Server revenue of Oracle Corp.’s dropped 16% quarter-over-quarter to $869 million during the third quarter of fiscal year 2012. The company attributed lowering server revenue to declines in sales of “defocused” x86 product lines, but noted that shipments of its proprietary machines, including the latest SPARC T4, were up. Oracle noted that thanks to sales of proprietary technologies its margins improved.

“Hardware systems revenue was $869 million for the quarter, due to the continued reduction in some of our defocused product lines. Hardware gross margins were 51% for the quarter,” said Safra Catz, chief financial officer of Oracle.

Oracle this week said its total revenues were up 3% to $9.0 billion, operating income was up 11% to $3.3 billion, operating margin was 37%, based on GAAP accounting principles and net income was up 18% to $2.5 billion. Operating cash flow on a trailing twelve-month basis was $13.5 billion. Software license revenues were up 7% to $2.4 billion, software license updates and product support revenues were up 8% to $4.1 billion. Hardware systems products revenues were down 16% to $869 million.

Oracle claims it is on-track to deliver the highest operating margin in its history as an integrated hardware and software company by focusing on high margin systems where hardware and software are engineered to work together. As a result, the company openly says that it is not interested in selling x86-based solutions. Oracle believes that once it ramps up its latest-generation hardware and software, its server revenue will begin to grow.

“Next year our overall hardware business will be a growth story. Exalogic, Exadata, Exalytics will have scaled to the point where it is big enough and a rapid growth to more than offset the decline in some of the commodity lines like the x86 line. […] What we care about is where we enrich the hardware with our own IP: software and silicon. SPARC T4 is doing very well and it is doing extremely well. We are about to refresh the rest of the SPARC line […] when we do that, we are going to be in much better shape; that is going to happen around the end of this calendar year,” said Larry Ellison, chief executive officer, during conference call with financial analysts.

Sales of Oracle’s engineered systems are indeed growing and it seems that eventually it will be able to completely get rid of x86-based servers business.

“Hardware revenue for our engineered systems grew 139% this quarter and going into Q4, we have a record pipeline,” said Mark Hurd, the president of Oracle.

Tags: Oracle, Sun, Sun Microsystems, Sparc, Xeon, x86, Solaris