Hewlett-Packard’s critical condition

Hewlett-Packard was celebrating a legal victory earlier this month, after a California court ruled that software and system giant Oracle must continue to support Intel's Itanium chips.

Oracle had announced – via press release, without warning HP – that it would discontinue support back in Marck 2011. This would have meant that its ubiquitous database software and business applications would not have worked on HP’s UNIX-based "mission critical" server range, which uses Itanium chips  – a significant blow to HP.

The court ruled that this announcement went against an agreement that Oracle co-president Safra Katz and HP’s former enterprise chief Anne Livermore had reached in 2010, pledging their mutual commitment to their shared customers.

Oracle’s decision was "was both inconsitent with the parties’ course of dealing and unprecendented in Oracle’s history," the ruling read. The court ruled that Oracle must continue to support Itanium "until such time as HP discontinues the sale of its Itanium-based servers."

So, Oracle’s appeal notwithstanding, is HP off the hook? Can it relax in the knowledge that one of its higher margin business lines will continue to rake in cash for years to come?

Not exactly, says Nathaniel Martinez, European programme director for enterprise servers at analyst company IDC. "I would say that most of the damage [to HP] has already been done," he says.  

For one thing, Oracle is hardly likely to be the most co-operative of development partners from now on, he says. "The relationship is strained and I’m not sure Oracle will put in their very best effort," Martinez explains. "HP may have to litigate again against Oracle, which is a risk that customers and prospects need to evaluate."

Secondly, court documents released by Oracle during the trial confirmed its accusation that HP had paid Intel to keep Itanium going. This is not so surprising – HP had designed the chip in the first place, and its development was always a collaboration between the two companies.

HP paints its agreement with Intel as a sign of its commitment to its UNIX-based server range. "Intel and HP have issued the longest commitment in the market on a proprietary UNIX processor and committed its availability for at least 10 years," a spokesperson told Information Age. "No other vendor has had the courage to commit publicly on the availability of their UNIX processor."

Still, for customers evaluating the technology platform options for their mission critical systems, the revelation must have cast some doubt over the long term viability of HP’s "mission critical" range.

The back-drop to this story is the gradual move away from UNIX-based servers towards cheaper, x86-based servers, even for "mission critical" servers. HP itself has acknowledged this trend, last year announcing a forthcoming range of servers that incorporate x86 chips for certain workloads.

Martinez says that while some systems will not move to x86 chips – "like mainframes, mission critical servers will never go away entirely," he says – the possibility is putting price pressure on the mission critical market.

This is most damaging for HP, he says. IBM, who Martinez describes as the "winning party" in HP and Oracle’s dispute as its share of the UNIX server market has increased, has a software and services business for which its UNIX-based servers can serve as a loss-leader.

Meanwhile, HP’s software strategy is still in formulation, and its services business is in disarray –  as seen from the recent $8 billion write-down of its acquisition of EDS. It is therefore not clear where it could make up any lost profitability from its mission critical server business. (HP was unable to comment on this analysis, as it was in its "quiet period" at the time of writing).

While HP was vindicated in its legal dispute with Oracle, the underlying issue – the viability of its mission critical server business – is still open to question.  

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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