Oracle Outlines Post Merger Roadmap

Jan 28, 2010 (07:01 AM EST)

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Now that Oracle has finalized its $7.4-billion acquisition of Sun Microsystems, it is reassuring Sun customers that they can rely on the newly combined entity to support their UltraSparc- and Solaris-based systems--and a lot more, if they're willing to buy integrated hardware/software packages.

Oracle will add stacks of software, including its 11g database, Oracle business applications and Fusion middleware, to UltraSparc servers along with the operating system. Customers can get virtualization software from Oracle as well in the form of Oracle VM and Oracle Enterprise Management. All the pieces will be certified to work together and optimized for maximum performance.

"Our vision for 2010 is the same as IBM's in the 1960s," said Oracle CEO Larry Ellison as he closed out five hours of briefings Wednesday at Oracle headquarters in Redwood Shores, Calif. He noted that IBM integrated hardware with software and sold the combination as the mainframe, which became the centerpiece of the data center.

"We like that strategy a lot and we're going to adopt it," Ellison added.

An early example is the Exadata database machine, a blade server cluster with Flash memory and storage in a single box. Oracle produced the machine with Sun hardware shortly after acquisition plans were announced April 20.

Despite the focus on combined hardware/software products, Ellison took pains to emphasize that Oracle will continue to sell separate products. "That doesn't mean we're getting out of the component business. Our goal is to build the best of breed componentsand we're going to integrate those components together" into hardware appliances.

"We can deliver better integration than IBM," Ellison added.

IBM was a name which came up frequently in Ellison's talk. A key difference between what IBM did with the mainframe and Oracle's current product plans are Oracle products will be built to public standards, such as the Java programming language, he added.

Oracle 's R&D spending in fiscal 2011, already underway, will be $4.3 billion or nearly triple the amount that it spent in 2004, the year it initiated the PeopleSoft hostile takeover. It has executed 60 acquisitions since then and built out a massive application and middleware product list. No other company can offer all the product lines that Oracle can, Ellison said. And no other company can integrate an end-to-end set of products, from the applications to the disk and tape drives, he added.

In his opening talk, Oracle President Charles Phillips cited the Exadata machine as an example of how Oracle will "re-energize assets at Sun. Oracle brings instant credibility back to Sun's superior products," Phillips said. "We want to transform the industry."

One way it plans to do so is to build in more diagnostics and event reporting in its hardware/software appliances. In some cases, telemetry will report from the customer site back to Oracle support centers, where technicians will examine customer configurations and advise them if something appears wrong.

"We will monitor customer systems and proactively give recommendations," said Thomas Kurian, executive VP of Oracle middleware.

One way Oracle thinks complicated hardware and software combinations can be made profitable is through a reduction in system faults and breakdowns. If it configures a software stack and monitors how the customer uses it, Oracle thinks the combination will encounter fewer support issues.

Customers will see less downtime, a win/win situation for both parties, it hopes. Customers often incur support problems when a system administrator changes a configuration without realizing the impact it will have, so change management will be a key ingredient of Oracle's new approach to support.

Oracle will also refresh the Sun hardware line this year to make its hardware/software combinations more competitive. "Our UltraSparc roadmap has never been more robust," said Mark Splain, senior VP of microelectronics at Oracle, speaking at the Wednesday briefing.

The next generation of UltraSparc will go beyond the eight-core chips in the current T2 generation. T3 will double the number of cores and will be out in 2010, Splain said. Several hundred analysts, partners and press attended the Oracle event.

Oracle officials refused to concede any ground to the growing power of Intel and AMD servers or the x86 architecture. Critics of the merger say low-end x86 servers are emerging as key competitors in the enterprise data center.

They are just "commodity plays," Phillips said, and Oracle will leave them to companies such as Dell. Oracle is focused on satisfying the needs of the world's largest enterprises and its sales force would be given incentives "to push toward the value-added products," he said.

Despite its bold predictions, Oracle was less precise on some areas of current operations. Ellison repeated his prediction that acquiring Sun will add $1.5 billion to Oracle profitability in the first full year after it's completed but a key component will have to be a return of UltraSparc hardware sales, which have languished as the Oracle takeover dragged out for nine months.

Asked by InformationWeek if Sun's UltraSparc sales grew in 2009 or shrank, John Fowler, a former Sun executive who is now Oracle's executive VP of hardware, said 2009 was "a complicated a period with interrupted sales cycles" that made it too hard to say.

HP and IBM have repeatedly said they've been able to poach Sun customers as doubts arose over Oracle's hardware plans. IBM recently claimed 200 Sun customers "moved critical workloads" to IBM's AIX servers in the fourth quarter. Fowler pointed to benchmarks of the Exadata database machine and four UltraSparc chips currently under development as proof that the architecture is still viable. "Let's look forward to 2010," Fowler said.

Asked how Oracle could assume its hardware/software combinations would meet brisk demand when Sun hadn't been able to sell enough hardware to stay in business, Fowler again responded: "Oracle is a much more business-efficient company than Sun was and reaches a larger audience It will not incur all the costs of the two companies," he said.

CFO Jeff Epstein said Oracle has a history of acquiring companies with low margins and successfully integrating them into its operations. When it began its acquisition spree in 2004, Oracle had margins of 39%. After 60-plus acquisitions, it has margins of 46%, he pointed out. Sun, he conceded, will be a challenge; it currently has zero margins and is losing an estimated $100 million a month.

Ellison himself pointed to Sun's large customer base of 35,000 and said Oracle will concentrate in particular on the top 4,000 customers. It will establish a direct sales force to deal with them in a "high touch relationship" that keeps them engaged and potentially open to buying more Oracle products.

On the issue of head count, Ellison chastised an analyst report that Oracle would lay off "up to half of the Sun workforce."

"Over the next 12 months we will hire 2,000 people twice as many as we layoff," he said. But Oracle officials declined to say exactly how many Sun employees have survived until Jan. 27 to be part of the acquisition. After Ellison finished, Oracle spokesmen urged the press not to take the "twice as many as we layoff" too literally. No numbers have been set for layoffs yet, they said.