ORCL: ‘I Don’t Care If x86 Goes To Zero,’ Says Ellison

Following a report of better-than-expected fiscal Q1 profit this afternoon, Oracle (ORCL) held a conference call with analysts during which it projected fiscal Q2 revenue below expectations, but profit slightly above consensus.

Oracle sees revenue growth in a range of 4% to 8%, year over year, which would equal $8.99 billion to $9.34 billion, and earnings per share in a range of 56 cents to 58 cents.

Analysts have been modeling revenue of $9.36 billion and 56 cents per share in profit.

As with last quarter, the fly in the ointment for revenue growth is the company’s hardware business. Revenue for those products is expected to be flat with last quarter, at best, to down as much as 5% for the quarter, although it also expects another expansion of gross profit margin for the product line.

Oracle shares are up 73 cents, or 3%, at $29.08.

During the Q&A, the first question was about the hardware business. CEO Larry Ellison emphasized that Oracle is unconcerned about lackluster results in selling servers based on Intel’s (INTC) chip technology, which is the “low-end” hardware that Oracle says has held back growth for the hardware division overall.

“I don’t care if our commodity x86 business goes to zero,” said Ellison. “We have no interest in those things. We don’t make money selling other people’s intellectual property. Sun [Microsystems] sold that stuff and we are phasing it out. We have no interest in that business. We want to meet [chief financial officer] Safra [Catz's] goal, which is getting back to our pre-Sun margins.”

“Sun had a practice of selling x86 servers at very low margins,” Ellison continued, later in the call, when again pressed by analysts to explain.

“And we reward our sales team for selling products with higher margin. So, we don’t reward them for selling x86. But our servers, Sparc and Exaline, are growing, and so are our storage systems [including] Exadata.”

Ellison suggested that next fiscal year, most of the x86 drag will be out of the hardware business and total hardware revenue will start to grow again. He said in the meantime, people should focus on margin and profit improvement in hardware.