Ellison: Sun Won't Compete Against Dell, HP In Commodity Server Markets

Oracle CEO Larry Ellison said late Thursday that Oracle intends to target sales of Sun's server products for "high-value, high-performance" applications and won't compete in commodity server markets where Dell and Hewlett-Packard are the leading players.

Ellison's comments came during Oracle's earnings call for its second fiscal quarter ended Nov. 30. For the quarter Oracle reported sales of $5.86 billion, up 4 percent from $5.61 billion in the same period last year. Net income grew 12 percent to $1.46 billion from $1.30 billion one year earlier.

Oracle's acquisition of Sun has been held up by European Commission, the European Union's regulatory body, over questions about the future of the open-source MySQL database under Oracle ownership.

Following a two-day hearing on the issue last week, Oracle promised to increase its investment in MySQL development, provide written guarantees to maintain the software's open-source licensing model, and keep its storage engine API's public. Earlier this week European Commissioner for Competition Neelie Kroes issued a statement saying she was satisfied with Oracle's promises and indicated that the EC will likely approve the Sun deal in January.

Oracle executives on the earnings call expressed confidence that the European Commission will now approve the Sun acquisition. "We expect a full and unconditional clearance from the European Commission in January," said Oracle president Safra Catz.

Ellison, also speaking on the call, provided some hints about Oracle's sales strategy for Sun's hardware product lines. He said Sun has never sold enough servers to compete in the "high-volume, low-margin" server markets where Dell and HP dominate. "We think that high-volume, low-margin business is a good one so long as you have high volumes," he said. "That's something Dell and HP are very good at and we're going to avoid that."

"Instead, we are pursuing the high-value, high-performance market," Ellison said. Once the acquisition is done, Oracle will sell Sun Sparc- and Intel-based servers, including symmetric multiprocessor (SMP) servers, combined with Oracle software, for such sophisticated tasks as assembling clusters of servers to create "private cloud" networks for customers.

Such a strategy will help Oracle-Sun differentiate itself from Dell, HP and IBM, increasing Oracle's bottom-line profits by $1.5 billion in its first year of Sun ownership, Ellison said. "We think we can compete very effectively there," he said.

Oracle, meanwhile, continues to report solid sales results, even without owning Sun. In the second quarter software revenue was up 9 percent year-over-year to $4.90 billion from $4.48 billion in last year's second quarter. That included a 2 percent increase in new software licenses to $1.65 billion from $1.63 billion last year, and a 14 percent increase in software license updates/product support to $3.25 billion from $2.85 billion one year ago.

Oracle reported healthy growth in sales of its flagship database software in the quarter, up more than 10 percent to $3.31 billion from $2.99 billion in the same period one year ago. That included a relatively small 1.5 percent increase in new software license sales for the Oracle database.

Sales of application software reached $1.59 billion in the latest quarter, up more than 7 percent from $1.48 billion in the same period one year ago. New software license sales in the second quarter were $478 million, up almost 2 percent from $469 million from one year earlier.

Services revenue in the second quarter, however, declined 15 percent to $958 million from $1.13 billion in the second quarter of 2008