|With Oracle's suit against Google, CEO Larry Ellison proves he's tech's drama magician.|
NEW YORK ( TheStreet) -- In all the hullaballoo over its suit with Google ( GOOG), what's going on in the software side of the Oracle ( ORCL) house is all a distraction from the real disaster at the heart of the company. Buying Sun Microsystems was a historic mistake.
While Oracle now claims Sun was a software company, that it bought the company for Java or mySQL or Solaris, Sun in fact was a hardware company. It made servers, and its server business always dwarfed its software side. Since Oracle bought Sun it has been bleeding share in this area, according to Gartner ( IT). Worse, the total size of the market fell in the fourth quarter, to 2.5 million units, due to the Thailand floods. Oracle hoped the combination of its own database software with Sun hardware would give it a bigger share of its customers' wallets and higher profits. There was substantial sales acceleration last year after the deal closed, but the current quarter would have to be a blow-out to match last year's $35.6 billion in revenue -- and so far they're just over $26 billion. There is ample precedent for this. Companies that lose their customer mandate tend to die fast, and those who try to pick up the pieces often go down as well. This is what happened to Compaq after buying Digital Equipment in the late 20th century. Most fading stars are left to die quieter deaths, and the history books are filled with such names as Wang Labs, Silicon Graphics and Data General. The reason is that as computer companies lose share, support becomes harder to find, and for computers that are considered corporate purchases, systems costing millions of dollars, this can kill a balance sheet for years. (Ask anyone still running their business on, say, a Unisys ( UIS) mainframe.) Oracle's server share is down to 5.6% -- which way do you think it goes from here? And at what point does that share reach the vanishing point, as RIM's ( RIMM) has in smartphones? By saying Oracle bought Sun to get its software, management seems to have seen this coming. Oracle had Apache kill its Project Harmony, created to assure comparability for Java across multiple operating systems, and replaced it with OpenJDK, another open source project under its control. Then it ran to court claiming Google had "stolen" its property (obtained while Sun owned Java and had it under the general public license), knowing that if you don't have header information (the only bit Google "stole") you can't build a compatible system. Then CEO Larry Ellison came to court wearing his real-life Guy Fawkes mask and acted all aggrieved. The press eats it up because they like drama. Ellison is tech's drama magician. But real investors look behind the act, to how the trick is done, to what the magician is hiding. In this case, it's hardware. Ellison is promising a turnaround, but the smart money says he can't deliver.