There is a fascinating discussion going on in the press about whether or not Oracle’s silence in the latest HP scandal is a sign that a deal to purchase HP is imminent. It’s rare, after all, that Larry Ellison — with his sidekick the former HP CEO Mark Hurd — resists the chance to call HP’s past and present management a bunch of clowns. And once again, the floppy shoes and rainbow wig seem to fit.

One of the best write-ups came from Uneasy Empires, and we quoted it on the Ticker earlier. It argues, in short, that if Oracle wants to dominate enterprise hardware, it needs HP. I spent a good bit of my morning on the phone with a few dealmakers and others close to this space, and came away convinced that no deal is in the works and doubtful there would ever be one.

The biggest reason is this: Oracle doesn’t actually want to dominate enterprise hardware the way it has dominated enterprise software.

Why? Because all on-premise enterprise software has terrific margins. Much of enterprise hardware does not. A desire for fat profits has dominated most of Oracle’s deal making over the last decade. During its $20 billion-plus splurge on software acquisitions, like PeopleSoft and Siebel and the like, Oracle wasn’t buying innovation. It was buying a massive installed base that paid pricey annual maintenance fees on software they’d already bought that was far too painful to rip out. In earnings call after earnings call, Oracle executives would crow about the proceeds from all those acquisitions just falling to their bottom line.

This was what made the Sun deal so controversial. A lot of it included low-margin, commodity hardware. That was the baggage that came with the deal, not what Oracle wanted. What Oracle wanted was premium hardware that it could bundle with its sophisticated software into all-in-one systems.

This is no mystery: Ellison has even said in recent earnings calls that he hopes the low-margin hardware business he bought goes to zero. Oracle is in the business of making sophisticated technology — always has been. There is not IP value the low-margin, commodity business.

Ellison said this plainly on CNBC in October:

So we’ve got two things going on. We’ve got this old Sun business of selling commodity hardware which is disappearing, which we don’t care about at all, and our new business of selling engineered systems which is more than doubling. And the old business is shrinking slightly faster than the new business is growing. But those two lines will cross at the end of this fiscal year, and we’ll get very rapid growth, because the bulk of our business will be engineered systems and this new, very hot Unix box [with] SPARC T4 [processors] which is also growing very, very rapidly.

What Sun brought Oracle was a way to edge out IBM — a very long game its been playing pretty much since the early database wars. IBM makes a lot of its money by making Oracle software work in big companies. If Oracle sells one hardware and software combo package that does the same thing, they get more of that big enterprise customers’ IT budget.

That’s another long game Oracle has been playing for decades now: Taking over additional percentages of that enterprise IT pie. It started in databases and has swallowed up middleware and applications as it’s grown, mostly through acquisitions. It isn’t selling to new customers, as much as it’s selling way more stuff to the same customers.

Oracle — and Ellison specifically with his personal investments in Salesforce and Netsuite — has always carefully navigated the impending shift from on premise software to the cloud. Oracle knew that this wasn’t imminent when it comes to large governments and corporations. But it also knows, in many ways, it is the future of business software. And that’s a future Oracle has every incentive to put off, because if you look at the slim margins of even the highly successful Salesforce.com you see a very different business at play.

It’s a delicate dance that Ellison has done better than most incumbents. He is happy to talk about on demand, SAAS, the cloud, and every other buzzword that’s been used to describe this shift. But in actions, he continually bolsters his lucrative core on premise software business at the same time.

The shift to include hardware into the mix plays into that. One of the big advantages of going cloud is that it cuts down on price, hassle, and cost. Most of that is because companies run the software for you — that means there are not pricy consultant or implementation and maintenance cost. If Oracle can sell companies the whole solution in one box that they can still run behind their own firewalls, they address part of the pain without overly pushing the cloud. Put another way: If the cloud revolution is coming, they help put it off a lot longer.

Oracle doesn’t want to dominate hardware. They want the part of hardware that allows them to keep dominating software for a bit longer.

So let’s look at HP: There’s an awful lot in there Oracle just doesn’t want. There’s more of that low-margin, commodity hardware that has already been such a drag after the Sun deal. And HP would be several times the price.

Then there’s the printer business. What on earth would Oracle want with a printer business? I don’t even know what I want with a printer in this day and age. The only reason I had one was to print boarding passes, and in a smart phone world, that’s obsolete. Think of all the things you used to use home printers for. How many do you still have a use for? Do you print out map directions? Recipes? Photos? Doubt it. Consumers may not be all there yet, but that’s where they’re going. Beyond that, Oracle has never shown that it wants to buy its way into the consumer world.

Which brings us to a third big thing he doesn’t want from HP: Selling PCs. Remember: Oracle is gunning for IBM and Microsoft — the two giants it has left to topple. IBM already killed its PC division long ago, so there’s no advantage there. And the last thing Ellison wants to do is go around hocking Windows. He’s already derisively called HP the world’s largest Windows distributor. The PC and printer businesses are half of HP. Oracle simply isn’t going to do a deal this size when half of the company doesn’t even sell to businesses.

There is some value in HP that Oracle would want. But analysts I spoke with estimated it at about no more than $6 billion or so of HP’s business– and that’s being generous. The Sun deal was worth buying the fleas to get the dog. At HP’s size, it just isn’t.

Oracle isn’t buying this company unless two things are happening:

  1. There is a massive shift in strategy that people close to the company don’t know about that runs counter to everything Ellison has been saying recently and for most of Oracle’s history.
  2. They can get HP for a song. The current market value — some $24 billion — isn’t a song. And HP has almost that same amount in long-term debt. If people hated the Sun deal at $7.4 billion, they’d lose their minds at HP’s price. There are mega deals and then there are mega deals. At $24 billion, HP’s current market cap is more than Oracle’s entire mega-software roll up of the mid-2000s. With past mega-acqusitions, Ellison has shown an amazing ability to wait for things to completely collapse before opening his wallet. Bad as things may be at HP, it’s not close to a collapse yet.

One source had a particularly evocative way of phrasing it: Oracle wants to go shopping at HP if, and only if, it’s holding a garage sale. “They’ll go in and take the old bike and the record player and maybe that La-Z-Boy in the corner,” this person said. “But they don’t want to buy the whole house.”

HP may be struggling, but it’s nowhere close to that level of desperation.

[Illustration by Hallie Bateman]