Eye on Oracle

May 11 2009   5:33PM GMT

Larry’s a hardware man now

Ed Scannell Ed Scannell Profile: Ed Scannell

After weeks of speculation about whether Oracle would keep or sell off Sun’s hardware business, we have the answer. Well, the answer for now.

In an e-mail interview with Reuters, Oracle CEO Larry Ellison made it clear he intends to keep not just Sun’s chip and server products but its disk storage and tape backup businesses too. So with one short interview Ellison has confirmed he will attempt to significantly change the competitive landscape among major vendors competing for the billions of enterprise dollars at stake.

And he is not lacking for confidence about his chances. In the Reuters interview Ellison said he has the in-house talent — both from among Sun and Oracle engineers – to compete successfully against the likes of hardware giants including IBM, Hewlett Packard and Dell.

“We have lots of hardware experience inside of Oracle. Hundreds of Oracle’s engineers came from systems companies like IBM and HP. Even I started my Silicon Valley career working for a hardware company that worked with Fujitsu to design and build the first IBM compatible mainframe,” Ellison said in the Reuters interview.

I am not sure how much of Larry’s own hardware experience will successfully translate to competing against The Big Three in a cutthroat low margin business. I suspect it will have more to do with retaining key Sun engineers and their managers working on key hardware technologies. But you have to like his optimism here.

It could very well be that Oracle has no intention of engaging in hand-to-hand combat with his major competitors in the low end, Intel-based server market. According to his comments in the Reuters interview, he intends to invest heavily in Sun’s Sparc- and Solaris-based servers where margins would be significantly higher.

“Once we own Sun we’re going to increase the investment in SPARC. We think designing our own chips is very, very important. Right now, SPARC chips do some things better than Intel chips and vice-versa. While most hardware businesses are low-margin, companies like Apple and Cisco enjoy very high-margins because they do a good job of designing their hardware and software to work together. If a company designs both hardware and software, it can build much better systems than if they only design the software,” Ellison said.

Yup, that’s right. Apple is a model, if not the inspiration, for Ellison believing he can deliver high margins servers if he can form fit Oracle’s software with Sun’s chips and servers ala Apple’s iPhone and iPod.

There may be at least a little concrete evidence to back up his ambitions. Oracle’s Exadata database machine, which tightly couples Oracle’s flagship database with HP’s server hardware, has received good reviews, particularly for its speed and performance.  It must be noted however, that the Exadata server uses Intel chips, and not RISC-based chips such as Sun’s SPARC processor.

Both Ellison, in the Reuters interview, and Oracle President Charles Phillips at last week’s Collaborate conference, said Exadata was the most successful product launch in the company’s 30-plus-year history. Oracle, of course, declines to release sales figures for the system, so there can be no iron-clad confirmation of this.

But if Oracle successfully applies its Exadata model to other server hardware-software combinations, perhaps targeting each offering at a specific vertical market, it may not only succeed in the market but also lay down the law for how server bundles will be sold.

There are a couple of unanswered questions remaining, of course. One, is if Oracle proceeds with its plans to sell SPARC-based servers bundled with its software, where does this leave HP?  HP still competes with Sun in some segments of the server market, and may not take too kindly to Ellison’s aggressive commitment to SPARC.

Second, how will Ellison deliver bundled combinations of servers to Oracle and Sun customers?  If he intends to focus on complete solutions using only Oracle-Sun chips, servers, operating systems, databases, middleware, and tools, the emphasis would seem to be on largely selling  these systems direct.  If he does an end run around the resellers, will this drive the channel into the arms of IBM, HP, and Dell that can reach customers across a greater number of markets?

We may not get these questions answered for another few months. But I’ll say this, with the Sun acquisition Larry has brought back some of the fun and excitement that has been missing from this market for some time now.

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