Oracle Hammers on HP, Intel Over Chip Plans (ORCL, HPQ, INTC)

Oracle Corp. (NASDAQ: ORCL) has turned up the heat in a lawsuit filed last May by Hewlett-Packard Co. (NYSE: HPQ) seeking to require that Oracle meet what HP says are its contractual obligations to offer Oracle software for systems using the Itanium microprocessor from Intel Corp. (NASDAQ: INTC). In a court filing over the weekend, Oracle charged that HP and Intel are engaged “in a remake of Weekend at Bernie’s, a movie in which two employees attempt to convince people that their murdered boss is still alive.Oracle announced in March that it would no longer support development of its software running on the Itanium microprocessor because the high-end server chip was reaching its end of life. Both HP and Intel, co-developers of the Itanium, denied the charge, claiming instead that Oracle was attempting to kill competition for its own microprocessor recently acquired in Oracle’s takeover of Sun Microsystems.

HP and Intel plan to issue the latest version of the Itanium in April 2012, and a future upgrade is on the chip’s roadmap for 2014. Neither HP nor Intel has announced any plans for the Itanium beyond 2014, though Intel’s CEO has said that a long-term roadmap for Itanium does exist. HP is the largest customer for the Itanium, and losing development support for Oracle software would effectively kill any future sales of servers using the chip and make supporting existing users more costly.

In its weekend filing, Oracle said that it intends to add to its existing lawsuit claims that HP “falsely represent[ed] material facts concerning the Itanium microprocessor family and in particular Intel’s support for it. HP made these false statements — with the specific intent of taking server business away from Oracle Sun and indeed attaining a duopoly in the high-end server business with IBM.”

Oracle is basically claiming that HP is lying about the future of Itanium and that Intel’s “ordinary business calculus” was overridden by HP in an effort to keep customers from abandoning high-end HP servers. The clear implication here is that HP paid off Intel.

Intel’s x86 server business totaled more than $33 billion in 2010, compared with about $4 billion for the company’s Itanium business. If HP wants to keep the Itanium in production, then it is virtually obligated to up its share of the costs of developing the chip. Whether or not HP is behaving as nefariously as Oracle claims remains to be seen.

Of course HP’s bigger problem is overcoming the turmoil caused by the departure of Leo Apotheker as CEO and the installation of Meg Whitman in his place. HP shares have fallen by -43% in the past 12 months. When the company reports earnings after markets close today, analysts are expecting EPS of $1.13 on revenue of $32.05 billion.

More important though will be clues from Whitman about the company’s future direction. In August HP said it was closing its WebOS hardware development, keeping its PC business and spending $11.7 billion to acquire business software company Autonomy. Investors are going to want more details on future strategy and a positive outlook for 2012 earnings.

HP shares are trading down nearly -5% in the first few minutes of trading this morning, at $26.61, in a 52-week range of $21.50-$43.93.

Paul Ausick