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What Will Oracle Acquire This Fall?

Posted on Friday, Sep 18th 2009

This week, Oracle reported a mixed first quarter, with revenue declining for the second straight quarter. Oracle has spent $30 billion to acquire 56 companies over the past five years, and its annual revenue is now about $23.3 billion. However, the company has run into some trouble over its Sun acquisition. The closure of its $7.4 billion acquisition of Sun has been pushed to January due to an antitrust probe by the European Union.

The antitrust probe is being done to determine whether Oracle would gain too much control of the database market with this acquisition. Oracle might have to spin off Sun’s MySQL open-source database to avoid aborting the deal. The Sun acquisition is expected to increase Oracle’s operating income earnings by $1.5 billion in the first full year after the close of the merger.

Meanwhile, rivals IBM and HP are poaching Sun’s customer base. In the past six months, IBM has bagged more than 250 customer wins involving Sun customers, while HP has gained more than 100 Sun customers for its servers and storage products.

Oracle has hit back at HP by dropping it as the hardware supplier for Exadata database machine and roping in Sun for Exadata version 2, which was launched yesterday. This move also serves to engage Sun and reassure its customers during the delay in closing the deal.

With its $8.5 billion BEA acquisition, Oracle has become the No.2 vendor after IBM in middleware. In July, it announced the 11G version of its middleware suite, which is the first full complete integration of the BEA products. With this new suite of middleware products, Oracle expects to rapidly gain market share at the expense of IBM. In 2008, IBM led the application infrastructure and middleware software market with 30.8% share versus Oracle’s 13.6%, excluding BEA’s 2% share as per Gartner.

Last quarter, Oracle said that it aims to be the number one on-premise application company and the number one on-demand application company. And it is Oracle’s style to do it with acquisitions. I had earlier said Oracle is going to shop for SaaS in 2009. Following Adobe’s recent $1.8 billion Omniture acquisition, is Oracle going to get active before the end of the year? I would argue that Oracle should have gone for Omniture, and if they do not become active, competitors will. Intuit has already entered the fray with its PayCycle acquisition earlier this year. So which companies is Oracle likely to acquire this fall? Taleo? Concur? SuccessFactors? NetSuite? Or perhaps Salesforce.com?

Q1 revenue was down 5% to $5.1 billion while net income was up 4% to $1.1 billion or $0.22 per share. Non-GAAP EPS was up 3% to $0.30. Analysts expected earnings of $0.30 per share on revenue of $5.2 billion. Q4 coverage is available here.

By segment, software revenue was down 1% to $4.1 billion with new software license revenues down 17% to $1 billion and software license updates and product support revenue up 6% to $3.1 billion. Services revenue was $0.9 billion, down 22%. Technology new license revenue was down 22% to $0.711 billion. Applications new license revenue was down 4% to $317 million.

In Q1, Oracle repurchased shares for about $243 million. It ended the quarter with $20.6 billion in cash and investments and declared a cash dividend of $0.05 per share. Non-GAAP operating margins grew by 570 basis points to 46%.

For Q2, Oracle expects revenue to range from zero to 3% or $5.6 billion to $5.8 billion and EPS between $0.26 and $0.27. Analysts expects growth of 1% or $5.74 billion. The stock is currently trading around $22 with market cap of about $108 billion. It hit a 52-week high of $22.95 on September 11.

Chart for Oracle Corp. (ORCL)

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I just blogged about the Oracle Sun acquisition:

Sun Microsystems Autopsy: Death by Reverse Darwinism

https://danielnenni.com/2009/09/16/sun-microsystems-autopsy-death-by-reverse-darwinism/

My feeling is that Oracle is dead serious about the server business and with proper (Oracle) management Sun will rise again.

D.A.N.

Dan Nenni Friday, September 18, 2009 at 4:41 AM PT

I believe Adobe paid way too much for Omniture & that will play itself out similarly as Skype did for Ebay.
Oracle is already well positioned to be a SaaS player along with using the Moniker of Cloud Computing.
I would think if they were to acquire a SaaS player that would have to be one that does not cannibalize their existing revenue stream and that could very well mean buying Salesforce.com.

Baba Friday, September 18, 2009 at 5:50 AM PT

Sramana
I agree with you on Oracle being a better suitor for Omniture. In fact, my belief was MSFT would have acquired OMTR before end of this year to take another jab at GOOG on the heels of the bing’s success. Might not be too far fetched to think of either of them making a counter offer. That said, it remains to be seen how Adobe would run a App company. It has always been a tool company.

On the list of companies Oracle might go after in the next year – I think SaaS vendors will figure heavily given the interest government agencies are showing towards SaaS (https://apps.gov). Oracle has a large revenue base from government and would do well to counter any SaaS vendors poaching its existing base in the public sector space.

Here are is my list – Oracle will go after – Intacct, SuccessFactors and some hosted project management vendor.

Subraya Mallya Saturday, September 19, 2009 at 5:21 PM PT