So much for coopetition. After reporting strong earnings that trumped analyst's expectation, Oracle (NASDAQ: ORCL) CEO Larry Ellison gave former close ally Hewlett-Packard (NYSE: HPQ) fair warning that he's gunning for their business.
"Our goal is to be number one in high end systems for high end transaction processing and data warehousing," Ellison said in a conference call with analysts following yesterday's release of earnings for the second quarter. "We're not interested in the low end, we're after the high end, high margin part of the market. We think IBM (NYSE: IBM) is quite competitive, while HP's servers are big, slow and offer little software value add."
HP was long a key Oracle ally before the database giant finalized its acquisition of Sun Microsystems early this year and began its transformation to a systems supplier. The alliance further unraveled when Oracle hired former HP CEO Mark Hurd as co-President (sharing the title with Safra Catz).
"Larry Ellison bought a money-losing business that had steady market share declines for years, and which still ranks at the bottom of the market," said an HP spokesman in an email to InternetNews.com. "Customers aren't fooled by outdated benchmarks, no matter what Oracle says. HP's market share results prove it. Sun customers are running to HP in droves because they recognize we deliver superior technology, performance and pricing."
After a long battle with European antitrust regulators, Oracle was criticized by some analysts for taking on Sun's faltering hardware business. Although Sun had considerable engineering talent and a well-deserved reputation for innovation, it had been losing market share to the likes of HP and IBM for years. Oracle cut staff and streamlined the product line to the high end of the market, while engineering those systems to run Oracle's software at optimal levels.
While Oracle's software sales were the main driver of profits in Q2, Ellison has high hopes for the systems business. "The close rates are improving and I think you'll see a significant jump from Q2 to Q3," he said, referring to deals with big customers the company is starting to finalize. "There's been a lot of buzz because it's a new product, so these companies have to do a lot of testing and benchmarks and they make small buys at first. But we'll see a lot of Exadata sales in Q3."
Ellison said most high end servers are purchased to run specific software and that Oracle has an advantage in offering integrated systems that run Oracle's database and other enterprise software faster than competitors.
He said the advantage of integrated hardware and software has already proven itself at the low end of the market. "Look at the iPhone and iPad versus Android devices. Apple's devices are specifically engineered to work with its software. You decide which is delivering a better overall experience," Android or Apple, he said.
Pund-IT analyst Charles King said Oracle has done some "stunning work" on the software side and in developing systems complementary systems, but it still lags behind competitors HP and IBM on the services side. "Outside of making a big acquisition like HP did when it bought EDS, I don't see how Oracle gets to the same level quickly. Sun was never very strong on the services side," King told InternetNews.com.
Hurd said Exadata systems are replacing competitor's systems "about 70 to 75 percent of the time" while in other cases they are being brought in as additions to the existing infrastructure. "Exadata has now been sold in 50 countries and about 30 to 35 percent of those customers have made a second purchase from us," he said.