Engineered systems are a silver lining to Oracle’s hardware losses

Oracle is losing share in the server hardware market

Oracle’s (ORCL) hardware systems business consists of two operating segments: hardware systems products and hardware systems support. The hardware systems products consist of servers, storage, networking, virtualization software, and operating systems. Oracle recently released its fiscal Q3 2014 results. Its hardware products business grew 8%, and its hardware support business grew 5% over the same quarter last year. However, when we compare Oracle with its competitors in the server systems market, the company lost some market share in 2013 from 2012.

According to a report from IDC, Oracle’s share in the server systems market declined from 5.1% in 2012 to 4.7% in 2013. HP (HPQ), IBM (IBM), and Dell (DELL) are some of the bigger players to which Oracle lost share, while Cisco (CSCO) is a smaller but rising player in this market. As per the chart below, Oracle faces stiff competition in this market.

Engineered systems are a silver lining to Oracle’s hardware losses

Exadata and Exalytics are a bright spot

Exadata is Oracle’s transactional and database system, while Exalytics is Oracle’s hardware and software integrated in-memory analytics servers. These are high-end servers built by Oracle, and the company has named them under the umbrella “Oracle Engineered Systems.” During the company’s conference call to announce earnings, management mentioned that Exadata and Exalytics remain the bright spot in an otherwise declining high-end server product line.

Management mentioned IBM. Larry Ellison, Oracle’s chief executive office, said, “Oracle engineered systems including Exadata, SPARC SuperCluster achieved the 30% constant currency growth rate in the quarter. While throughout the industry traditional high-end server product lines are in steep decline. Our engineered systems business is growing rapidly for the same fundamental reasons that our cloud applications business is growing rapidly. In both cases, customers want us to integrate the hardware and software, and make it work together so they don’t have to.”

Ellison further commented, “Five years ago, we delivered our first Exadata Machine, in the next few months, we will deliver our 10,000 engineered system. We believe Oracle’s engineered systems are well on their way to replacing IBM T Series as the leader in high-end computing.”