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Is Oracle Regretting Its 7.4 Billion Sun Microsystems Deal

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Corporate success is driven with the investments that the company makes for its business enhancements and to gain market share in the relevant business. Oracle (ORCL) has been one of the global leaders in providing databases and ERP solutions ((Enterprise Resource Planning)). Over the past it had made major acquisitions to stay focused on providing database and ERP solutions. In 2010 Oracle acquired Sun Microsystems for $7.4 billion in 2010 , this was a change in focus for Oracle as it initiated its journey toward the hardware business.

Oracle policy for all its acquisition was more like acquire and dump. Over the past it did acquire some software ERP solutions provider companies like JD Edwards, PeopleSoft, Baan, etc. This was with an initiative to have broader global in the ERP market which did yield positive results. This policy did work for most of its major acquisition of the Software companies. Such acquisition seems to be mainly to kill the competition which arises from these companies and to gain customers. But it seems that this policy fizzled out with its acquisition of Sun Micro Systems. A debatable point of this acquisition could be whether Oracle acquired Sun to gain control over the Java platform with an eye on vertical integration to compete with companies such as IBM and EMC/VMware, or was it a strategic move to step into the hardware server market.

Over the period it was quite clear that oracle had laid its tracks for hardware market journey by acquiring Sun Micro Systems. Results show that Oracle's hardware business has not delivered the goods yet. The question is whether the Sun Microsystems acquisition is a failure for Oracle and will the company decide to dump its hardware business completely and concentrate more on its core business.

Most of the hardware companies have been integrating hardware and software by offering them as a bundle package. Such a trend has led companies like Oracle to opt for vertical integration. Various synergistic partnerships have been also witnessed to avail vertical integration as in the case of EMC and VMware.

Oracle’s in the hardware segment competes with IBM, Dell, and HP, all of whom have an established market for hardware for their high end and low end servers. IBM has always provided turnkey solutions for hardware/software. Oracle is a newbie in this total solution (hardware software bundle) scenario as compared to IBM.

We also notice that there is decline in the worldwide server market, and oracle is unable to record any growth in revenue from its hardware business. As per IDC, the global server market was worth $11.9 billion in the second quarter of 2013, a decrease of 6.2% year over year. Major Hardware companies like IBM & HP are experiencing setback in their revenue from the hardware server market. While companies like CISCO has gained a phenomenal revenue growth up to 42.6% and oracle hardware revenue sliding down by 5.7%.

Not as Expected

Despite some hardware server performance claims by Oracle, it still failed to record growth in the segment. Earlier this year, Oracle had announced a refreshed server on new SPARC T5 processors, claiming to be the world's fastest processor. The statements were backed by various benchmark reports but it IBM contradicted them. The enhanced SPARC T5 server is packaged with 16 SPARC v9 cores while the SPARC T4 was with 8 cores per chip. IBM, on the contrary, claims that putting a few extra cores in the chipset does not mean it can be a perfect solution in real time work load applications. This is further exemplified by Oracle failing to records growth in its hardware business and has recorded sequential and year over year decline in the segment.

Conclusion

The decision of Oracle acquisition of Sun Microsystems has not been able to convince the investors in terms of revenue growth. I feel Oracle decisions to deviate from its core business of Software solutions and database solution was not as per the liking of oracle it can even plan to sell its Hardware business to other major players. Investors are still waiting to hear the gain that it made from a deal worth over $7.4 billion for Sun Microsystems.

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