Oracle Corp. (ORCL) recently unveiled a new suite of pre-assembled machines and software, namely SPARC SuperCluster T4-4. SPARC SuperCluster T4-4 includes servers as well as storage and other technologies.
The SPARC SuperCluster T4-4 integrates SPARC T4 servers (which run on the new SPARC T4 processor) with Oracle Solaris 11, Exadata storage, and the middleware offering of Exalogic Elastic Cloud. The new server line supports up to four compute nodes and four terabytes of memory in a single rack, and can be upgraded to an eight-rack system.
SPARC SuperCluster T4-4 server combines both hardware and software solutions that deliver the highest performance, security and manageability at the lowest cost. According to Oracle, the new server will outperform Hewlett Packard Co.’s (HPQ) Superdome 2 systems and International Business Machine Corp.’s (IBM) POWER7-based systems, and deliver twice the performance at half the cost of running database and enterprise applications.
According to research firm IDC, Oracle was placed #4 jointly with Fujitsu in the global server market with 7.2% of revenue share in the second quarter of 2011, behind IBM and HP that were in the #1 and #2 positions, with 30.5% and 29.8% market share, respectively. Dell was placed in the third position with 13.8% market share during the quarter.
However, Oracle’s market share dropped 90 basis points (bps) from the year-ago period, primarily on account of strong competition from x86 servers and Oracle’s policy of selling SUN servers at high margins.
The hardware business suffered in the first quarter of 2012, with revenues declining 4.2% year over year due to lower volume. We also believe that lower IT spending in the quarter, due to the sluggish macro environment prevailing in both the U.S. and Europe/Middle East/Africa (EMEA), may have also contributed to the decline.
We believe the new server line will take some time (at least three to four quarters) to generate significant market share growth to Oracle. This is particularly due to the uncertain macro environment in both the Americas and EMEA. As Oracle sells high-margin products compared to its competitors, we believe that the sluggish market conditions and lower IT spending may hurt its hardware volume going forward.
Our Take
We believe Oracle has a strong product pipeline, which will drive broad-based top-line growth going forward. Moreover, rapid adoption of Exadata, Exalogic and solid growth in the software business will drive incremental top-line growth going forward.
We expect the product portfolio to provide Oracle a competitive edge over International Business Machines Corp. and SAP AG (SAP) in the softwaremarket going forward. However, the company is expected to face stiff competition from IBM, HP, Dell Inc. (DELL) and Cisco Inc. (CSCO) in the hardware segment going forward.
We maintain a long-term (6–12 months) Neutral recommendation on Oracle shares. Currently, Oracle has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
DELL INC (DELL): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
ORACLE CORP (ORCL): Free Stock Analysis Report
SAP AG ADR (SAP): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment