Forcing customers to buy Sun hardware if they want to run Oracle apps may be the only way to justify a $7.4 billion acquisition, but such a move could alienate customers and deliver them straight to rivals.
Larry Ellison thinks he has found a way to shore up the struggling server business he bought for $7.4 billion last year in the form of Sun Microsystems—force customers to buy Sun hardware if they want to continue to run the latest Oracle software. That's about as close to a bet-the-company strategy as you can get.
A quick recap: Oracle said last Wednesday it will discontinue developing versions of its software for systems that run Intel's 64-bit Itanium chip. About 50% of HP Itanium-based Superdome servers in the field are currently running Oracle, Forrester estimates.
Oracle said its decision stems from its belief that Intel isn’t committed long term to Itanium, which the chipmaker co-developed with HP and finally introduced in 2001 after a series of production delays. Oracle's very public questioning of Intel’s and HP's honesty around Itanium set off one of the nastiest flame wars Silicon Valley has seen in recent years.
Oracle accused Intel and HP of "knowingly withholding" key information about their Itanium plans—i.e., that they're on the verge of ditching the platform in favor of a pure x86 strategy. In turn, a top HP official accused Oracle of engaging in "anti-customer behavior." Intel CEO Paul Otellini said he felt compelled to reaffirm Intel's commitment to Itanium "as a result of recent announcements from Oracle."
These hand-fed quotes are great fodder for bloggers with daily deadlines to meet, but the heat:light ratio from all this is about 1,000 kelvins:one hungover firefly. CIOs who have committed millions of dollars to servers from these vendors expect more than a bunch of name calling that proves only that the guys running these tech giants really are still nerds at heart—yachts and private jets notwithstanding.
Here's what's going on behind the PR wall and, more important, what to expect. Oracle isn't moving as much Sun hardware as it needs to in order to justify the billions of dollars it paid for those assets. That's not just my opinion. Oracle on Thursday released its fiscal third-quarter earnings, which showed that new hardware sales, which came in at about $1 billion, missed earlier guidance from the company by $100 million.
To boot, sales of Oracle/Sun servers declined 14.4% in the fourth quarter of last calendar year, according to IDC, despite the fact that the overall server market grew 15% during the period, as IBM server sales rose 22% and HP’s rose 13%.
Server Market SplitsvilleJust because the server market's in the doldrums doesn't mean innovation has ceased. Far from it -- server technology is enjoying the biggest renaissance since the dawn of x86 systems. But the primary driver is now service providers, not enterprises.