Oracle will stay in the hardware business, Ellison says

Oracle plans to stay in the hardware business following its planned US$7.4 billion acquisition of Sun Microsystems, CEO Larry Ellison has said, adding more detail to earlier statements made by the company.

"We are definitely not going to exit the hardware business," Ellison said, according to a transcript of an interview with Reuters that was filed with the U.S. Securities and Exchange Commission Thursday.

Oracle was primarily interested in Sun's Solaris OS and its Java software, which Oracle relies on for many of its applications. But Sun also has a significant hardware business, which includes servers and its family of Sparc microprocessors, and Ellison plans to keep them around as a key component of Oracle's business.

"While most hardware businesses are low-margin, companies like Apple and Cisco enjoy very high-margins because they do a good job of designing their hardware and software to work together," Ellison said. "If a company designs both hardware and software, it can build much better systems than if they only design the software. That's why Apple's iPhone is so much better than Microsoft phones."

Ellison's comments confirm Oracle's intention to maintain and grow Sun's hardware business, which were outlined in general terms in an April 20 document that discussed Oracle's plans for Sun.

"After the closing, Oracle plans to be the only company that can engineer an integrated system where all the pieces fit and work together so customers do not have to do it themselves," Oracle said at that time.

Even so, many suspected Oracle intended to sell or close parts of Sun's hardware business.

"Larry Ellison, with one short interview, has turned the server side of the industry on its head. Many industry observers and players believed that Oracle would either sell or wind down Sun's hardware business," said Dan Olds, principal analyst with Gabriel Consulting Group.

"This should prompt concern and late nights at Dell, Hewlett Packard, and IBM headquarters. Oracle is a factor in a large percentage of enterprise server deals, and if Oracle has a compelling integrated hardware and software solution, it will be more difficult for the other vendors to compete with," Olds said.

After the acquisition of Sun goes through, Oracle plans to step up investments in the Sparc processor. Unlike Intel's Xeon family of microprocessors or Advanced Micro Devices' Opteron chips, Sparc doesn't work with software written for the x86 instruction set. But Ellison sees value in having control over features at the silicon level of its hardware systems.

"Once we own Sun we're going to increase the investment in Sparc. We think designing our own chips is very, very important. Even Apple is designing its own chips these days," Ellison said. "Right now, Sparc chips do some things better than Intel chips and vice-versa. For example, Sparc is much more energy efficient than Intel while delivering the same performance on a per socket basis."

"Sparc machines are much less expensive to run than Intel machines," he said.

Ellison also announced a desire to continue working with Fujitsu on future development of Sparc. Fujitsu sells its own line of Sparc servers and has long worked with Sun on development of servers based on the chips.

"We want to work with Fujitsu to design advanced features into the Sparc microprocessor aimed at improving Oracle database performance. In my opinion, this will enable Sparc Solaris open-system mainframes and servers to challenge IBM's dominance in the data center," he said.

(James Niccolai, in San Francisco, contributed to this report.)

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