Here's One Big Reason Oracle's Hardware Biz Is Tanking

With every quarter, Oracle's $7.5 billion purchase of Sun looks like a bigger failure.

Analysts say that Oracle simply doesn't know how to sell hardware, and it doesn't know how to treat the people that should be doing the selling for it -- its partners.
Oracle "put direct people from the software business in charge of hardware channels. It's clearly not working, the business is sinking quickly," Steve Brazier, CEO of channel analyst firm Canalys told the Channel Register.
In its last quarter, hardware sales and support revenue fell from nearly $1.7 billion in the year ago quarter to about $1.5 billion. That's part of a bigger trend. Over the first three quarters, Oracle booked $4.7 billion for hardware, compared to $5.1 billion in the same period last year. Hardware makes up 16% of Oracle's total revenues, with software at 71% and services at 13%.
The problem is that Oracle competes with its own resellers, selling its hardware directly to customers and grabbing renewal revenue for itself. With that kind of strategy, what's the motivation for a reseller to push Oracle over rivals HP and IBM?

But Oracle expected as much. In its last annual report filed with the SEC, it said so plain and clear:

"Our strategy of transitioning to a mixed direct and indirect sales model for our hardware systems products may not succeed and could result in lower hardware revenues or profits .... Although we will continue to sell our hardware systems products through indirect channels .... we have enhanced our direct sales coverage for our hardware products and intend that our direct sales force will sell a larger portion of our hardware products in the future than they do now .... Our relationships with some of our channel partners may deteriorate ..."

There was some hope that this would change. In January, Oracle hired away one of HP's top channel sales executives, Tom LaRocca. Oracle's apparent hope was to steal HP's resellers. But it's tough to convince HP channel partners to jump ship when Oracle's salesforce is competing directly against them.

By Julie Bort | Apr. 2, 2012, 3:01 PM |
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