Ellison: Oracle's Hardware Business Won't Grow This Fiscal Year After All

For months, Oracle CEO Larry Ellison has been saying that the company's hardware business was going to stop shrinking by February and start growing by May.

Now Ellison is saying something else: The turnaround for the hardware business won't happen until the quarter that ends in August, Oracle's fiscal Q1, 2014. Big growth won't happen until next year.

Oracle posted its latest quarter yesterday and hardware revenues declined by 23 percent from the year-ago quarter, $671 million versus $869 million.

Investors have been waiting since 2010 for Oracle to make good on its $7.4 billion acquisition of Sun Microsystems. Oracle closed the deal in January, 2010. By 2012, with revenue shrinking, it was regarded by Valley insiders as one of the company's worst-ever acquisitions. It also turned Oracle into a competitor with HP, its most important partner. That lead to lawsuits between the two. HP is in court right now, trying to collect from Oracle $4 billion in damages.

Ellison has always defended the purchase, claiming that, "Sun has been, by far, our most profitable acquisition. Sun's already paid for itself."

He said the drop in revenue was planned because Oracle was trimming away Sun's low-margin commodity products to focus on more profitable pieces, what he calls "engineered systems." Engineered systems combine hardware and software, all designed to work together.

It was all going to balance out by February when revenues would stop declining, he promised.

Wall Street generally likes this vision, but eventually enterprise customers need to buy into it, too.

Here's what Ellison told analysts about the turnaround on Oracle's quarterly conference call yesterday.

"We think Q4 will be better than Q3, as far as the hardware is concerned, but I think we expect the turnaround really to begin in Q1, not in Q4, because we have this large introduction of new systems. ....... Again, I think Q1 you're going to see a big turnaround, and next year will be a big growth year for our entire hardware business. The front line and all of the engineered systems."