A couple of points to counter your arguments:
Yes, Oracle reported -12% decline in Hardware products this Q2FY17, however, as Oracle's hardware is now being installed into Oracle's cloud (IaaS), and its also the hardware driving its SaaS and PaaS offerings (Oracl'es capital expenditures), its being offset (almost) by the increasing revenues of +9% for IaaS, 83% increase in SaaS/PaaS. Oracle Cloud (SaaS/PaaS/IaaS) has now achieved over $1BN in revenue this Q2 with considerable growth that’s expected to continue as mentioned by Safra during the earnings call.
2nd point, revenue is almost a misleading indicator today as you can make 10's of Billions$ in revenue and make no margin, essentially not making any profit off of the sales. Just ask IBM why it sold its x86 business to the chinese, HP has split into HPE and beyond, Dell went private, and Cisco also hurting, etc. Making revenue isn't enough. Its making margin/profit that matters cause that’s where you get budget to invest in R&D. Oracles operating margin is a very healthy 34%.
Back in the Sun days (Im an Ex-Sun employee), we sold billions in hardware (as you mentioned), however, the margins were quite low in the 10-15% range. Not sufficient to sustain the business long term and why they sold out to Oracle. When Oracle took over, they killed all the low margin HW products and now sells systems that add significant value like integration and therefore justify higher margins.
And finally, if you look at the list price of Sun's last high end systems sold before Oracle, the E25K, they sold for $3-5M each. Today, an Oracle SPARC M7-16 which is ~30x faster (in less than ten years!) is one third the list price. A SPARC T7-1 less than $60K will outperform the E25K with ease. So Oracle would have to sell anywhere from 3x to 10x more of these systems to make the same revenue but when you have such a powerful machine, there are fewer customers needing this level of power and so they buy even lower end systems, reducing the revenue further. I believe this is one of the key factors why Oracle is making significant less HW revenue than previously as the price/performance has had a significant drop since the SPARC T5/SPARC M6/SPARC M7/SPARC T7 systems have come out.