Red Hat, Inc. (RHT), Oracle Corporation (ORCL), and the Evolution of OpenStack

Recently, Oracle Corporation (NASDAQ:ORCL) reported less than impressive third-quarter earnings. Hardware systems revenue was down 17% year over year, which is not new for the company. As the decline in hardware revenue accelerates, management still continues to prime the pump for the release of the T5 and M-Series servers, claiming that some of the decline in revenue can be attributed to the fact that customers have been holding off on new purchases in anticipation of the new products.

During the conference call, Oracle cited poor performance on the part of the sales team as the primary cause of the earnings miss. However, I think this is probably a reflection of leaderships’ reluctance to admit that the hardware business segment has been mismanaged since its inception.

Software revenue grew at a sluggish 4% from the previous quarter. However, new software licensing and software subscriptions declined 2%, indicating that customers could be opting for alternative products to satisfy their IT needs. The 2% decline could be a significant metric to watch going forward, as the company typically maintains a 7% quarterly average growth rate in this segment.

On a positive note, Oracle Corporation (NASDAQ:ORCL) continues to attract big clients in need of the wide breadth of products and services that it provides. Many corporations have used Oracle as a one stop shop for all of their IT needs, given that the company is so highly diversified in the software and database arenas; however, this exclusivity is working against the company with the evolution of open source cloud computing.

One size doesn’t fit all.

Although Oracle Corporation (NASDAQ:ORCL) maintains a level of dominance in the software industry, techies argue that the company is difficult to work with, citing expensive products and limited flexibility in terms of product selection and support. New companies entering the cloud space are finding ways to capitalize on this discontent by offering flexible open cloud options, that allow customers to mix and match cloud providers with software vendors like Oracle.

Oracle Corporation (NASDAQ:ORCL)’s decision to focus on engineered solutions through their fledgling hardware business has caused them to miss an opportunity to develop a more customer friendly presence in the cloud arena, and that is why they are witnessing the decline in new customer subscriptions.

Red Hat, Inc. (NYSE:RHT) steps in