When Did the Sun Set?
The story of Sun Microsystems is a great one. It has great characters (McNealy), great battles (open vs. proprietary, David vs. Goliath), incredible vision (the dawn of the dot.com), drama (the bust of the dot.com), and tragedy (the Oracle acquisition). Oh yeah, one of the best of tech logos.
Well, the drama continues. Oracle reports a devastating quarter on 12/20/2011. All Things D reports “Now Oracle shares are trading down more than 9 percent, following a quarterly earnings report that was surprising for how far it fell short of the consensus expectations of analysts. Expect Oracle’s results to drag down the enterprise tech sector tomorrow, as analysts study the tea leaves for what this means for corporate tech spending overall.”
There are two emerging theories. The cloud won or Oracle screwed up. The reality is probably a little of both.
On the cloud side, we can go back to September 28 and a grim prediction: “Marc Andreessen thinks that the clock is ticking on Oracle and other old-line software and infrastructure companies. His evidence: not a single one of Andreessen-Horowitz’s startup investments use Oracle software. They all use cloud-based alternatives instead…’Ten years ago, Facebook wouldn’t have been viable as a company or a business. The infrastructure costs wouldn’t have worked. The checks to Oracle, Sun, BEA, and EMC would have crushed the company before it ever got off the ground.'”
The cloud is certainly changing the economics for start-ups, but not necessarily enterprises. The cloud’s poster kid – Facebook – runs in private data centers now. I’m not convinced Sun has been a major supplier to start-ups since the dot com bust in 2001. Sun brags about Apple as a major customer – well actually not Apple, but “a very large American smartphone manufacturer” that had bought more than 30 Oracle Exadata systems as it built out its cloud. Hmmm. In many ways Oracle is a cloud company. Its software and hardware power many data centers, and Oracle acquired RightNow. Oracle announced more aggressive cloud services that are yet to make a meaningful contribution including the Oracle Public Cloud and Oracle Social Network.
Then there is the Oracle made its own bed angle. They redesigned the SPARC causing a huge drop-off in sales. The new chip, the T4, required considerable testing with existing applications. The T4 both slowed down implementations and killed demand for the prior generation. Hardware sales dropped by 14% year over year. Get this, Oracle actually calls this a SuperCluster (I’m not making this up). The company is predicting a rough third quarter (ending Feb 12). Got to love the hardware business – 54% gross margins on hardware in Q1 and the root of all evil in Q3. Co-President and HP C-CEO Mark Hurd hired 1700 more sales people – oops.
Oracle also cited delays in purchasing as a factor. It’s not that deals were lost as much as delayed. This is consistent with IBM’s observations. The wallet appears to be super-glued shut right now.
One other factor Oracle cited is exchange rates. This excuse is rapidly becoming the excuse of the year(s). Great sales are not well reflected when they are made in weak currencies. These dramatic swings are compromising the value of year over year comparisons.
The cloud is no doubt a factor, but I don’t buy it caused a 14% drop in revenue. Clearly the business of servers and databases is shifting, but not as quickly as some would like to think. The vendors are also changing.