Oracle hardware revenue: Same sad song

Oracle(s orcl) continues to claim that sales of its servers, or engineered systems, are highly profitable. But the revenue it derives from hardware continues to fall — by quite a bit. Server revenue for fourth quarter ended May 31, 2013, was off 13 percent to $849 million from $977 million year-over-year for Oracle’s fourth fiscal quarter ending May 31, 2013.

That comes after a dismal third quarter when hardware systems revenue was off 23 percent from the year-ago period.

Despite the downward trajectory, Oracle co-president Safra Catz characterized the $849 million in revenue as “better than expected” and said that the company’s high-end engineered systems (Exadata, Exalogic et al) had “another spectacular quarter.” Gross margins on hardware were 51 percent as Oracle focuses on high-end exa-systems and less on low-end boxes, she said.

Catz also said she believes the company has seen “the last of annual hardware revenue declines.” Oracle’s got to be hoping so. When it acquired Sun Microsystems for more than $7 billion in 2009, Catz and company said they expected to wring near-software-like- margins out of hardware — no mean feat. But the problem is that sales of the high-end boxes have not offset the decline in sales of the lower end servers.

Oracle CEO Larry Ellison said engineered systems now comprise more than a third of Oracle’s hardware revenue and that the refurbished SPARC server line including the M5 and T5 will boost sales. “We might see overall hardware growth this Q1 and we will see overall hardware growth for the full fiscal year.” (The transcript of Oracle’s earnings call is here.)

Still, it’s hard to paint this in a good light, given that Oracle’s share of the server market continues to spiral downward. For the full 2012 calendar year, Oracle’s server revenue was off 26.2 percent and its market share fell to 4.8 percent from 6 percent in 2011, according to market researcher IDC.

In a new wrinkle, Oracle’s decision to team up with Dell (s dell) — which is now a “preferred X86 server partner” —  may indicate that Oracle will completely jettison its low-end server business and focus on the richer margin boxes. But let’s face it, someone buying a Dell box preconfigured with Oracle’s database and other software is not likely to buy an Oracle Exadata machine as well.