Intel Gets Squeezed in HP, Oracle Spat

The truth, it seems, has too many shades even when clarity is most needed. Just ask two combatants in the software market and the chip vendor they are squeezing between them.

Oracle Corp. (Nasdaq: ORCL) says it understood from Intel Corp. (Nasdaq: INTC) management the company's Itanium server chip "was nearing the end of its life." That's not the case, insists Paul Otellini, CEO at Intel, the world's biggest semiconductor company by revenue. Intel's work on "Itanium processors continues unabated with multiple generations of chips currently in development and on schedule," Otellini said in a statement.

Oracle did not identify whom it spoke with at Intel, but the applications and software vendor company has now decided to discontinue all software development for the Itanium processor after "multiple conversations" it reportedly had with the management of the semiconductor manufacturer. "Oracle will continue to provide customers with support for existing versions of Oracle software products that already run on Itanium," the company said in a statement. "Hewlett-Packard CEO Leo Apotheker made no mention of Itanium in his long and detailed presentation on the future strategic direction of HP."

That makes things a bit clearer, doesn’t it? Oracle isn't itself dissatisfied with Intel's Itanium, and it certainly has no beef with Intel itself. The company had a different target in mind. It was aiming at Hewlett-Packard Co. (NYSE: HPQ), a major supplier of servers that use the Itanium processor and a direct competitor of Oracle-owned Sun Microsystems' Sparc processor.

It should be noted that Oracle CEO Larry Ellison was so miffed with HP's decision last year to fire its CEO, Mark Hurd, over some expense report discrepancies and a concealed relationship with a contractor, he hired Hurd as co-president of his company.

The simmering disagreement over the Hurd controversy and continuing encroachment on each other's turfs -- HP is extending itself into the software space while Oracle's acquisition of Sun thrust it into the server hardware market -- has now spilled over into the supply chain and smacked Intel right in the gut. Oracle noted in its statement that Microsoft Corp. (Nasdaq: MSFT) and Red Hat Inc. (Nasdaq: RHAT), two of its competitors, have also stopped developing software for Itanium but did not say specifically that halting support for the processor was hurting its operations.

In fact, Oracle was doing fine, both with its traditional businesses as well as in the software development for the Intel product. The company, however, needed to push more of its own hardware product, and I believe this is perhaps the best justification for its Itanium action. Of course, it also had the added benefit of tweaking HP's nose. While Intel might object to Oracle's action, it is unlikely this would hurt the business relationship between the two companies. It's expected that Oracle will continue to support Intel products, including other server processors.

HP might be the biggest loser here, but the dent might be unnoticeable. It quickly announced continued support for Itanium-based HP server products "using a roadmap that extends more than 10 years." Then it followed up with allegations Oracle was smarting from loss of market share by Sun Microsystems.

"Oracle continues to show a pattern of anti-customer behavior as they move to shore up their failing Sun server business," said Dave Donatelli, HP's executive vice president and general manager, Enterprise Servers, Storage, and Networking. "HP believes in fair and honest competition. Competition is good for customers, innovation, and the marketplace. We are shocked that Oracle would put enterprises and governments at risk while costing them hundreds of millions of dollars in lost productivity in a shameless gambit to limit fair competition."

Intel, meanwhile, cannot afford to publicly support or reject either of the two combatants. The chip vendor will have to work quietly behind the scenes to extricate itself from a turf battle it should never have been dragged into.