Tag : hardware products

Larry Ellison kicked off his annual speech to Oracle (ORCL)customers by comparing the engineering behind his new America's Cupracing yacht to Oracle's products. "Like a lot of families, I'mholding down two jobs," he quipped.
Oracle's billionaire CEO Ellison isn't personally feeling the stingof a weak economy, and he used his Sept. 24 speech at Oracle'sOpenWorld conference in San Francisco to outline how he hopes toshield his company from it, too.
Oracle unveiled its first-ever hardware products, a pair of serversbuilt by Hewlett-Packard (HPQ) that run Oracle software anddesigned to speed the performance of Oracle databases running onthem. A storage server lets data flow more quickly from disk drivesinto the company's database. And the companies' co-branded"Database Machine," which towered over Ellison on stage, is meantto deliver big performance boosts to companies that run an Oracledatabase on it. "Oracle's going into the hardware business, butwe're not going alone," he said.
Safe Haven for Investors
Sales of database software are powering financial results atOracle, even as sales of its business applications have faltered.The company has spent $34 billion to buy about 50 softwarecompanies since the beginning of 2005, it said this week. That'spropelled Oracle into the market for applications that runpayrolls, billing systems, and sales departments. But thoughapplication sales fell 12% in the most recent quarter, sales ofdatabases and application-connecting middleware rose 27%, givingsuccor to investors worrying how well Oracle and other techcompanies are weathering the U.S. economic storm.
Oracle's stock has served as a relative safe haven for investorsthis year, outperforming the Nasdaq composite index and theStandards & Poor's 500-stock index. Operating profit marginstopped 40% [BusinessWeek.com, 9/19/08] during the first quarter ofOracle's fiscal 2009, helped by a big dose of highly profitabletechnical support revenues.
Those margins make the company's shares "a very nice place to hide"from the market turmoil, even though revenue growth is slowing,says Pat Walravens, a senior software analyst at JMP Securities(JMP), who rates Oracle stock market outperform. "You have abalancing act between operating margin expansion and deceleratinggrowth," says Walravens. "In this particular quarter, operatingmargin expansion came out ahead."
Focusing on Databases
Having built up the applications side of Oracle's business,Ellison's speech made it clear that he's now focusing on databases,the engine of Oracle's sales and profits. The company is the leaderin database software, with a 48.6% share of the $17 billion marketlast year, according to market researcher Gartner (IT). IBM (IBM)controlled 20.7% of the market, slightly less than in 2006. AndMicrosoft (MSFT) gained a bit of share, to 18.1% of all sales.
Sales of database and middleware licenses, and customers' technicalsupport fees for those products, accounted for two-thirds ofOracle's $4.2 billion in software revenue in the first quarter. Andits January acquisition of middleware maker BEA Systems gives thecompany a new weapon against rivals IBM and SAP (SAP). "Anythingyou can do to reduce the cost of plumbing is a big win forcustomers", says Bruce Richardson, chief research officer atindustry consultant AMR Research.
Databases have ballooned in size as companies collect reams ofinformation about their customers and store new types ofinformation like e-mail messages and videos to comply with federalregulations and make use of new forms of online media. Last year,Oracle released a new version of its database [BusinessWeek.com,7/12/07], called 11g, to capitalize on those trends.
Going After Cloud Computing
Yet users often need to wait too long for disk storage systems totransfer those terabytes of data into Oracle's database software.The Oracle-HP storage server is meant to address that problem byperforming some of the computer processing closer to disk drives.The Database Machine server can speed up processing of financialtransactions or data analysis. Oracle has also taken aim at thenascent market for "cloud computing," which lets companies runsoftware in large, remote data centers, accessing it over theInternet. On Sept. 23, Oracle and Intel (INTC) announced joint workon database performance and security for cloud computingenvironments.
Investors are scrambling to gauge the impact on technology spendingof the past two week's events on Wall Street, including the demiseof Merrill Lynch (MER) and Lehman Brothers, the Federal Reserve'sbailout of insurer AIG (AIG), and the government's proposed $700billion economic recovery plan. There are signs the economicmalaise is spilling into the tech sector. Dell (DELL) on Sept. 16warned of weakening demand. And analysts have been revising theirestimates to reflect lower sales expectations for Apple (AAPL) andother tech companies [BusinessWeek.com, 9/24/08] in the currentquarter.
During Oracle's first-quarter conference call, co-president SafraCatz said the company's percentage of sales to U.S. banks is in the"low single digits." Oracle's software isn't widely used on WallStreet; investment banks' preferred database comes from Sybase(SY), and financial-services companies tend to spend heavily ondeveloping their own software, vs. buying commercial applicationsfrom Oracle, SAP, and others.
Grim Environment for Software
But the economy is surely affecting Oracle's business more than thevendor has let on, says Sarah Friar, a managing director at GoldmanSachs (GS). "They're denying all knowledge of macroeconomic impact-- I find that hard to believe," she says.
Shares of Oracle closed Sept. 24 up 26%, or 1.3%, at $19.95. Butthe stock has lost 12.3% of its value since hitting a 52-week highin early August. And the company's outlook for its second quarterending in November wasn't sanguine -- it said revenues would grow9% to 12% after accounting for the effects of a stronger dollar,which lowers revenues of companies with overseas sales. Revenueshad grown by 28% during the second quarter of fiscal 2008.
Even as Oracle powers ahead in the database market, sales of itsbusiness applications have faltered. The company is fighting forapplications market share with SAP, which held 22.4% of the $62.8billion market in 2007, vs. 12.5% for Oracle, according to AMR. Thecompany underwent a disruptive reorganization of its salesforce inthe first quarter and faced a strong quarter for applications salesa year ago, analysts says.
As it taps into the computer hardware market in a search for newsales, Oracle is up against a 2009 spending environment thatanalysts say will have companies scrutinizing every IT dollar. "Interms of software spending, it's going to be bad," says JMP'sWalravens. Ellison is hoping the same can't be said for hardware.
Copyright 2008 BusinessWeek