The company’s quarterly financial reports over the past year have pleased Wall St. analysts, thanks largely to its perpetually steady maintenance revenues. Company officials have also pointed out over the past month or two pockets of growth in its broad product portfolio including its Exadata Database Machine and Fusion Middleware offerings. Licenses of its bread and butter database products however, have been flat to slightly down.
But most recently there are signs that maybe this wicked and seemingly unending recession is taking a toll on the folks in Redwood Shores.
In its financial statement last month for the quarter ending May 31, Oracle took a half step back. The company reported a net profit of $1.9 billion which is down 7% from the same quarter a year ago, while revenues tumbled 5.2% to $6.9 billion. But even this news wasn’t received so badly by Wall St. analysts who were expecting Oracle to lose even more.
In a note of caution however, Peter Goldmacher, an analyst with Cowen & Co., wrote last month he believed “Oracle’s standalone margin profile is unsustainable, and the pending acquisition of Sun is going to be more challenging than the current valuation implies.”
Then Oracle announced it was cutting up to 1,000 jobs in Europe. It isn’t the 5,000 layoffs that Microsoft announced a while back, or the 9,000 people IBM has let go this year, but still an indication the company was looking for ways to tighten its belt. Again this news is not so bad, but it is no reason to break out the champagne either.
But then two weeks ago the company announced it was halting construction of a mammoth $313 million data center in West Jordan, Utah. The 200,000-sqaure-foot facility will store customers’ data and be dedicated to supporting the products and services of its on-demand division. Oracle officials recently said revenues from that division have been growing at an impressive 25% a year.
It’s logical to assume this building, which will serve as the model for other “green” facilities Oracle is planning, will be instrumental in helping Oracle launch whatever cloud computing strategies it has planned. And the company will pursue a cloud computing strategy, despite some ambiguity about that issue coming from Mr. Ellison from time to time. Hasan Rizvi, senior vice president, Oracle Fusion Middleware Products, made that clear speaking at the company’s Fusion Middleware 11g announcement earlier this month.
Oracle didn’t offer any specific reasons for halting construction nor did it say when it would resume the project. What made some people nervous, particularly those in the state of Utah where the data center was projected to bring some $500 million in new state revenues over a 12-year period, was that Oracle used the word “postpone” in its only official statement.
On top of sales of new software licenses being down, it could be the fact Oracle will be shelling out $5.6 billion very soon for Sun, which could be weighing on the company’s decision to halt construction.
While faring better than its enterprise archrivals, Oracle will need the economy to improve significantly if corporate customers are going to spend more on new software licenses in the second half of this year. Maybe Fusion Middleware 11g and its associated tools, announced July 1, will help coax more dollars out of those tightly closed wallets.]]>
I am only half kidding, of course, about the good news part. For better or worse (worse many users say) Oracle doesn’t fret much over whether it should license servers by the processor core or by the box. It unflinchingly continues to license by the number of cores, which could prove an expensive proposition for some buyers.
The bad news I may not be kidding about so much. With Sun kicking its five-year old Rock project to the curb, Oracle can’t make the next leap in the game of performance leapfrog it plays with chip rivals IBM and Intel.
In fact, Sun has failed to leap a couple of times having canceled its UltraSparc-V chip project earlier this decade because it essentially ran out of development funds. The company rushed out its UltraSparc-IV chip as a stop-gap product that didn’t do much. And when Sun was skipping a leap, a couple of other times it was very slow to leap, being months even years late in delivering a new chip.
Sun officials have talked consistently the past few years about the Rock being a game changer. The chip was designed to achieve a much higher per-thread and floating point performance, along with greater Symmetrical Multi-Processing capabilities than its Niagra family of chips.
Rock, which was to anchor the company’s Supernova line of servers, was supposed to really shine when it came to handling high-end data facing workloads including database servers. Just guessing here, but I think a machine delivering great database performance would be important to Oracle.
With Rock out of the game Sun will continue to use Fujitsu processors, which will be fine, but hardly represents the game changer the company was hoping for. One positive aspect to all this is that Sun’s research and development costs just got significantly lower. This won’t make Larry Ellison unhappy as he tries to complete the $7.4 billion acquisition of Sun.
But once again Sun has opened the door wide open for a number of competitors to rush through, most notably IBM. With one less competitor at the high end, IBM figures to rip away more server market share from Sun over the short term. Some speculated over the last day or so that Oracle might start to emphasize the next gen Niagra III Sparc chips, as well as pushing Solaris on x64 servers fueled by Intel’s upcoming Nehalem EX servers.
Sun has been relying on chips from Fujitsu for its larger servers while it waited for the Rock development to be finished. Now it is likely to just continue using Fujitsu chips, which should lower research and development costs.
But what does the lack of a “game-changing” chip like Rock do to Oracle’s plans to sell vertically integrated hardware-software stacks (as has been rumored) ala its Exadata Database Machine? It could hurt its newly acquired hardware business for sure, but perhaps more importantly hold back its flagship database business at the high end in some key markets, along with other proprietary and open source software offerings.
We knew Oracle was buying some damaged goods with its acquisition of Sun, but I am not sure if Redwood Shores was assuming its chip business might be this damaged.]]>
Oracle has always had the right to call for a review (with very little notice, I might add) to verify that users have not downloaded more copies than their contract calls for. But the Sun acquisition, coupled with the crushing effect the economy has had on Oracle’s revenue growth, the likelihood of reviews and audits has risen considerably.
As Jeff Greenwald, Acresso Software’s Senior Director of Product Management for Enterprise Licensing Optimization told us last week:
“This (Oracle-Sun) merger could spark other conversations with a shop that may or may not have Sun boxes running in them, but Oracle won’t know that when they start the conversation. Oracle could treat this as an opportunity to investigate a shop’s hardware base and without realizing it, users enter into an audit.”
It has been his experience, Greenwald said, that most users have no best practices guidelines or software in place to track deployments. In fact, many use only a spreadsheet to track their compliance, which is a bit scary. The drawbacks to this relatively primitive method are it is time consuming, prone to errors and its results are often out of date even before the exercise is completed.
Naturally, Greenwald believes his lineup of license management software offers a better alternative, but he does have a cogent case. Not only does Acresso’s products present an automated way to collect instances of Oracle software and store them it a central location, they also provide users with reports that “interpret” those deployments comparing them to their contract.
“It is about (Acresso’s) technology but it is also about services that can help customers come to a decision by recommending what the best course of action is when they renegotiate a new contract with Oracle,” Greenwald told us.
Greenwald believes there is a basic set of license management best practices that can be applied to a range of different “events” that trigger reviews and audits. Events can be many things including not just mergers and acquisitions but divestitures, re-organizations, expansions, facility closings, or layoffs.
The following rules can better prepare an IT shop for such reviews, he believes.
Pro-active, consistent monitoring of Oracle deployments. IT shops should monitor Oracle deployments continuously instead of waiting until a review or audit deadline approaches. This is the most sensible way to avoid a crazed fire drill under tight time constraints.
Collect complete, granular information. Oracle deployments and licensing both can be complex, involving multiple instances on multiple platforms. Consequently, IT organizations should make sure their visibility into their Oracle deployments is complete and granular, including discovery of all processors and all named users.
Use of automation. IT organizations can reduce strain on their staffs as well as improve the accuracy of their information through automation. That automation however should be scheduled to avoid being a drag on performance of critical business services. It is a good idea to implement agentless automation to avoid management complexity.
Clear reporting against actual license structure. Once IT shops have a granular accounting of their Oracle deployments, they need to understand how those deployments compare to their actual current license entitlements. That understanding can come through reports highlighting where the deployment exceeds the license and where there is “shelfware” i.e. software that is not in use.
Fully leveraging of deployment insights across all IT and business functions. Once an IT organization can maintain pro-active insight into their Oracle deployments, it must then deliver that insight across an organization. These organizations, besides developing the ability to monitor their deployments, will want to take advantage of experts in disciplines such as negotiation, budget allocation and planning.]]>
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.]]>