) --


(ORCL) - Get Report


Larry Ellison may have been absent from the company's

third-quarter earnings

conference call, but the database giant showed no signs of letting up -- either in its attitude toward competitors or its quest to become a massive force in the hardware market.

Once known chiefly for database software, Oracle shocked the tech sector when it acquired troubled

Sun Microsystems

for $7.4 billion last year. The deal, which left many industry watchers scratching their heads, seems to be paying off.

Oracle's third-quarter results highlight Larry Ellison's obsession with hardware.

Oracle's CFO Safra Catz, who took the mic as Ellison attended jury duty, said that the company's hardware gross margins grew to 55% during the third quarter. Oracle expects to exceed its goal of $1.5 billion in operating profit in the first full fiscal year following the Sun acquisition.

For Ellison, Sun's vast installed base represents a massive opportunity sell additional software as well as extend the company's reach further into the data center.

"Oracle is attempting to replicate


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success with fully-integrated, mission-critical solutions of hardware and software," said Jessica Breen, an analyst at TBR, in a note released on Friday. "Oracle's model will lock customers into long-term, value-priced relationships -- a relationship willing to pay the premium for powerful solutions."

Oracle made its initial hardware play back in 2008 when it launched its Exadata database device. Initially built on an


(HPQ) - Get Report

kit, Oracle subsequently tapped Sun for its Exadata gear and is reaping the benefits of the hardware/software combo.

"We're selling a lot more of the Exadata, Exalogic line," said Catz. "These systems are sold at good margins and also pull a lot of software with them." The devices enjoyed sequential revenue growth of more than 50% during the quarter, a trend Oracle expects to increase during the fourth quarter.

Oracle, which upped its quarterly dividend and gave robust fourth-quarter guidance, compelled analysts to

raise their estimates and targets for the company

on Friday.

"Upside May quarter guidance

is likely the result of sustained software license momentum and expectations for continued margin improvement in the acquired hardware business," said Richard Davis, an analyst at Canaccord Genuity, in a note released on Friday. He raised his Oracle price target by $1 to $37. "We believe Oracle is one of the most attractive large-cap tech growth stocks."

TBR's Breen notes that although Oracle's hardware revenue increased 263% year-over-year thanks to the Sun acquisition, there is still work to do. The company's new hardware sales missed guidance by nearly $100 million during the third quarter, she said, coming in at just over $1 billion.

Oracle, never one to shy away from a challenge, is also bent on shifting the dynamics of the server market.

Earlier this week, Oracle announced that it was ending software development for


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Itanium chip. Mud-slinging with arch-rival HP ensued; Itanium features inside HP's Integrity servers, which also run Oracle software, prompting the Palo Alto-based firm to accuse Oracle of "anti-customer behavior."

Oracle argues that Intel is moving its focus away from Itanium towards X86 chips, although Breen says the database giant is looking to boost the SPARC chip-based servers it acquired when it bought Sun.

"Oracle will try to shift HP Itanium customers to SPARC servers as it is the core product in Oracle's high-margin hardware strategy," she explained. "

But the disruptive Itanium tactic will only drive a partial transition from Itanium to SPARC as competitors capitalize on an opportunity to poach unhappy customers."

The spat is just the latest in a series of skirmishes between the two companies. Oracle recently attacked HP's flagship Superdome system in a

Wall Street Journal

ad campaign, urging customers to choose its own



HP, for its part, has

poured scorn

on Oracle's Sun acquisition.

Shares of Oracle were rising 91 cents, or 2.83%, to $33.04 Friday, outpacing the modest advance in tech stocks that saw the Nasdaq gain 0.82%. HP's stock was dipping 66 cents to $42.44.

--Written by James Rogers in New York.

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