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By | Jack Clark 19th December 2013 02:56

Oracle: Our figures say hardware has flatlined, but we assure you it hasn't

Ellison & Co extract wealth from customers to defeat analyst expectations

Database and wannabe hardware giant Oracle has beat Wall Street expectations after nine disappointing months, and said cloud services are one of its three main growth areas for next year.

The company reported its second-quarter results for its fiscal 2014 year on Wednesday, and surprised analysts by stemming the rot in new licenses and hardware sales.

Ellison and Co reported revenues of $9.3bn, compared with $8.38bn in the previous quarter, coming above the $9.19bn Wall Street analysts had been expecting, and earnings of 69 cents a share versus bean-counter predictions of 67 cents.

New software licenses and cloud subscriptions inched down one per cent to $2.4bn when compared with the same quarter a year ago, while license updates and product support revenues climbed six percent to $4.5bn – a neat illustration of Oracle's strategy of wringing ever-more cash from its customers.

Though Silicon Valley is awash with database startups ranging from MongoDB to Basho to Couchbase, Oracle's results are yet to indicate that its business is being cannibalized by them. It just keeps making more and more money: it reported a net income of $2.553bn this quarter, down one percent on the same period a year ago, but up on the $2.19bn of the previous quarter.

Its historically weak hardware division continued to show unimpressive results, with flat revenues of $1.3bn, and a three per cent drop within that of hardware system products to $714m.

This, Oracle executives said on a call with analysts, is due to a switch-over from Sun-derived commodity servers to Oracle's pricey and proprietary engineered systems.

"The mix of our products is changing. We took a lot of criticism when we bought Sun Microsystems," Oracle chief Larry Ellison said. "The engineered systems business is a large business and has much higher margins — the mix has changed in hardware from low margin hardware to much higher margin hardware."

These results follow three quarters in which the company had struggled to meaningfully grow software licenses, and suffered further fallbacks in its hardware division.

We imagine that Oracle's top team of chief Larry Ellison, co-president Mark Hurd, and CFO Safra Catz had bludgeoned incentivised Oracle's sales team to bring these mildly better results in.

Ellison also took time on the call to pick out what he reckons Oracle's major products will be next year.

"We think these three product areas – database, cloud applications, and engineered systems – will drive Oracle's growth in calendar year 2014," he said.

This year, Oracle announced a new infrastructure-as-a-service and platform-as-a-service cloud partially based on open-source technology OpenStack.

Though the company has blustered about the importance of cloud, we sense that it does not want to get caught in a price war with larger providers such as Amazon – though Ellison did insist on the call it would be "price competitive" with the retail giant.

"We intend to compete aggressively in the commodity infrastructure-as-a-service marketplace," he said. "We're not going to have that alone ... our intention is to sell our customers IaaS and the same customer a highly differentiated platform-as-a-service which will let us get better margins and a highly differentiated suite of applications for the cloud."

At the time of writing the company's stock was up one per cent in after hours trading. ®

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