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Oracle to Acquire Informatica in ’09?

Posted on Wednesday, Feb 25th 2009

The leading data integration enterprise, Informatica (NASDAQ:INFA), recently announced their Q4 results. Revenue of $124.4 million grew 9% over the year but fell short of the Street’s expectations of $127 million. During the quarter, license revenue grew a record 4% over the year and contributed 46% of the total revenue. Services revenue grew 14% over the year to $67.2 million.

International orders were 41% in the quarter compared with 35% a year ago; the increase was primarily driven by growth in Latin American operations. However, International revenue contributed 34% of the total revenue in Q4, compared with 37% a year ago, due to currency depreciation.

EPS of $0.24 was marginally higher than the Street’s expectations of $0.23 and recorded a decline of 4% over the year. For the year, Informatica closed revenue at $456 million with growth of 16% since last year. EPS for the year was $0.76 compared to $0.75 a year ago.

Going forward, they expect 2009 revenue to grow by a mid-single digit percentage and are targeting non-GAAP operating margins of 23.5% compared with the 22% attained in 2008. They expect Q1 revenues of $104-$111 million non-GAAP EPS of $0.15 -$0.17.

Informatica has been following a three-pronged strategy to tackle the recession. First, they are diversifying beyond their primary geographic market, which was evident with the significant growth in International orders. Second, they are trying to grow their market beyond the traditional data warehousing segment. And third, they are expanding their product portfolio beyond the traditional ETO technology. All of these strategies have proved successful.

During the quarter, Informatica was selected by TRICARE, part of the US military health system, as the standard for data integration and data quality. The cost savings potential they are able to offer customers is also worth mentioning given that Banco Santander, the sixth-largest bank in the world, expects to reduce the cost and duration of their Banco Real merger integration IT project by 50%. In times when customers are looking to get more value for their IT investments, such savings will likely be able to bring in more business.

Informatica also introduced the Informatica On Demand Data Synchronization service for Salesforce.com, which enables users to use a web browser to synchronize on-premise with off-premise data in Salesforce.com. They expanded in the OEM space through tie-ups with various partners, one of note being their agreement with Japan’s NEC Corporation, where NEC will market PowerCenter in Japan under its own brand, supported by a dedicated engineering team.

I have for a while suggested that Informatica could be bought by Oracle. Last year, there were many significant deals in the business intelligence space. With IBM acquiring CognosOracle acquiring Hyperion  and SAP buying Business Objects, the larger acquisition targets have nearly vanished. However, the need for BI companies to consolidate still remains. That leaves smaller players like Actuate, MicroStrategy and Informatica as serious acquisition targets.

Analysts believe that there are enough synergies in Informatica’s, Oracle’s and Hyperion’s technologies. Oracle needs to acquire Informatica to build on their in-house data quality, profiling or metadata solutions. Informatica already has a very profitable partnership with Oracle, and its ETL installations with Oracle databases are a very attractive product offering. Add to that the fact that Informatica’s CEO Sohaib Abbasi has worked with Oracle for nearly 20 years, bringing the managerial synergies required to make the merger work.

The current economic conditions have brought the stock down to $13.17 with a market capitalization of $1.15 billion. It could well be a value-for-money deal for Oracle at current market prices.

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I don’t think Oracle will acquire Informatica, I think it would provide a small benefit to the Oracle BI group and a major deficit to the Oracle RDBMS group and in net terms it’s a bad deal.

1) The FUD from competitors could see Oracle lose some Informatica customers.
2) The confusion of juggling three data integration tools (OD, OWB and PowerCenter) would make sales and market difficult. The development effort in aligning the three products would see Oracle-Informatica lose ground on IBM in data integration.
3) Buying Informatica could cause a material drop in Oracle RDBMS licensing as Oracle customers move away from ELT to ETL.

Right now Oracle get the best of both worlds by making Informatica a really cheap option for Oracle BI customers and make ODI and OWB a cheap option for other Oracle customers.

Vincent McBurney Sunday, March 1, 2009 at 10:33 PM PT