HP-Oracle Itanium Chip Trial May Affect HP Revenues, Margins

by Trefis Team
-27.47%
Downside
34.52
Market
25.04
Trefis
HPQ
HP
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Oracle (NASDAQ:ORCL) announced that it will no longer develop new versions of Oracle’s database and other products on Intel Itanium platform due to its belief that the chip is at the end of its life-cycle. [1] Intel (NASDAQ:INTC) has refuted this claim and has plans to continue developing and supporting the chip, but this has not changed Oracle’s stance on the product. [2] This could affect Hewlett-Packard (NYSE:HPQ) as Itanium microprocessors are used in its high-end HP Integrity line of servers. HP has sued Oracle for $4 billion in damages.

See our full analysis on HP

Potential Downside For HP

Oracle has stated that its belief is that Intel is going to concentrate on it’s x86 microprocessor line and this is the main reason for the discontinuation of Itanium development. It will however continue to support existing versions of Oracle software that already run on Itanium.

The servers and storage division of HP constitutes 15% of our current price estimate. If Oracle wins the lawsuit and this leads to a 10% drop in server revenues for HP, we can expect a ~5% downside to the current price estimate. If HP wins the lawsuit, we can expect an upside of up-to ~10%.

We currently have a $32 Trefis price estimate for HP, which is around 40% above of the current market price.

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Notes:
  1. Oracle News Release, www.oracle.com []
  2. Chip Shot: Intel Reaffirms Commitment to Itanium, www.newsroom.intel.com, March 23, 2011 []
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