Oracle Launches Hardware Business

SAN FRANCISCO - Shares of software giant Oracle(ORCL Quote - Cramer on ORCL - Stock Picks) rose Thursday on news that the company would begin selling hardware.

The Redwood Shores, Calif. company and Hewlett-Packard(HPQ Quote - Cramer on HPQ - Stock Picks) said late Wednesday they would immediately begin selling a line of game-changing storage equipment.

"I'm here to announce Oracle's first ever hardware product," CEO Larry Ellison said Wednesday before a packed crowd at the company's annual user conference here.

Shares of Oracle were recently up 74 cents, or 3.7%, to $20.69. H-P was up 49 cents, or 1%, to $47.27.

"As far as the financial implications, it is too early to assume any revenue contribution for Q2 from the HP Oracle Database Machine," President and CFO Safra Catz said Thursday at Oracle's annual financial analyst meeting. The equipment contains new software subject to license contracts and maintenance contracts, as well as its database server software.

"Selling more software for this equipment we believe will help us continue to grow [database server] market share and take share" from competitors, Catz said. Oracle's database software competes with products from IBM(IBM Quote - Cramer on IBM - Stock Picks) and Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks).

Oracle's software revenue from sales of the equipment will be booked net of the hardware portion of the revenue or expenses, Catz added.

New hardware Exadata storage servers that are part of the database machine or can be sold separately pose a threat to hardware suppliers Teradata(TDC Quote - Cramer on TDC - Stock Picks) and Netezza(NZ Quote - Cramer on NZ - Stock Picks).

Netezza was recently down $1.12, or 9.1%, to $11.25 on the news. Teradata was down 20 cents, or 1%, to $20.83.

"We've already been competing with Teradata and Netezza for several years," Co-President Charles Phillips said. "Now ... instead of giving you guidelines for building a database machine yourself, we build it ourselves."

Catz also said the company's expected annual maintenance revenue of $12.5 billion to $13 billion should insulate Oracle from an economic downturn. "Even if [customers] go bankrupt, they renew" maintenance contracts to keep systems running.

"If there's a global meltdown, where we're all foraging for food, none of you are going to be worried about Oracle," she told financial analysts.

Catz said Oracle customers can buy the $650,000 database machine from H-P or design their own systems by combining other brands of hardware database servers and combining them with Oracle's Exadata server.

In the works for three years, the database machine solves performance issues in data warehouses by putting Intel(INTC Quote - Cramer on INTC - Stock Picks) processors inside basic disk-storage equipment. The machine holds 168 terabytes of data.

One beta user of the equipment reported the machine completes in 10 seconds a database request that typically took four minutes to process with standard storage equipment.

The machine deploys the co-branded HP Oracle Exadata Storage Server. Unlike typical data warehousing equipment, the Exadata includes processors to cut the amount of data that must be transferred, Ellison said at the company's user conference.

Typically, when a user requests a report on, for example, the previous day's sales data, the storage server sends all large blocks of data containing sales information, a time-consuming process. The Exadata's storage servers contain two Intel four-core processors per disk drive, which choose only the appropriate sales data for transfer to the database, drastically cutting the time needed to process the request, according to Ellison.

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