Oracle Claim: Sun Is Rising, SAP Is Falling

There’s a Miracle on Ice. A Miracle on the Hudson. And a Miracle on 49th Street. Now, there’s a Miracle in Redwood City, where Oracle has quickly restored Sun Microsystems’ business to profitability. How exactly did that happen? Oracle shares some details in its June 24 quarterly financial release, while taking another round of competitive shots at SAP. Here are the details.

Oracle wrapped up its Q4 2010 in May 2010. The latest earnings release, issued June 24, focused on Sun momentum. According to a prepared statement from Oracle CFO Jeff Epstein:

“We executed better than expected on both the top and bottom line for the quarter. This strong performance plus disciplined business management led to a non-GAAP operating margin of 46% in Q4, fully including the $1.2 billion of Sun systems hardware that we sold in the quarter.”

Oracle President Safra Catz offered deeper insights into the Sun business. In a prepared statement, Catz said:

“We estimate that Sun contributed over $400 million to non-GAAP operating income in our Q4. This compares with a loss in Sun’s quarter ending June of last year, when Sun was an independent company. Now that Sun is profitable, we have increased confidence that we will meet or exceed our goal of Sun contributing $1.5 billion to non-GAAP operating income in FY2011, and $2.0 billion in FY2012.”

How did Oracle restore Sun to profitability so quickly? No doubt, cost cuts certainly help. But Oracle has also brought focus to Sun. For instance, Sun no longer plans to re-sell third-party hardware. Instead, Oracle Channel Chief Judson Althoff has been calling on partners to promote Sun’s storage and server offerings. Moreover, Sun will be a major focus during an Oracle FY11 kickoff event for channel partners, the company says.

Still Attacking SAP

Meanwhile, Oracle continues to attack SAP at every opportunity. In the Oracle earnings release, Oracle President Charles Phillips said:

“We continue to take large chunks of market share away from SAP. Over the last twelve months Oracle’s applications business has grown 5% on a constant dollar basis while SAP’s business has declined 24% over their previous four quarters. This trend has been going on for a long time: Oracle’s applications business has grown 60% in the last four years while SAP’s business is 7% smaller than it was four years ago.”

Sounds like a bleak situation for SAP — until you speak with with SAP insiders. No doubt, SAP has hit some product and management bumps in recent years. However:

• SAP Channel Chief Kevin Gilroy in May 2010 told The VAR Guy that SAP was winning 25 new customers per day.
• After several delays, SAP’s SaaS platform — called Business ByDesign — seems to be attracting partner interest.
• The SAP Community Network — a global social network — seems to be thriving with customer and partner engagements.
• And SAP’s first quarter 2010 results showed a “return to growth,” according to the company.

Reality Checks

All that said, Oracle and SAP both face some lingering challenges. At Oracle, the company will need to prove that Sun’s business really can generate long-term growth despite fierce competition from x86 hardware, Windows Server and Linux. And at SAP, the company will need to digest and accelerate the recently acquired Sybase database business while Gilroy continues to promote channel-centric sales.

F0r its part, Oracle will provide three key channel partner updates in the weeks and months ahead. First, Oracle will host a FY11 kick-off event for partners on June 29. Then, Oracle will step in front of channel partners during the Avnet Technology Solutions Partner Summit (July 26-28, Broomfield, Colo.). Finally, Oracle OpenWorld 2010 (Sept. 19-23, San Francisco) will include additional partner updates.

Sign up for The VAR Guy’s Newsletter, Webcasts and Resource Center. And follow him via RSS; Facebook, Identi.ca and Twitter.