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Sunday, December 11, 2005

Oracle, Mergers, Depressed Stock Prices & Opportunities

While oracle is all set to announce closure of the Siebel deal, I wanted to quickly assess the progress made by it from a market perspective( my private views, like all posts are in this blog.) - obviously the internal progress card within Oracle would look much better.It is common knowledge that most high tech mergers fail, barring some exceptions. Forbes points out that after spending 14 billion and acquiring 13 odd companies, oracle's stock appears as a petrified one quoting under 13$ - previous peak 15$ in 2002. In the last two years-since the acquisition spree started in earnest-sales are up 24%, net income is up 26% and the company's cash flow from operations is up 18%. The stock has never been this cheap since 1990 on a pure P/E [price-to-earnings ratio] basis, says an analyst. Chuck Phillips thinks that the perception of risk around the acquisitions is much higher than [the risk] actually is and points out the size of the acquisitions were small relative to that of Oracle. He says oracle moves extraordinarily fast to integrate these deals, targeting 30 days at the most for the "vast majority of the decisions." Despite all of the deals- Oracle's core product remains its database. Database sales, lumped together with middleware software for reporting purposes, rose only 4% in the previous quarter, to $1.8 billion, with the value of new software licenses sold not growing at all. Database business is also seeing heightened competition. Some of its acquisitions are definitely value accretive.Applications account for about one-third of the sales, while it has doubled accounting for software sales from acquired entities, WR Hambrecht thinks that if we take the the combines sales of all three companies & compare for same quarter last year, the applications business actually shrank for Oracle. Oracle has a huge integration challenge ahead but has promised its worried customer base to provide long-term support for new and existing versions of its applications. One unintended consequence seems to be that hosting solutions grow in the wake of Oracle acquisitions. Interestingly whats the price for acquiring marketshare in enterprise market - I % share is 1 Billion USD!!

Prudential research finds Oracle's share of the applications market (measured by license revenue of the top five players) will reach 17% at the end of calendar 2005, as against 16% five years back. Post Siebel acquisition, Oracle will gain an additional 7% in 2006 – perhaps giving it a 25% share of the market. He contrasts that with SAP's share, which was 45% in 2001, will likely hit 59% in 2006. Net –Net Oracle is spending more than $1 billion per point of market share, while SAP grew 15% organically. (But understandably oracle marketshare would improve moving forward if we count fresh sale alone – However the counterweight could be that while Oracle may be able to compete with SAP on numbers in the short term, they may have trouble competing longer term on product innovation, due to locked in architectural /support issues).Clearly huge challenges lay ahead for oracle, its customers and perhaps huge upside in terms of opportunities for Oracle consulting and professional service partners!!

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"