Hewlett
Packard (HP) and Oracle successfully conducted business with each other for
many years. Together the companies developed a line of servers that had proven
to be a very profitable product, called the Integrity line. HP developed the
hardware for these servers, while Oracle produced the database software for the
servers. The servers developed by these two companies were powered by Intel’s
Itanium line of processors. Intel was just a supplier of these processors, and
not in a partnership with HP or oracle. When the profitability of these
processors declined, Intel started to consider canceling production of the
Itanium processors (Vance). This is where the problem began.
Even though Intel was planning to
discontinue the processor line, HP advertised to their customers that their
product had a great future and were going to continue to be supported. According
to many sources, both HP and oracle were conducting communications with Intel separately
(Bandler and Burke). Since the product line was highly profitable to HP, they
wanted Intel to continue producing the processors. Oracle, on the other hand, came
to a different conclusion in their communications with Intel. Oracle chose to
discontinue developing Itanium-based products due to the “murky future” of
these processors (Vance). This decision prompted HP to sue Oracle on the
grounds that they failed to uphold their end of the partnership which is a
breach of contract. This resulted in Oracle countersuing HP on the grounds of
false advertising (Bort).
The Lawsuit
Oracle
is claiming that they are not required to continue developing new software for
the infamous Integrity line of HP servers, and they are only required to
continue selling their current products. HP has stated that Oracle’s decision
to stop developing new software will result in a $4 billion dollar loss.
Currently, the case is under review by a judge. If the judge finds Oracle at
fault for a breach of contract, the dispute will then go to court where it will
be heard by a jury (Bort).
My Expectations
Without
being able to see the specifics on the contract between HP and Oracle, I would
expect that the judge will not find Oracle at fault and only require them to
continue producing their current products. Due to the amazing rate at which
technology evolves, the fact that HP expects their product to be profitable
into the distant future is ridiculous. HP is the only major company left that
still produces a product based off the Itanium processors, all the others have
moved on to the Xeon line of processors. That by itself should be a big enough
sign to HP that they should consider discontinuing that line of servers.
Implications
Lawsuits
like the one between HP and Oracle illustrates the importance of very carefully
thought out terms of agreements between companies that wish to enter a business
relationship. I find it amazing that neither company thought to add terms to the
contract like what action is acceptable during an end of product scenario.
Work
Cited
Bandler,
James, and Burke, Doris. "How HP Lost Its Way." Fortune
International 165.7 (2012): 54-67. Ebscohost.com. Ebsco Publishing,
21 May 2012. Web. 11 July 2012.
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=75275678&site=ehost-live.
Bort,
Julie. "HP To Oracle: You Owe Us $4 Billion For Screwing Up Our Server
Business." Business Insider. Business Insider, 5 June 2012. Web. 11
July 2012.
http://www.businessinsider.com/hp-to-oracle-you-owe-us-4-billion-for-screwing-up-our-server-business-2012-6.
Vance,
Ashlee. "The Ellison Files: Oracle Strikes Back." Bloomberg
Businessweek 4280 (2012): 37-39. Ebscohost.com. Ebsco Publishing, 21
May 2012. Web. 11 July 2012.
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=75350347&site=ehost-live.
This is a great blog Travis, and an interesting topic. I agree with you that the initial agreement between HP and Oracle should have involved some sort of clause covering the end life of the product. I think that both companies could have also benefited from exit strategies that they discussed with one another. The most surprising part of the article to me though was the fact that HP and Oracle were each communicating with Intel seperately. Since they were dealing with such a profitable product, they should have had better communication, not only with their supplier but also with one another concerning the future of the servers.
ReplyDeleteOn HP's website, it says that HP and Oracle have been in strategic partnership for 30 years. One would think that partnerships of that length would have already seen many "end lives" of products and that they would have already established some form of agreement for the ending of a product, especially processors and software which sometimes seem to become obsolete almost as fast as you can buy them. It is amazing that there is no apparent ending strategy, considering the size of the companies involved and the profits at stake.
ReplyDeleteI'm wondering where all this leaves the customers who currently have PC's with the iTanium processor and software from Oracle? I assume that all companies involved will have to continue product support. I guess HP will have to find another software company who is willing to develop new software for the outdated processor. If they can.
It will be interesting to find out what the judge has to say. This is one case I'm going to follow.
This is interesting. It's impossible to speculate without knowing any terms of the contract, but I think it's a little ridiculous that HP would want to force Oracle to continue producing for, what they see to be, a losing venture. From my understanding of contract law, it wouldn't be impossible, if the correct terms were in there. I think this post highlights the importance of going over your contracts. I hope that Oracle perseveres.
ReplyDeleteThanks for all your comments. I would have to say that I would like there to be a ruling that would allow the split of the partenership, but I am not rooting for Oracle, they are not innocent either. Oracle has done a number of things (some related and some unrelated to this partnership) to antagonize HP.
ReplyDelete