Oracle Owes Big Quarter to Sun Hardware, Software, and Fast Talking

Last Updated Jun 25, 2010 4:41 PM EDT

Although it initially wanted Sun Microsystems for its software assets, Oracle (ORCL) resigned itself to taking on Sun's hardware line as well when it acquired the company. Now Oracle has reversed its initial stance on Sun, and brags about the $1.2 billion in hardware sales last quarter as a boost in the company's 39 percent year-over-year growth.

However, all is hardly well with Sun. Look back a year to when the company was independent. In the closest comparable quarter, ending April 2009, hardware product sales were $1.5 billion. Even in its last independent quarter, Sun sold $1.2 billion in hardware. This isn't a product line that is flourishing. Furthermore, by touting hardware and ignoring the service business that Sun brought, Oracle distracts from how its business alone did year-over-year: 11.8 percent, not 39 percent.

In August 2009, Oracle wanted Sun for its software, not hardware. At the time, Fortune covered the rumors that Oracle would sell off the hardware business to another server company:
Why would Ellison want to give up Sun's hardware? Actually, he never wanted it in the first place. Oracle's first offer to Sun was for just the software business, regulatory filings show. Oracle is a software company after all, and while it certainly has the wherewithal to transform itself into something else, it might not be worth the hassle â€" or the ding to its profit margins.
But hardware came along, and now Oracle embraces it. The earnings release that came out yesterday stressed the role of Sun hardware:
"We executed better than expected on both the top and bottom line for the quarter," said Oracle CFO, Jeff Epstein. "This strong performance plus disciplined business management led to a non-GAAP operating margin of 46% in Q4, fully including the $1.2 billion of Sun systems hardware that we sold in the quarter."

"We estimate that Sun contributed over $400 million to non-GAAP operating income in our Q4," said Oracle President, Safra Catz. "This compares with a loss in Sun's quarter ending June of last year, when Sun was an independent company. Now that Sun is profitable, we have increased confidence that we will meet or exceed our goal of Sun contributing $1.5 billion to non-GAAP operating income in FY2011, and $2.0 billion in FY2012."
Notice something? Oracle has left out other parts of Sun's business. Check Sun's 10-Q for the quarter that ended September 2009 and you see total net revenue of $2.24 billion -- a darned sight larger than $1.2 billion in hardware. In fact, in that quarter, Sun had product sales of about $1.187 billion and an additional $1.056 in service revenue.

Look deeper into Oracle's release and you see revenue for hardware systems products and hardware systems support. These total $1.831 billion, or 19 percent of total revenue. Assuming for a moment that this matches to Sun's server products, storage products, support services, and professional and educational services, Oracle's revenue without Sun's contribution would have been $7.674 billion. That would have been 11.8 percent growth. Hardly a cause for embarrassment, but not the 39 percent that Oracle was able to record.

Related: Image: RGBStock.com user Felipedan, site standard license.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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