Oracle: Cloud is Where the Money Is
Subhadeep is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This is one company that’s certainly going all out to shed its ‘old school’ image and looks set to reap a huge profit in the upcoming future. Yes, I’m talking about Oracle (NASDAQ: ORCL), the company that’s really taking a long hard look at the realm of cloud computing, or more specifically, at software defined networking (SDN), said to be the next big thing in virtualization technology.
Oracle has announced the planned acquisition of Xsigo Systems, a leader in network virtualization, whose software enables enterprises to connect their servers (or for that matter, any server) to any form of network and storage systems. The results – higher network speeds while ensuring optimum cost effectiveness. And that’s not all, as the acquisition also means that Xsigo’s A-list customers, including eBay, Verizon and British Telecom, will all fall in Oracle’s kitty very soon, adding to its impressive database of enterprise customers. Oracle’s Xsigo move comes close on the heels of peer VMware’s (NYSE: VMW) acquisition of network virtualization specialist Nicira.
As with many other primarily hardware-based companies, Oracle also realized when it was time to make a paradigm shift in its focal business area. In fact, the Xsigo buyout is the latest in a series of as many as six acquisitions that it has made this year, in a bid to strengthen its enterprise software portfolio. The company has already outlined its plans to be a one-stop shop for the entire gamut of network virtualization needs of its enterprise customers. But, apart from that, this is also part of an effort to integrate the company’s server-based technology with Xsigo’s capabilities in the network virtualization area. That’s a smart way to reduce its own costs as well as those of its valued customers. Apart from that, Oracle has also made it clear that it wants to reduce its dependence on hardware-based systems, such as those obtained with its acquisition of Sun Microsystems sometime back. Obviously, profitability and operational efficiency are the clear winners here.
With cloud computing being the future of technology, Oracle’s lookout for potential buyout opportunities is part of a strategic move to offer an entire suite of remote internet-based applications to its clients, covering such diverse areas as web, mobile, human capital solutions, enterprise resource planning, and so on. That’s what it calls ‘Oracle Cloud’ – the next big cash cow for the company. And the results are quite evident in its recent fourth quarter earnings, which surpassed analyst expectations. A large part of it, by the way, has been the result of new software licensing revenue. However, Oracle knows that it still has a long way to go if it has to compete with the likes of Amazon’s (NASDAQ: AMZN) web services.
On the whole, Oracle looks like one for the long run. The company has a solid balance sheet, relatively low net debt and a robust cash flow scenario. With companies becoming increasingly aligned towards cloud computing, which in itself is still at a nascent stage, this is perhaps real sweet timing on behalf of Oracle.
subhadeeptech has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Oracle. Motley Fool newsletter services recommend Amazon.com and VMware. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.