Oracle: Predicting and Moulding the Future
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Oracle (NASDAQ: ORCL), as a leading provider of database, middleware, and applications solutions, is positioned for continued growth and market share gains through leveraging its installed base (cross-sell/up-sell). With the fusion apps gaining traction and the acquisitions in whitespace areas providing diverse playfield for Oracle in the future, we rate it as a buy.
Cross-sell opportunities with “Exa”-line
Oracle’s “EXA” Machines are designed to overcome bottlenecks in one of three areas: Memory, Disk and CPU. While Exadata is designed to optimize the performance of large databases by optimizing reading and writing from disk, Exalytics works on memory to give “speed-of-thought” processing power by processing data in memory, and Exalogic is designed for data center virtualization with massively parallel and scalable CPU performance. So much on the technology front, the main thing that investors should note about these solutions is that they complement each other perfectly, throwing in a lot of cross sell opportunities.
Currently, Oracle has 300K database customers, and the management believes that 50% of them could be using Exadata over time. As Exadata is sold to database customers it might create a halo effect for Exalogic/Exalytics. As Exalogic could be sold to Exadata/middleware customers while Exalytics could provide high speed business intelligence sitting on an Exadata framework, we believe that the “Exa” line could provide high revenue generating opportunities in the future. We also believe that the growing traction of “Exa” line may help Oracle with the deployment of its own Sun server/storage hardware systems (currently 60% of oracle database run on NetApp (NASDAQ: NTAP), which is a competing hardware platform). As Exalogic is growing 2x as fast as Exadata at the same point in the cycle while Exalytics is growing 10x as fast, we believe we will continue to see the cross/up sales effects in the future.
Fusion Apps could drive revenues
Oracle Fusion Applications (OFA) is a next gen suite of software applications from Oracle Corporation. It is constituted of various offerings, including financial management, human capital management, customer relationship management, supply chain management, procurement, governance, and project portfolio management. Oracle now has over 250 customers using its Fusion apps and is seeing strong uptake across its offerings. It took Oracle over five years to re-architecture these apps to provide benefits over alternative solutions. We believe that Fusion apps' ability to improve critical business processes with their single code base and low cost to implement should drive healthy demand over the next few years. The value proposition of fusion apps is further enhanced when we note that these solutions could be deployed on-premise, on-demand, or through BPO's. We believe that this solution will generate increasing demand from SME’s given its low upfront costs and the ability to scale the solution to fit individual needs.
Innovation through acquisitions
Oracle has been doing a string of acquisitions as it has acquired eight companies YTD with its latest buy being a company Xsigo. Xsigo works in the area of Software defined networking (SDN)/ network visualization. It virtualizes the networking components like switches and routers minimizing the hardware costs and could be seen as a competitor to Nicira, which was recently acquired by VMware (NYSE: VMW). Through this acquisition Oracle plans to enter in a multi-billion market of SDN and puts itself in competition to Cisco (NASDAQ: CSCO) and VMWare. Oracle previously had worked towards development of its fusion apps after its $18 billion acquisition spree of Peoplesoft, JD Edwards, and Siebel Systems in 2005. We remain positive on Oracle’s strategy of acquiring small businesses to enter into new and diverse services/markets and its ability to keep up with the ever changing technology market.
Bottom Line
Although the demand environment has deteriorated over the past few months and customers are more heavily scrutinizing deals in the adverse macro environment, we believe that the enterprises are still willing to invest in high priority areas like data centers and purchase solutions which deliver tangible ROIs. Given that most of ORCL's offerings fits this criteria, we believe demand for ORCL's solutions should hold up and therefore rate it as a buy.
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