Despite of favourable court ruling that ordered Oracle to support systems powered by Intel Itanium microprocessors with latest software, sales of Hewlett-Packard's business critical systems (BCS) not only again declined in Q3 of fiscal 2012, but even hit five-years low.
"Business critical systems revenue declined 16% year-over-year. Within BCS, NonStop server revenue grew double-digits, but BCS performance continued to be impacted by Itanium revenue decline, even with the first ruling in the Oracle Itanium case going in our favor," said Catherine Lesjak, chief financial officer of HP, during a conference call with financial analysts.
HP's enterprise servers, storage and networking (ESSN) division earned last quarter $5.1 billion in revenue, which is 4% lower compared to the same quarter a year ago because of declines in demand for storage solutions and business critical systems. Operating profit of the whole division was $562 million.
Revenue that HP received for its business critical machines totaled $357 million which is a five-years low. The continuing decline of demand for HP's mission critical servers is a direct result of Oracle's decision to stop releasing new software for Intel Itanium-based systems in March, 2011. Since the Q1 FY2011, HP's BCS revenue contracted by around 33%, or by nearly $200 million.
Still, it should be noted that in general sales of business critical servers started to decline in late calendar 2008 (Q1 FY2009) along with the global financial crisis. In fact, even now HP blames for moderate ESSN results not only the Itanium situation, but also softness of the EMEA market.
In early 2011 Oracle said it would not release new versions of its popular server software for platforms based on Itanium microprocessor. Oracle believes that HP mislead its customers by not disclosing peculiarities of Itanium's future and that Oracle's own decision to stop developing new software for Itanium was fully legitimate. HP believes that Oracle breached a contract and did so in a bid to improve competitive landscape on the business-critical server market in favour of its own Sun SPARC servers.
Hewlett-Packard needs to keep Itanium microprocessor alive and improving for several years from now because its mission-critical platforms, such as HP-UX, OpenVMS or NonStop, rely on those chips and it will take years before they are ported to Intel Xeon architecture. But HP may need to speed-up its porting efforts as sales of its Integrity and Superdome IA64-based machines have been declining for several consecutive quarters now.