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Oracle’s Next Move: Data Security

Posted on Tuesday, Jun 29th 2010

Oracle (NASDAQ:ORCL) has successfully integrated Sun, and in the first full quarter after the acquisition the company reported a 25% jump in profit. Now that the integration is complete, Oracle is looking at greener pastures. Last month, it announced another acquisition in a new but important sector: database security. Let’s take a closer look.

Oracle last week reported a 39% increase in fourth quarter revenue to $9.5 billion with new software license revenue up 14% to $3.1 billion. Net income was up 25% to $2.4 billion or $0.46 per share. For the fiscal year 2010, revenue was up 15% to $26.8 billion and net income was up 10% to $6.1 billion or $1.21 per share. The company’s global workforce declined by about 1,900 in the quarter, to 104,569 employees. Q3 coverage is available here.

After a year of waiting for regulatory approval, the $7.4 billion Sun deal was finally closed in January. With Sun under its belt, Oracle wants to be the mega IT vendor that customers depend on for all their IT needs: hardware, software, and support. The year-long wait for approval gave Oracle ample time to chalk out a plan for integration, and the results are a case in point. Sun contributed more than $400 million in operating profit during the quarter and has turned around under CEO Larry Ellison’s focused leadership. In the recent earnings call, Ellison said that Oracle plans to double Sun’s sales force. Earlier this month, Oracle had announced plans for additional job cuts at Sun in Europe and Asia that would lead to total restructuring costs of more than $1 billion, far more than earlier estimates.

Jeanette Borzo on WSJ.com reports that Oracle claimed that it continued to take market share from SAP, but SAP disputed the claim. Ellison also claimed that the new Sun Exadata “database machine” was helping Oracle win over IBM customers, and that “some of IBM’s largest customers began buying Exadata machines rather than big IBM servers” in the latest period.

Oracle’s Sun acquisition gives it a play in the server-side hardware space and pits it against HP, which has server-side software and infrastructure software, and IBM, which has infrastructure software. For its Exadata machine, Oracle cancelled its partnership with HP and used Sun’s hardware. Will HP get back at Oracle? Robert Mullins, author of Network World’s Microsoft Tech blog, says HP could buy Terradata with market cap of $5 billion and  jump back in the game with a high-speed data warehousing stack. HP is also likely to work closely with SAP against their common rival. One field I pointed to in an earlier post was mobile enterprise applications – a strong focus area for SAP and also for HP since its acquisition of Palm.

For the first quarter, Oracle expects revenue to increase 39% to 43% to a range of $7.03 to $7.23 billion and EPS of $0.52 to $0.56. Analysts forecast revenue of $7.5 billion. New software license revenue is expected to increase 2% to 12% to a range of $1.05 to $1.15 billion. The company is confident of meeting or exceeding its goal of Sun’s contributing $1.5 billion to non-GAAP operating income in FY2011 and $2.0 billion in FY2012. The stock is currently trading around $22.45 with market cap of about $112.68 billion. It hit a 52-week high of $26.63 on April 13.

Chart forOracle Corp. (ORCL)

Last month, Oracle announced plans to buy security firm Secerno for an undisclosed sum. Severno makes firewall products for databases that protect against hackers and data breaches. As an increasing number of businesses turn to the cloud, security of a company’s data is a key concern, and there is an increase in demand for data security products. Companies that lose data or are hacked can face fines from regulators and loss of confidence from their customers. Ellison is right to tap into this opportunity. It also fits in with Oracle’s strategy of becoming a one-stop IT vendor.

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