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Oracle Witnesses a Declining Hardware Business Trend

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Hardware business trend

Oracle (ORCL) has witnessed a declining trend in its hardware business. Softness in its hardware business is primarily attributable to the ongoing transition of the data warehouse to the cloud. 

Most organizations prefers cloud over on-premise data storage, which reduces costs in terms of maintaining huge IT teams. Transition to the cloud also offers more robust security and management of data sets in the cloud. In the last five quarters, Oracle’s Hardware business has declined at a CAGR (compound annual growth rate) of 1.0%.

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Oracle’s Hardware business offers a wide range of hardware products and hardware-related software products. These products include Oracle Engineered Systems, servers, storage, industry-specific hardware, and virtualization software. Its products also include operating systems, management software, and related hardware services including hardware support. 

From the graph above, we can see the revenue trend of Oracle’s Hardware business. In fiscal 3Q18, revenues from its Hardware unit came in at ~$944.0 million, a decrease of 3.0% YoY (year-over-year).

Outlook

At the end of fiscal 9M18, Oracle (ORCL) generated total revenues of $2.9 billion from the Hardware segment, compared with $3.0 billion in fiscal 9M17. The segment’s revenues from the Asia-Pacific and American regions fell 8.0% and 9.0%, respectively, YoY. In the same period, only the EMEA (Europe, Middle East, and Africa) region witnessed 8.0% YoY growth.

Oracle expects its Hardware segment to generate lower operating margins than its Cloud and On-Premise Software business. This decline is primarily attributable to the higher expenses the company incurred to produce and distribute these products. The rising costs of raw materials and labor expenses may also suppress its Hardware segment’s margins.

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