So what happened? A few things, as Oracle execs tried to explain on a conference call.

• The currency effect: As President and CFO Safra Catz explained, what had been a 1 percent tailwind for currency effects turned into a 2 percent headwind. With all the violent swings in the value of currencies around the world as compared to the U.S. dollar, Oracle suffered a negative effect that pinched revenue.

• Deals didn’t close during the quarter: Catz said that in the final days and weeks of the quarter, some customers added an extra layer of executive approval to close deals to buy Oracle stuff. That meant that some deals Oracle had expected to close before the quarter’s end moved into the next quarter. Catz said that Oracle has taken steps to better manage deal flow to take this into account. It is consistent, however, with recent statements from other enterprise IT vendors, like IBM and NetApp.
• Transitions: Oracle’s SPARC server business just switched to a new chip called the T4, which was unveiled late in the quarter. The machines require a total upgrade, and that means a lot of testing with existing applications, which can slow down deals for the new machines, while at the same time sapping demand for the prior generation of products. That had a lot to do with hardware sales dropping by 14 percent year over year to $953 million. As Catz put it: “We saw good early demand for the new SPARC SuperCluster, but only released the product for general availability at the very end of the quarter, allowing us to ship only a couple.”

Catz also predicted that hardware sales will decline as much as 14 percent this quarter, although CEO Larry Ellison was bullish on its growth prospects later this year. New software license revenue, a key metric gauging software sales, is expected to grow in a range of 2 percent to 12 percent. Total sales are expected to grow in the range of 3 percent to 7 percent, and per-share earnings are expected to come in between 56 and 59 cents, which is in line with the consensus of analysts.

There were a few things that went right. Ellison did what he usually does on a conference call, and crowed about examples where Oracle is beating a competitor. This time, the targets were IBM, Cisco Systems and SAP, but not his usual punching bag, Hewlett-Packard. Oracle won several competitive deals from Big Blue and Cisco, as well, with customers as varied as Australia’s University of Melbourne, the U.S. Food and Drug Administration and the Hyundai Kia Motor Company.

Ellison also hinted that Apple is a big Oracle customer. He mentioned a “a very large American smartphone manufacturer” that had bought more than 30 Oracle Exadata systems as it built out its cloud. Unless I’m missing something, there’s really only one company that fits that description, and that’s Apple. Its use of Oracle gear within the mix at its North Carolina data centers has been speculated about before, but never confirmed by Apple directly. (Big surprise, that.)

Oracle paints a picture of HP desperate to preserve the profits it makes on support and service contracts generated from customers using Integrity servers, cutting arrangements with Intel to keep pumping out Itanium chips that no one but HP buys, and which Intel would secretly like to forget in order to focus on its highly profitable line of mainstream Xeon server chips. Oracle describes an agreement between HP and Intel called the “Itanium Collaboration Agreement” and calls it a “a pure pay-off to induce Intel to keep churning out processors that it really wanted to kill.”

Here are some other interesting highlights. Remember yesterday how I said that the main issue, at least from HP’s perspective in this suit, is whether or not Oracle agreed to continue to port its software to HP-UX so that it could run on HP’s Integrity servers that use Intel’s Itanium chip.

HP has argued that when the two companies settled a lawsuit concerning Oracle’s hiring of former HP CEO Mark Hurd, that Oracle agreed to do just that. Oracle has argued that it agreed to no such thing and so is perfectly within its rights to walk way from the Itanium platform.

Pick up the action on page 27. You read how, as Oracle tells it, HP sought to insert language into that settlement that included an Oracle pledge to stick with Itanium, which Oracle rejected twice.

It quotes an email from Oracle General Counsel Dorian Daley to HP lawyers proposing the following langauge in a draft agreement:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership.

HP, Oracle says, then responded with the following proposed language:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on HP platforms and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership. Oracle will continue to support all ongoing versions of HP-UX with Oracle’s relevant database, middleware and application products with the availability, marketing and pricing in competitive terms that Oracle has provided HP for the past five years. Oracle will continue to provide access to the Java technology and tools such that HP can continue to support its operating systems (e.g., HP-UX, OpenVMS, Nonstop) in a manner similar to the way it does today. Oracle agrees to continue to provide Solaris for HP’s x86 platforms in a manner similar to what it provides HP today. Oracle agrees to continue to purchase HP server hardware for internal use at a rate similar to what Oracle purchases today.

Oracle rejected it, and by its account, no mention of Itanium or HP-UX was in the final version of the settlement that both signed. The final version was nearly identical to the draft that Daley proposed above. This sequence of events and what the final version of the agreement actually says will be a key issue in the trial. A lot of the rest of the stuff is a bit of Oracle bluster, though it’s interesting bluster.

For instance, Oracle accuses HP of having “fraudulently induced Oracle to enter into the very contract” at the heart of the lawsuit, by negotiating at a time when people on the HP side would have known that the company was about to hire Léo Apotheker and Ray Lane as CEO and chairman. As Oracle puts it:

“Given the well-documented animosity between Oracle and Messrs. Apotheker and Lane, HP knew that had Oracle known of HP’s imminent plans to hire these individuals, Oracle would not have signed the Hurd Agreement, especially any ‘partnership’ commitments or other business restrictions … unrelated to Mr. Hurd’s move to Oracle. … HP had a duty to disclose this exclusively-held material information. Instead, HP knowingly and actively withheld this information.”

HP naturally isn’t taking the latest round of accusations from Oracle silently. The company just issued a statement basically accusing Oracle of trying to distract us all from the fact that it’s in breach of a contract. And the key phrase in the contract — all that back and forth between the Oracle and HP lawyers above — is this one: “An agreement to continue to work together as the companies have,” meaning work together as they did when Oracle still supported Itanium.

This all started back in March when Oracle said it would stop software development for Itanium. It prompted a lot of shocked and angry pronouncements from HP and Intel and counter-claims from Oracle. Itanium customers then rallied to its defense and sought to change Oracle’s mind. It didn’t work. Months passed, and HP resorted to a lawsuit in June that has seen many colorful arguments, and even the odd pop-culture reference.

HP’s press-release rebuttal is below and the full PDF of Oracle’s filing — complete with all the redactions is below that.

PALO ALTO, Calif., Dec. 2, 2011 – HP today issued the following statement in response to Oracle’s amended cross-complaint in the Intel Itanium litigation:

Today’s filing is another example of Oracle attempting to distract from the undeniable fact that it has breached its contractual commitment to HP and ignored its repeated promises of support to our shared customers.

Here are the facts:

— On Sept. 20, 2010, Mark Hurd, Oracle and HP entered into a written settlement agreement. Pursuant to that agreement, HP dismissed its lawsuit against Hurd, and did not further challenge Hurd’s employment at Oracle. In exchange, Oracle contractually committed that it would “continue to offer its product suite on HP platforms … in a manner consistent with [the Oracle-HP] partnership as it existed prior to Oracle’s hiring of Hurd.”

— Oracle confirmed that it was agreeing to continue to port its software products to HP’s platforms in the same manner as it had done prior to its hiring of Hurd. In an email sent to HP on Sept. 12, 2010, Oracle’s general counsel wrote that this provision was “an agreement to continue to work together as the companies have – with Oracle porting products to HP’s platform and HP supporting the ported products and the parties engaging in joint marketing opportunities – for the mutual benefit of customers.”

— Oracle now claims that this provision does not require Oracle to continue to port its database and other software to HP’s platforms. Yet that is exactly what the contract says, and that is exactly what Oracle committed to do in order to convince HP that Oracle’s hiring of Hurd would not alter the relationship between the companies or be used unfairly to undermine HP’s business.

— Oracle initially tried to justify its Itanium decision by falsely ascribing to Intel the position that Itanium is at end of life. Due to Intel’s unequivocal and repeated statements to the marketplace that Itanium is not at an end of life, Oracle has been forced to revise its rationale.

— In its cross-complaint, Oracle tries to rationalize its Itanium decision by arguing that, despite the undisputed existence of committed support for Itanium that stretches to the end of this decade and beyond, Intel would not have made this commitment to Itanium if it were not for a contractual agreement with HP.

— The existence of such a contract completely undermines Oracle’s stated rationale for discontinuing Itanium support by taking the future of Itanium out of the realm of speculation and firmly establishing as a matter of undeniable fact that there is a committed Itanium roadmap that extends out toward the end of this decade. Oracle has the relevant Itanium roadmaps in its possession, yet it continues to refuse to discuss those roadmaps.

— What has become very clear in the course of the litigation is that Oracle’s claim in March 2011 that it was ending support for Itanium because Itanium was at or near an “end of life” was false and a pure pretext to hide Oracle’s real purpose: to take away the choice of Itanium from customers and restrict the competition faced by its Sun servers.

— Indeed, Oracle’s internal documents make clear that its announcement in March 2011 that it would no longer develop or support software for Itanium servers was implemented as part of a business strategy to leverage Oracle’s dominance in database software to try to force Itanium customers to purchase Sun servers. The tactics employed by Oracle in support of this purpose included pricing misconduct, withholding of benchmarking scores for HP servers run on Oracle software, and abusing customers on support issues.

— Oracle is in breach of its contractual commitments to HP, and it has failed to honor its promises to customers. Oracle should be addressing and rectifying this conduct rather than making up claims against HP.

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Given the recent feuds between the management teams at the two companies, Oracle’s acquisitive history and HP’s sudden weakness, it doesn’t take much for a popular narrative of Oracle buying HP to emerge. It would be a dramatic denouement to the events of the last year that have found HP and Oracle at increasingly caustic loggerheads. Oracle CEO Larry Ellison would take some kind of victory lap and mount HP on the wall like a of trophy.

The idea gained some currency with an Aug. 21 story in the New York Post (which, like this Web site, is owned by News Corp.) arguing that HP’s $11.7 billion bid for the British software firm Autonomy, having caused shareholders to knock $12 billion and change off HP’s market cap, would therefore make HP more attractive to Oracle.

The meme gained further currency with a Bloomberg News story saying that HP’s board was “concerned” that its weakened condition had left it vulnerable to Oracle.

Let me put it like this: No. Just, no.

The first problem with the notion is this: What parts of HP would Oracle want to own? Answer: Practically none.

First, let’s look at the condition of Oracle: Its mainline software businesses are showing healthy returns, while its hardware business, built on the foundation of Sun Microsystems, the IT hardware concern it acquired last year for $7 billion, is ramping up to full speed. But here’s a fundamental truth: Software carries a higher profit margin than hardware, so when software companies buy hardware companies, they can’t avoid seeing their overall profitability erode.

Consider Oracle’s operating margin during its fiscal fourth quarter — its seasonally strongest quarter — during the last three years. In 2009, before the Sun deal was closed, it was 43.4 percent. In 2010, after the Sun deal was closed, it was 38.3 percent. In 2011 it was 41.6 percent. And during Oracle’s most recent conference call, CFO Safra Catz said Oracle hopes to get back to “pre-Sun” operating margins soon.

Now let’s look at HP and its operating margins: In its most recent quarter ended July, HP’s enterprise, storage and networking business turned in operating margins of 13 percent, which were down from 14 percent in the prior year’s period. The story was the same in practically every other HP business unit: Operating margins in services fell from 15.7 percent to 13 percent; in software they fell from 28 percent to 19.7 percent; imaging and printing margins fell to 14.6 percent from 16.9 percent. The only place they increased was the personal systems group — the PC unit that’s being considered for a spinoff — where they grew year on year from 4.7 percent to 5.9 percent.

Conclusion: Owning HP would do nothing good for Oracle’s profitability, especially at a moment when the stated goal is to nudge them up.

There’s more. As Mark L. Moerdler, an analyst at Bernstein Research, argued in a research note to clients on Sept. 26, software accounts for about 2 percent of revenue at HP. And what software it has is not the type that Oracle typically likes. When Oracle does acquisitions, it grabs companies that make applications that plug holes in its own product portfolio. The majority of HP’s software offerings — Autonomy nothwithstanding — deal with infrastructure management, not exactly a priority for Oracle. It is, however, a business where IBM and Computer Associates participate.

And there are two historically important business units at HP that would be outliers at Oracle: PCs and printers. Oracle has no interest in either one, and it’s hard to see that changing. Combined they make up more than half of HP’s annual revenue. In the hands of Oracle, they would probably end up being spun out, either together or separately, but why buy a whole company only to chop off more than half of it — a half that’s shrinking at that — at what would have to be unfavorable terms.

Let’s not forget the valuation estimate of HP’s $40 billion PC business: Analysts have expected that a hypothetical buyer might pay as little as $8 billion for it, or about one-fifth trailing revenue. Why go to all that trouble?

Further: Why would Oracle buy a company that’s roughly one-quarter exposed to the consumer market. Sure, HP has a retail distribution network that’s the envy of the PC industry. But Oracle would rather sell those retailers systems to help them manage their businesses, not the PCs they in turn resell at razor-thin margins.

If that’s not enough, then there’s one key bit about HP that Oracle would actively dislike. HP, by virtue of being the biggest distributor of Windows-based PCs and servers, is the world’s largest reseller of Microsoft Windows. If there’s anything more utterly antithetical to Oracle’s core values than helping put money in Microsoft’s pocket, I haven’t heard of it.

Finally, there’s the issue of cash. Even in its weakened state, HP is trading at a market cap of $45 billion and change. Assuming a premium for the whole thing, that pushes a hypothetical price tag to $60 billion. That’s too rich, even for Oracle, whose balance sheet as of Aug. 31 contained a combined $31.6 billion in cash and marketable securities. It would have to take on a tremendous amount of debt — amounting to 82 percent of fiscal 2011 sales — to get such a deal started, let alone closed.

HP’s directors and shareholders can rest easy. They have many worries about the Silicon Valley icon and the troubles in which it finds itself. But being acquired by Oracle isn’t one of them.

In a statement that seems not to have circulated as an official press release, but was emailed to a few U.K.-based tech journalists such as Chris Mellor at the Register, Lynch gives a more detailed account of the real reason for his “trip to SF” and his meeting in April with Oracle president Mark Hurd.

On one of my trips to SF (April 2011), Frank Quattrone, whom I have known for a long time, offered to introduce me to Mark Hurd. Oracle was a customer and I have never met him, so it was a good opportunity. Frank does this from time to time on my visits, he has introduced me to many people… NOTE: Frank was not engaged by Autonomy and there was no process running. The company was not for sale. I recall meeting with Mark and someone else I believe called Doug. At the start of the meeting they joked that Frank was there to sell them something. Frank and I made it clear that was not the case. We then met and had a lively discussion about database technologies. The meeting lasted approximately 30 mins. Frank is happy to confirm this.

Oracle’s corporate communications department, working unusually late, issued a retort that crossed the wires sometime after 1 am ET, calling Lynch’s statement “another whopper.”

It was no “lively discussion of database technologies,” Oracle says. Why bring two PowerPoint decks all devoted to Autonomy’s financial performance? Oracle, making good on last night’s implied threat to publish the decks, did so, and you can see them for yourself below.

Oracle published the slides in hope, it says, of restoring Lynch’s memory of a meeting he initially said never took place. “Yesterday, the Autonomy CEO did not remember having any meeting with Oracle,” the company said. “Today, he remembers the April meeting and inaccurately describes how it came about and what was discussed. Tomorrow, he will need to explain his slides.”

The kerfuffle is over Lynch’s defense of a comment Oracle CEO Larry Ellison made on a conference call with analysts last week. Asked about the current buzzword “unstructured data” and Oracle’s capabilities around it, Ellison engaged in his favorite hobby and took a jab at Hewlett-Packard — which last month said it would acquire Autonomy in a deal valued at $11.7 billion. “Autonomy was a shock to us. We looked at the price and thought it was absurdly high. We had no interest in making the Autonomy acquisition,” he said then.

He also went on to say that unstructured data can readily be added to Oracle’s existing database technology. “We think we’re much better off with a couple of smaller acquisitions and to continue to innovate in that area, so that the unstructured data and the structured data both find their way into an Oracle Database,” he said.

That, of course, didn’t sit well with Lynch, who has so far quietly endured criticism that HP is overpaying for Autonomy. In an interview with The Wall Street Journal, he denied that Autonomy was ever shopped to Oracle, and characterized Ellison’s understanding of the unstructured data problem as “very weak.”

Those, of course, were fighting words to Oracle, which decided to remind him of his April meeting with Hurd and Oracle’s M&A head Douglas Kehring.

It’s also helpful to remember that late last year Autonomy was being mentioned as the target of a bidding war between Oracle and Microsoft, according to a rumor-based story planted in the U.K.’s Daily Mail. Though such stories based on “takeover chatter” occur practically every day, someone with some skin in the game clearly wanted the markets to think Oracle was kicking Autonomy’s tires.

Lynch, of course, is really a proxy for HP’s new CEO Meg Whitman and Chairman Ray Lane, who have to get the Autonomy deal done and live with the price that former CEO Léo Apotheker agreed to pay for it. I asked Whitman about it last week, and she said “It is what it is.” The most interesting thing that has emerged from all this, however, is that Oracle claims to have considered Autonomy overpriced at a $6 billion valuation. HP paid almost twice that. Game on.

Autonomy Presentation 1 503341

Autonomy Presentation 2 503342

What Oracle didn’t know at the time it negotiated the settlement to the Hurd Affair — it says in a new court filing today — is that HP was about to hire Léo Apotheker as its new CEO and Ray Lane, the former Oracle COO and president, as its new chairman. Had it known, it wouldn’t have agreed to anything of the kind. To that end, Oracle says, HP obtained its agreement from Oracle by way of fraud.

The whole Itanium thing is a very long story, but today’s filing shows it’s really not about Oracle supporting the chip or not. Yes, the terms of a contractual agreement that may or may not have been in force is the issue at hand, but Oracle’s filing makes clear that the issues are more about not wanting to do business with Apotheker and its right to walk away from what it considered an informal business arrangement.

That’s just part of a rather juicy counter-complaint filed by Oracle’s lawyers today in HP’s lawsuit over Oracle’s decision to walk away from Itanium-friendly versions of its software. (The 20-page filing is embedded below via Scribd.) But here’s the money quote:

Oracle would not have signed on to any settlement of the Hurd litigation had it known this information, and certainly the last thing it would have ever agreed to do was “reaffirm” a partnership that on the HP side would be led by Messrs. Apotheker and Lane. To the extent HP obtained the rights it claims in this suit, it did so by fraud.

So why is HP fighting so hard on this issue, especially given the fact that very few people buy Itanium-based systems in the first place? Oracle’s theory: Because it’s profitable.

HP is one of the last hardware or software companies in the world that remains seriously committed to Itanium, and it does so solely because Itanium support agreements likely account for a large percentage of its profits. Likely even Intel would end-of-life the Itanium platform of its own accord and focus on its x86 architecture; almost certainly, Intel continues to develop Itanium chips only at HP’s behest.

HP and Oracle concluded their settlement on Sept. 20, a mere 10 days before Apotheker was named as HP’s CEO.

Of course you know Apotheker and Oracle have something of a checkered history. Apotheker used to be co-CEO of SAP, which was caught stealing Oracle source code and was ultimately forced by a court to pay a few billion dollars in damages.

Lane on the other hand, as a former Oracle president infamously pushed out by CEO Larry Ellison, has been a frequent Oracle critic over the years. Suddenly, two of Ellison’s least-favorite people were at HP’s helm. Who needed these partnerships anyway, Oracle argues.

HP, Oracle says, sought to induce it into what it calls “an apparently perpetual and cost-free software development commitment for the Intel Itanium platform” while concealing “that it was days away from hiring a new board chairman, Ray Lane, and new CEO, Léo Apotheker, who HP knew Oracle distrusted so completely — and justifiably — that partnership would be impossible.

Well, there you go. Asked to comment on Oracle’s claims, an HP spokeswoman sent the following statement:

Rather than focusing on what is right for our joint customers, Oracle is relying on invented excuses to cover up its blatant disregard for its legal obligations. HP is resolved to enforcing Oracle’s commitments to HP and our shared customers and will continue to take actions to protect its customers’ best interests.

And here’s the filing.

66030_OraclexsxCrossxComplaint

That was around that time of the initial public offering of Fusion-io, the Utah-based start-up that speeds up servers and storage networks. Having opened trading at $25.30 a share on June 9, its first day of trading, its share price has held steady since, and it closed Tuesday at $28.35. It will report quarterly earnings for the first time as a public company on Thursday.

The summer is proving equally interesting for Violin Memory, another company with flash memory based technology that is intended to replace the traditional hard drive based storage arrays that allow enterprise applications like those made by Oracle to run fast. Having raised a $40 million Series C funding round from Toshiba and Juniper Networks at an implied valuation of $440 million in June, the company has been bulking up its staff.

Today Violin will announce that it has named Jonathan Goldick — the former CTO of OnStor, now a unit of chipmaker LSI — as its CTO of Software. Goldick has been knocking around the computing industry for about two decades as an expert on file systems and storage, and his resume includes stints at IBM and Microsoft.

So what does it mean to be CTO of Software at a chip company? Goldick’s job will focus on solving problems related to data management that go beyond the speeding-up that Violin’s technology offers. Once hard drives (which, for all the progress they’ve made in five decades, are still essentially platters of glass; even when spinning at the speed of sound, they are subject to errors and inefficiencies that make them still too slow for the fastest computers) are out of the picture, new problems arise.

“The early adopters, they care about speed because they’re in application hell. But once you get past that, the problem becomes one of data management,” Goldick told me. “Once you make anything 100 times faster or cheaper, you have to revisit how you manage data.”

It’s a big enough problem that Goldick was being heavily recruited by other companies working on bringing flash technology to their own hardware. Goldick wouldn’t name the companies directly, but the hints he dropped suggest he turned down offers from both EMC and Oracle.

Goldick is Violin’s second recent hire. Last month it quietly hired Garry Veale, a former vice president at Hewlett-Packard’s StorageWorks division, as its new managing director for the EMEA region.

There’s a reason that Violin is bulking up its team: The opportunity is potentially huge. Remember, if you will, the December day that Oracle CEO declared that its SPARC T3-4 Supercluster had achieved something of a land speed record of more than 30 million transactions per minute. This was the same speech in which Ellison, in one of his numerous bits of trash-talking, likened HP’s competing product to a turtle. It’s often called “the turtle speech.”

That speech got Violin CEO Don Basile all excited. One of the things that made that Oracle machine so fast was that it was packed with a couple hundred terabytes worth of flash memory. As Basile told me last week: “We loved that speech because they proved us right. It was a big validation for what we want to do.” It also means there’s no end in sight to the flash madness.

Rumors that Oracle is considering another acquisition appear with unsurprising regularity given the pace of its deal-making over the last several years. One such rumor I noticed late last year was around Autonomy. Others companies mentioned in Oracle-takeover rumors that haven’t materialized are Ultimate Software, Lawson and Blackboard. The reason?

Over the years, Oracle has often grown by acquisitions, but that works only when the valuations of target companies are attractive. Right now they’re too high, Ellison says. President and CFO Safra Catz put it much more simply at the end of the audio clip below: Valuations are, right now, “quite ridiculous.” Meanwhile, as today’s earnings results show, Oracle is growing just fine organically without making any big deals for now, he says.

Still, that didn’t stop Oracle from acquiring privately held Web software player Fatwire just yesterday.

You can hear Ellison and Catz discuss it in the audio highlight below. The clip opens with the final question from today’s earnings conference call, from Wells Fargo analyst Jason Maynard.

Oracle CEO Larry Ellison Says He’s Done Shopping For Deals, For Now by ahess247

The weakness in hardware sent shares down by more than 4 percent in after-hours trading. Oracle said that in the wake of its acquisition of Sun Microsystems a year ago, the company is focusing more on selling a lower volume of hardware at a higher profit margin. That process of transition is still underway as you can read in my liveblog coverage from the earnings conference call below.

2:12 pm: And the call is underway. President Safra Catz is making some opening remarks.

There’s the first reference to hardware. “We’re running the Sun business in a more profit-aware manner than before.” Hardware gross margins were 56 percent. Later this year I expect the growth in the Sun products to be “quite obvious.”

“We could be back at pre-Sun operating margins quite quickly as there remains a lot of leverage in our operating model.”

Catz: “We now have $29 billion in cash and marketable securities.”

Guidance: As you remember, we had a spectacular Q1 last year. Assuming exchange remains at current levels: New software is expected to show 10 to 20 percent growth, hardware is plus or minus 5 percent.

Total revenue expected to grown 9 to 12 percent non-GAAP.

EPS 45 to 48 non-GAAP.

2:17 pm: And here’s Larry. “We’re already nearly twice as big as IBM, and taking share away from them in databases.”

We did a number of cloud computing deals. We did a deal with Salesforce.com this year. We did a deal with the biggest and best names in mobile devices and cloud computing. (Could he be referring to Apple?)

The expansion of our Exadata business plus our Exalogic business, should turbocharge our hardware business.

And here’s Mark Hurd. We sold a lot of software. Software growth was broad based. It was the first time we’ve ever sold more than $1 billion in apps.

Our sequential growth in Exadata was more than 50 percent. Proctor & Gamble, J.P. Morgan Chase and Apple (yes, Ellison was talking about Apple earlier) have helped us cross the 1,000-system threshold. (Paraphrasing Hurd there.)

2:21 pm: Time for Q&A from the analysts.

First question from Morgan Stanley: The hardware business: How material was the headwind relative to the shift in the model? What gives you confidence that you can get it growing again? And a question about attach rates.

Hurd answers: He is explaining attach rates. We’ve moved to a model where we have the service lined up to the sales activity. Selling units that have no gross margin is easy to do. We are focused on selling hardware systems at a higher price, that are of a higher value to the customer and that stay installed longer.

Question from Merrill Lynch: A question about guidance. How you might have incorporated a questionable macroeconomic forecast. And a second question about attach rates.

Larry jumps in: The attach rate to Exalogic and Exadata is 100 percent. They are becoming a bigger part of our overall hardware business. That improves our profitability. Exadata is growing faster than our traditional Sun line. We sell more and more engineered systems and fewer undifferentiated systems. This allows us to increase our sales of Middleware because it runs better on Exalogic.

Ellison: We sell more database and middleware because of Exadata and Exalogic.

Catz on the economy: We’ve got guys around the world who roll in a forecast for us. But its very much the same. The truth is the economy is as it is, and we continue to grow. This was an organic growth quarter for us. We’ve got a lot of very Oracle-specific momentum going.

Hurd: We added 800 people to the sales organization this quarter. If that gives you an idea of our confidence of where the market is.

Question from Credit Suisse: Question about the sales force change that the analyst focused on in his pre-earnings note last month.

Hurd on the sales force: We put more territories in the field by getting more density of coverage. We believe we are under-distributed. When we get in front of more customers we sell more software.

Hurd: One salesperson had 20 customers. We think that person can sell just as much software calling on five customers.

Ellison: We’re going to add a couple of appliances. One is a large memory addition to Exadata for Big Data. As memory becomes cheaper and larger scale. We’ll be announcing in the fall at Oracle Openworld.

He’s now answering a question about Hadoop boxes. He says they don’t replace databases. The Big Data accelerator includes some of the open source components like Hadoop and some other Oracle pieces that can speed up the MapReduce process that Hadoop does. Oracle has always followed database technology trends…and kept up and quite often led on innovation.

Ellison: IBM still hasn’t come out with an appliance that runs their DB2 database very fast. Instead they ran out and did an acquisition. (Seems IBM is the going to be the victim of his verbal jabs this call, not Hewlett-Packard.)

Question from J.P. Morgan: Hardware margins were strong. The higher margin business was better than the low margin. But this is the second quarter in a row that hardware has decrased. Is it because the commodity business is shrinking faster?

Hurd: Its just the fundamentals of building a business. We are putting more coverage out in the market. Making sure we attach all the peripherals. We want to grow the top line, but we want to grow it right. Getting these high margin sales is key. You’re going to see material growth in Exadata and Exalogic. We’ll be focused on some competitors that have some key vulnerabilities.

Catz: We used to resell Hitachi, but the other big storage we sold was LSI, which during the quarter was sold to NetApp. Our selling of those storage products overall is down, but selling our own storage products is up.

Hurd: You see the same thing in the server business. The higher margin products have higher growth rates, and the x86 line is slower.

Catz: We see deals come in that aren’t profitable and so we walk away from them. We want to make money. We’re funny that way.

Question from UBS: About the forecast for new license revenue.

Catz: We always have some spillover. We look at what the guys are forecasting. The Exadata and Exlogic systems really help because you have to buy software. On the app side, we’ve been on a roll. I add my own little bit of conservatism. The summer means chasing the contracts while people are on vacation.

Question for Elllison: You thought there would be 50 to 100 customers for Oracle Fusion.

Ellison: We have a number of Fusion customers that are live, and it’s being rolled out completely. We’re the only application vendor that offers the same technology on our cloud, or you can put it on your private cloud. And if you want we’ll run it for you.

Ellison: We think we’ve been competing very well with SAP, very effectively. They have no answers regarding the cloud at all. They have nothing. (Okay, now SAP gets a little bit of Larry’s abuse.)

Question from Lazard Capital: A question about Exalogic. What’s driving the growth and are there any significant customer wins?

Hurd: With Exalogic you go to Java applications and want to speed them up versus when you’re running them on x86. It’s an extremely attractive value proposition.

Question from Wells Fargo: You have a lot of cash on the balance sheet. How are you thinking about acquisitions? Valuations aren’t exactly low. (Oracle has $29 billion.)

Ellison: We had 19 percent growth without acquisitions. We can grow through acquisitions when they are attractive and make sense. Right now they aren’t and so we aren’t doing them. Right now we’re focusing on organic growth, which means increasing the sales force and introducing new products. We think we have a lot to sell. We can grow by acquistions when the opportunity presents itself and when the economics make sense. Right now they don’t make sense.

Catz: Every once in awhile we find a jewel. Price does matter to us. We just want to make sure it’s a good business case when we do it. Prices have recently been quite ridiculous.

And now a follow-up question on Catz’s earlier comment on returning to pre-Sun operating margins.

Catz: We ingested a money-losing hardware company and we still have the highest operating margins in the software industry. There is no reason why this year couldn’t be really spectacular.

With the software business and the enormous installed base who renew with us every year, there’s still a lot of room left in our model.

And that’s a wrap!

However, as a warmup, another flash company, Violin Memory, announced today that it has closed a $40 million Series C round of funding at an implied valuation of $440 million. Violin, based in Mountain View, Calif., is run, oddly enough, by Don Basile, a former chairman and CEO of Fusion-io. Obviously, he will be watching that company’s opening days of trading with significant interest, presumably because he still has some equity in it, but also because of the implications for his new company, which he’d like to take public as well.

Where Fusion-io sells flash-based cards that make servers run faster–Facebook and Apple buy them for use in the servers running inside their data centers and between them constitute about 70 percent of its revenue–Violin sells flash-based memory arrays that are intended to replace the hard disk-based memory arrays that make enterprise applications run faster. Violin’s arrays come in a range of sizes from tens of terabytes up to hundreds of petabytes, and are said to significantly speed up Oracle and other databases by a factor ranging from 10 to 100 depending on the situation.

HP has set speed records running Microsoft’s SQL Server using Violin arrays, Basile told me. Not only does it speed them up, but the Violin arrays eliminate 80 percent of the required hardware footprint and reduce the necessary power by 90 percent, cutting back on operational costs. Hewlett-Packard resells Violin arrays, and AOL is a big customer, Basile told me.

Violin hasn’t been raising money via the traditional venture capital route. Its investors have included Toshiba, the Japanese electronics concern that happens to be a big manufacturer of flash memory chips used in the arrays, and Juniper Networks. It has also taken money from large funds that dabble in private investments, and from several wealthy individuals, among them Atiq Raza, the former number two at Advanced Micro Devices, Arjun Gupta, the founder of TeleSoft Partners, and venture capitalist Dixon Doll. Basile has taken investments from nine such individuals, and these are only three that he named. He also stressed that they are personal investments.

Violin raised $35 million earlier this year in a Series B, and raised $10 million in a series A last year. In addition, the company has $140 million in combined debt and credit, giving it a combined $180 million to fund its operations and growth for the foreseeable future. The company expects to do more than $100 million in revenue this year.

Still, Basile would like to go public, and will be watching the IPO both of Fusion-io and of Groupon to see how the market reacts to them. If they react well, he says he plans to hire bankers by the end of the summer. “I don’t have a compelling reason yet, but if the markets react favorably it would be in our interest to look at the public option very seriously,” he said.

Meanwhile, Fusion-io will debut under the trading symbol FIO on Thursday. You can expect CEO David Flynn to make the rounds with a series of interviews tomorrow on CNBC and elsewhere. When last heard from, the company said in an updated S1 filing with the U.S. Securities and Exchange Commission that it expected to price in the range of $13 to $15$16 to $18 a share, in order to raise $185 million. A price in that range would value the Utah-based company north of $1 billion $1.4 billion (see today’s latest updated S1 filing here). It is one of two companies set to go public on Thursday, the other being Taomee Holdings, a China-based company that produces media for children.

As Dow Jones Newswires noted yesterday, Fusion-io’s debut is coming against the backdrop of a market that has been declining in recent weeks, giving it a certain headwind. And there’s already been plenty of criticism of Fusion-io’s prospects. As noted, two customers, Facebook and Apple, account for about 70 percent of revenue, while 10 customers account for more than 91 percent of revenue. (The Wall Street Journal commented on this in March.) As risks go, a concentrated set of customers is a classic one. If one or two suddenly stop buying–a fair risk when you consider that Facebook and Apple will soon complete construction of their respective data centers–then sales can drop just as suddenly. Investors like seeing a large, diverse customer base.

I asked Basile about that and whether the same long-term risk applies to Violin. “It is a legitimate risk,” he says. Violin doesn’t have the same kind of concentration. While AOL is a big customer, he says, Violin has no significant customer who accounts for more than 50 percent of sales. Its revenue splits roughly even, with about half of its sales coming from “channel” customers who build Violin’s memory arrays into their own products, while the other half buy Violin products directly to integrate with systems they’ve purchased from other vendors.

Then he pointed to language in Fusion-io’s S1 filing as a way of making a point about the wider prospects for flash memory use in the data center. Yes, Fusion-io has a handful of big customers, but it also has more than 1,500 end-customers. Among those are customers of Hewlett-Packard, IBM, Dell and Supermicro, who all sell Fusion-io’s cards as an option on their own servers. Among them they sell about 9 million servers a year, and if you do the math, he says the current run rate reveals that 12,000 of those servers have flash cards from Fusion-io. “That leaves a lot of room for growth.” Room enough for both companies, he said.

John Dillon, the CEO of Engine Yard, was one of them. Dillon was CEO of Salesforce from 1999 until 2001, when he was ousted by founder and current CEO Marc Benioff. Heroku specializes in the development of Web applications on Ruby on Rails. So does Engine Yard. Now his old company is a competitor. He shared a few thoughts about that in an interview last week. But here are the highlights: First, he thinks Salesforce overpaid for Heroku. Second, he thinks the deal is an admission that Force.com, Salesforce’s own application development environment, isn’t working.

NewEnterprise: So John, what did you first think about the Heroku deal?

John Dillon: I certainly didn’t expect to compete with Salesforce. First of all, we know the Heroku guys really well. We even talked at one point about combining the companies. They’re into Ruby on Rails, which is the best environment for building applications in the cloud. We’re kind of going after the same market. They were going after smaller players and we were doing more industrial-size customers. Both companies had been approached to be acquired at different times, and in either case the deals didn’t get done. We had pretty good confidence in our future. So then Marc Benioff goes out and spends more than $200 million for a company doing maybe $2 to $3 million in revenue. It’s kind of an unbelievable multiple. Of course its a massive endorsement of Ruby on Rails, but it’s also an admission that Force.com isn’t working. You don’t spend that much to buy some additional technology if your core product is working well. I think they’re struggling, and I think they’ve created a bit of a Frankenstein.

You really seem to think Salesforce overpaid for Heroku.

Absolutely. It was somewhere between 80 and 100 times revenue. When VMware bought SpringSource it paid maybe 20 times revenue and that was considered a phenomenal deal.

If that’s true, why do you think Marc Benioff would pay that much?

Because he was desperate to find a way to shore up Force.com. He’s been touting it for three to four years and it hasn’t lived up to expectations.

So what does Engine Yard bring to the table?

We deliver a lot of the components you need to build and deploy and run applications in the cloud. There some 20 to 30 components, the load-balancers and Web servers and app servers, and databases, and Ruby on Rails. What we’ve done is we’ve integrated all that, and we’ve automated the ability to provision it and we’ve hardened it. That means the development team doesn’t have to worry about any of that. And that’s where you make a lot of mistakes that can cause your Web site to go down. But because we’ve used mostly open source, there’s not some big cost that you have to bear, when you’re using someone like Oracle that sells you all this stuff, and then you have to pay 20 percent a year in maintenance. Our customers pay us for success. Building the application is inexpensive. You can build it and if it doesn’t work you can throw it away. But when you build it and deploy it and lots of people use it that you start paying because it’s based on resource consumption.

Who are your customers?

They’re all over the map. And then we have your traditional enterprise companies. From a Web standpoint, we have Get Satisfaction. We have gaming companies like Playmesh that make social games for the iPhone. Most of our enterprise customers don’t let us name them. But we have a few Fortune 500 accounts. About 20 to 30 percent of the time we have customers who sign up using a credit card and we call them up and find they’re inside some household-name corporation.

What kind of an exit are you contemplating? IPO or get acquired?

I’m building the company to go the distance. We have the market opportunity and the executive management talent, and we have the business traction. So it seems very doable. The IPO market hasn’t been very friendly. If it opens up I think we’re a strong candidate to IPO in a couple years. It’s not very much fun to be a public company. We have a very real shot at it. But I also think this is going to be a really wild period in M&A activity. I think a lot of companies that don’t understand the cloud are going to buy their way in because they’re otherwise going to get left behind. Our investors are in it for the long haul and I have plenty of money and access to plenty of money. But if Salesforce is going to pay more than $200 million for Heroku then I like what our value looks like.

The Open Data Center Alliance, whose formation was announced at a news conference Wednesday in San Francisco, seems partly inspired by the fear known as vendor lock-in. That’s an age-old concern in the computer industry, typified by companies that have a hard time moving away from products like IBM mainframes, Microsoft Windows or Oracle databases.

Wasn’t cloud computing supposed to end all that? The phrase, though it tends to mean different things to different people, seems above all to be about businesses exploiting the open technologies that built the Internet.

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Most of us view personalization and privacy as desirable things, and we understand that enjoying more of one means giving up some of the other. To have goods, services and promotions tailored to our personal circumstances and desires, we need to divulge information about ourselves to corporations, governments or other outsiders.

This tradeoff has always been part of our lives as consumers and citizens. But now, thanks to the Net, we’re losing our ability to understand and control those tradeoffs—to choose, consciously and with awareness of the consequences, what information about ourselves we disclose and what we don’t. Incredibly detailed data about our lives are being harvested from online databases without our awareness, much less our approval.

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