe that this increase in our field organization combined with innovative new products like Fusion Cloud ERP and Cloud CRM will enable solid organic growth in the second half of this year.”

Hardware sales in the quarter were affected by a transition to systems based on SPARC T4 chips, which were launched in the quarter, co-president Safra Catz said during a conference call Tuesday. Customers took time to evaluate the new systems, which “significantly slowed buying decisions,” she said.

Oracle sold 200 Exadata and Exalogic machines in the quarter, and that figure will grow to 300 and more than 400 in the third and fourth quarters, respectively, Ellison said on the call. “That would make our annualized engineered systems revenue $1 billion. We plan to double those revenues next fiscal year.”

But in response to a question from an analyst on the call, Ellison conceded that Oracle may not reach its previously stated goal of tripling the Exadata installed base by the end of this fiscal year.

“We’ll probably increase it two-and-a-half times,” he said. “We had a very aggressive set of targets, we’re taking huge amounts of share from IBM, from Teradata, from everybody.”

Some Exadata customers are investing heavily in the platform, according to Ellison, who cited the example of a large European bank that has bought more than 24 systems.

Four SAP AG customers bought Exadata to run their SAP ERP (enterprise resource planning) systems, Ellison said. Oracle also managed to outperform SAP’s HANA in-memory database running analytic workloads, he added.

“Exadata was faster. I think people were surprised, because that’s not what we run up against HANA,” he said. Ellison then referred to Exalytics, a system announced at the recent OpenWorld conference, which will incorporate in-memory technology. “We believe Exalytics can beat HANA by even more,” he said.

SAP responded to Ellison’s claims in a statement later Tuesday. “HANA customers are seeing tens, hundreds and even 1,000 times faster performance, without the need for more boxes, with fewer layers and at much lower total costs,” the company said. “Oracle’s engineered boxes may see some market uptake, but as a purely in-memory analytic platform, HANA is something quite different.”

Meanwhile, Oracle still has “a shot” of reaching its original goal for Exadata sales, Hurd said.

Executives provided few specific numbers on the performance of Exalogic, which was released after Exadata, but stressed that it was winning deals against the competition and has garnered strong interest from customers.

Topics such as Oracle’s new Fusion Applications as well as its recent acquisition of cloud software vendor RightNow got little to no air time during the conference call, but the quarter’s relatively modest software license growth came up for discussion.

Software sales were strong in CRM (customer relationship management) and ERP (enterprise resource planning), Catz said during the call. “However, we had some weaknesses within our vertical markets, which are longer sell cycles and need to be managed very, very carefully. We think those are going to recover.”

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