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Why Did Hewlett Packard Enterprise Sue Oracle?

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Oracle is being sued by HPE

Earlier in the series, we discussed the lawsuits Oracle (ORCL) has been involved with recently. On June 1, 2016, Hewlett Packard Enterprise (HPE) asked Oracle to pay $3 billion in compensation for supposedly causing a fall in the demand for its Itanium-based offerings.

HP stated that Oracle “breached a clear contractual obligation to HP and acted in bad faith, with the intention of driving hardware sales from HP’s Itanium to Oracle’s Sun servers.”

Oracle had agreed on the software development for Itanium, a chip that HPE is dependent on for its selective servers. But in 2011, Oracle reneged on the contract, so HPE sued Oracle for breach of contract.

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According to USA Today, Crawford Del Prete, chief research officer at the IDC, stated that the base of this case is that sales from HP’s Business Critical Systems segment fell after Oracle reneged on Itanium. He further stated, “HP’s argument is if Oracle said it won’t support software, or gave that impression, why would large businesses invest in that platform?” According to Synergy Research, HPE led the global private cloud hardware market in 1Q16.

Oracle’s previous infringement claim against HPE

This isn’t the only lawsuit between Oracle and Hewlett Packard Enterprise. On March 22, 2016, Oracle sued Hewlett Packard Enterprise for copyright infringement. Oracle’s lawsuit alleged that Hewlett Packard Enterprise partnered illegally with Terix Computer Service, a third-party software support provider, to offer enterprise support for Oracle’s Solaris OS (operating system).

The Oracle-HPE lawsuit is a case in the third-party maintenance and support area of the tech space. Customers purchase support services from a third party for less than they would typically pay primary licensing vendors such as Microsoft (MSFT), IBM (IBM), and Oracle. So cost is a major factor that’s creating these situations.

Investors who want to gain exposure to Oracle could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~3% of its holdings in Oracle, it also has 31% exposure to application software.

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