Larry Ellison is on a tear at Oracle. Who will he buy next?

Oracle has its sights set very high. Although the company is best-known for its namesake database software, a steady string of acquisitions has transformed the company (and its colorful leader, Larry Ellison) into an industry powerhouse. Much speculation revolves around Oracle’s next move, and a surprising meme is developing, suggesting that the company is looking at making another massive purchase. Could HP or NetApp follow Sun into the hands of Oracle?

Basic Facts

Companies typically combine with each other in one of three ways:

1. A straight purchase, using cash to buy up all of the shares in a public or private company. The acquiring company is in command here, offering a price per share fixed well above the current market rate. Purchases can be friendly or hostile, and bidding wars can break out if a rival wants to challenge the buyer (or push the price up). Companies sometimes lack enough cash on hand and will finance a portion of the purchase from an investment bank or by using bonds.
2. A stock swap sees the buyer trade their own shares (or those of a new company to be created) for those of the purchased company. This is advantageous if the buyer lacks enough cash to make the deal happen and can even see odd small-for-large acquisitions. But stock-based acquisitions are risky, since the value for stockholders varies continually right up until the deal closes and a slide in price can tank the deal entirely.
3. A combination cash and stock deal, where shareholders get both cash and shares in the new company in exchange for their shares. This is less risky for shareholders than a stock swap, but less attractive than a straight purchase, since the final price can vary based on the value of the stock included in the deal.

Like any company, Oracle can use any of these mechanisms to acquire other companies. They paid about $7.4 billion to purchase Sun and paid $10.3 billion for PeopleSoft, among their many acquisitions. Since both were all-cash deals, one can presume that Oracle prefers this over a stock swap or merger.

Oracle currently has $23.6 billion in cash and short-term investments and quarterly gross profits of around $5 billion. ORCL stock is currently priced at $27.42 per share for a market capitalization of $137.79 billion. Oracle could easily spend up to $20 billion on an acquisition, and could potentially engineer a much-larger deal by borrowing tens of billions more or using their stock.

The purchase of Sun gave Oracle all the server hardware expertise it needs, but it is lacking in storage and networking, two of the highest-margin areas of datacenter hardware. It would not be at all surprising to see Oracle invest in these areas.

You would probably also like to read my other articles in this subject area:

• The Enterprise IT Acquisition Game
• Meet the Enterprise IT Superpowers
• Everyone Loves 3Par – Here’s Why!

The Case for HP

Larry Ellison has been clear that his target is to unseat IBM as the preeminent enterprise IT superpower. Although HP is on the rise, Oracle as a traditional software vendor seems more fixated on the full-line services/software/hardware market at IBM. Oracle scooped up ousted HP CEO Mark Hurd last month, and the two companies appear to have buried the hatchet over the resulting spat extremely quickly. They appeared friendly and supportive at Oracle Open World as well.

HP’s annual revenue of $110-120 billion dwarfs Oracle’s $26 billion number, but their annual gross profits ($26 billion and $21 billion for HP and Oracle, respectively) are comparable. This reflects the differing profit margin of hardware and software. For comparison, IBM’s gross annual revenue is just under $100 billion but their $43 billion annual revenue must have Ellison drooling with envy. Assuming no overlap, integration difficulties, or customer defections, a combined Oracle/HP would instantly be dominant in terms of both revenue and profit. But that’s not a likely outcome, at least initially.

An Oracle and HP combination would certainly create an earthquake in the IT market, but the massive overlap between the two raises difficult questions about the role of Sun’s hardware assets. HP competes or leads just about everywhere Oracle/Sun sells hardware. On the other hand, Oracle is making the most of Sun’s software assets (Java, Solaris, virtualization and cloud technology, and even ZFS). Perhaps the deal makes sense even if Sun’s servers and SPARC technology is jettisoned.

But could Oracle pull off a deal like this? HP’s market cap is over $90 billion and Oracle could never raise the $100 billion in cash they would need for a straight acquisition. The two companies would have to merge, and Ellison’s control of the combined company would thus be greatly diluted. He currently holds 1.2 billion ORCL shares, or just over 27% of the company. An HP deal would put Ellison at the helm of the biggest ship at sea, but he would have to share command with many others.

The Case for NetApp

Although Oracle just introduced some impressive Sun ZFS-based storage devices, the company isn’t even a blip on the enterprise storage radar. The entire external disk storage market is only worth $20 billion according to IDC, but is attractive for margins higher than other hardware areas as well as its strategic value as a part of the enterprise IT stack. Therefore, a storage acquisition makes a great deal of sense for Oracle.

Larry Ellison is a major investor in storage startup Pillar Data, and this little company has some impressive technology, but an acquisition there is not the slam dunk many claim. Building Pillar into a force into the enterprise storage market will take effort and time, and that acquisition would be imperceptible on either side of Oracle’s balance sheet.

“Moving the needle” for Oracle would take a much-larger purchase. NetApp is the perennial top-five enterprise storage company, bringing in nearly $4 billion in revenue and $2.5 billion in gross profit annually. They have a wide range of SAN, NAS, and backup technology as well as software, services, and solid sales presence. An Oracle/NetApp combination would have little Sun overlap and would place the company in a duel with IBM for the number-two spot in external storage sales.

NetApp’s current market cap of $17 billion makes the acquisition financially practical for Oracle as well. They could offer a 20% premium right off the bat and could prevail in the resulting bidding war with IBM without resorting to trading shares for the company. They would even have enough left over to consider buying Symantec or Juniper Networks in another year!

Stephen’s Stance

An Oracle acquisition of NetApp makes so much sense, I’m surprised it hasn’t happened already. Combine very little product overlap, a “doable” price, and a poke-in-the-eye for IBM and you have a winner for Larry Ellison. No other available company offers the solid enterprise storage portfolio and sales of NetApp, and few other companies could make the purchase. The recent NetApp/Oracle ZFS settlement makes it look like something could already be in the works. Unless Oracle really is content to stand pat with Sun’s ZFS storage systems, I expect a NetApp deal within a year.

A combination of Oracle and HP is much harder to swallow. Although it would deliver an un-matched smack to the head for IBM, I just can’t see how it comes together. Larry Ellison isn’t about to give up control of his company, and Oracle is nowhere near having the cash to make it happen. I call HP/Oracle a pipe dream.

Image credit: Oracle_Photos_Screenshots

© Stephen Foskett for Gestalt IT, 2010. | Could Oracle’s Next Acquisition Be HP or NetApp?
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Who will power the enterprise? The smart money is betting on a few superpowers taking over.

After years spent focusing on personal technology, businesses are increasingly turning back to the enterprise. There are many reasons for this, but the biggest one is the poor economy. Individuals simply have less free cash to spend on gadgets and software, and the meagre profits are increasingly going into the pockets of a single company: Apple.

The corporate IT market is much more dynamic and competitive, with a few very large “superpower” companies discovering their power to drive purchasing decisions. If a supplier can create an integrated “stack” of hardware and software, they can push product purchases that might otherwise be overlooked or postponed. This is the main reason that enterprise IT acquisitions work so well: Where a small company must fight to sell their product, a large one can hitch it to a much more strategic sale and have it pulled along.

The old IBM model is the prototype, with that company once selling everything from office equipment to datacenter gear as well as the consulting and integration services to make it all work.

HP has spent almost two decades bulking up to become the new IBM, buying their way into open systems laptops, desktops, and servers (Compaq), networking (3Com), services (EDS), and storage (Compaq, LeftHand, Ibrix, and perhaps 3Par). HP has been remarkably proficient at executing on this enterprise plan: In talking to enterprise IT folks, I often hear IBM-esque sentiments regarding the new HP. They tell me they’re willing to give HP the benefit of the doubt when it comes to new technologies and products, buying on basis of the company’s reputation and ability to make everything work. This bodes well for the company’s post-Hurd future, and HP has the most-complete “enterprise stack” in the business.

But HP has a target on its back, pinned there by Dell. The folks from Round Rock believe they can be more efficient (and thus profitable) than HP in the same markets, and have been making moves to fortify their enterprise offerings. Dell was always more of a manufacturing than R&D business, but they have shown a desire to broaden their focus. Intrigued by the high-margin mid-enterprise storage business built from their EqualLogic acquisition and their success selling EMC storage, Dell is moving into the enterprise. They matched HP/EDS by purchasing Perot and have made smaller buys in storage (Ocarina, Exanet) as well as the big move for 3Par.

The next big emerging stack player is Oracle. The acquisition of Sun gave Oracle a strong hardware base to complement their command of enterprise software, and many expect further acquisitions. But Oracle is playing a different game than HP and Dell, focusing on the high-margin enterprise space and ignoring more competitive outlying areas. Many suspect the company might make a play in the network space (Brocade, Juniper, and F5 have been mentioned) but storage is possible as well. CEO Larry Ellison is a major investor in Pillar Data Systems, so many expect a spin-in here. But Oracle has the appetite for something much bigger, even EMC or NetApp.

Then there is Cisco, who have attempted to parlay their data center networking strength into a broader position. But Cisco’s halting moves into storage (Fibre Channel switching and SAN extension) did not displace the market leaders, and their server products (UCS) have not made much of a dent on HP, IBM, and Dell either. A solid partnership with EMC has delayed further forays into the enterprise storage market, and Cisco seems puzzlingly interested in low-margin access businesses (Linksys, Flip) and their Cius tablet.

There are other players in the enterprise space as well. EMC has diversified under CEO Joe Tucci, taking a dominant position in server virtualization (VMware) and making a strong enterprise security acquisition (RSA). But the many faces of enterprise storage remains EMC’s strength, and they seem content to partner with Cisco for a stack sale. Hitachi, NEC, and Fujitsu also offer varying enterprise hardware and software stacks, but their comparatively small sales presence in the US market limits their ability to execute. In the final analysis, only IBM, HP, Dell, and perhaps Oracle can claim to be enterprise IT superpowers at this point.

Image credit: Steam Engine by Stuck in Customs

© Stephen Foskett for Gestalt IT, 2010. | Meet the Enterprise IT Superpowers
Read more posts categorized as Featured, Networking, Server Virtualization, Storage

Now it can ship Solaris/SPARC/Sun Storage stacks underneath its database and other middleware and use Solaris virtualization features. Where does that leave us, wanting as we do to sell storage and our software into Oracle shops?

I’ve had an exec group working on this for some months and I’m gonna let you in on our game plan.

For those Oracle shops that run Oracle software on third-party servers, it’s the same story as now, for now. We pich the UCS vBlocks against the servers there and our Symmetrix/CLARiiON/Celerra against the storage alternatives there; basically no change.

In the longer term, though, we have to weaken Oracle in those accounts because Ellison’s crew will be selling the integrated Oracle stack story, what I call blowing Sun shine up their asses. That cuts us out, it’s a door-closer. The first way we counter this is to start making friends with SAP and Microsoft SQL. We’ll look for joint-selling type deals because we now have a shared enemy so we better be friends, right? This is my kind of fun.

The second way is for us to extend vBlocks up the stack. Customers are going to want integrated stacks from their applications right through to their disk spindles and flash drives. Larry may be a weird west coast cookie with a taste for things outside normal family life but he’s no flake when it comes to business. He’s right on the nail over this integrated stack thing. We’re going to have to talk to people like SAP and SQL and Terradata and Netezza and say, let’s build our own integrated app stack, let’s build a SAP vBlock, a SQL vBlock, whatever. Integrate your software onto our vBlock hardware and let’s bite Larry in the ass.

The third thing we have to do is push our aquisition horizons up a bit more. Oracle buys Sun and heads our way. Okay Larry, you want a fight, you got a fight. Let’s buy into his middleware market core, let’s stick a stake right in his heartland. Could we buy SAP? Would this be a better idea than buying Dell? I’m having our acquisitions team look around Larry’s software territory and spy out the possibilities.

Where Larry sells Sun storage separately, into Oracle shops using third-party servers and into non-Oracle shops if that’s what he’s going to do, then we should do well. The 7000 is obviously not mission-critical and not tested for that kind of work in enterprise data centers. It was put together by too-clever Sun engineers with open source software, so how can you rely on it? That systems organization at Sun was run by a guy that couldn’t comb his hair and he reported to a guy with a pony-tail. These people were flakes, they still are flakes, and you can’t trust them or their products.

Now joke time; the mid-range and low-end Sun storage arrays are not even on the same planet as CLARiiON and Celerra. We’ve been busting their chops and will continue doing that. The hybrid storage servers, Thumper or whatever the thing is called, is probably doomed but I’m having a team look over the possibility of putting a few UCS blades alongside bladed CLARiiON stores into an appliance and then we’ve got a Thumper-buster if we need one.

What about the StorageTek tapes? Two words: Data and Domain. If that’s not enough we can do a deal with Spectra, as Belluzzo isn’t talking to us anymore. That’ll give us a big enough tape library until Atmos clouds can do the business.

Larry E is just a wildly successful big mouth who’s going to over-reach himself. His golden goose is his software profitability through commoditizing everything else. We’re going to chip away at that by doing deals with SAP and the others and cut this over-grown Silicon Valley playboy down to size. He’s disrespectful but we can’t yet make him an offer he can’t refuse. Trust me, we’re going to be working on it, and Larry’s going to regret the day that he ever let McNealy soft soap him.

© Don Joey for Gestalt IT, 2010. | Ellison Ain’t No Sun King
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1. the iPad launch by Apple
2. the completion of the Sun takeover by Oracle

But actually they had a very common theme: control.

Let’s take Apple and the iPad and indeed all their products; Apple exert complete control of the hardware that their product runs on; indeed on their mobile devices, they even control the applications that run on their hardware. Some people hate this, they really do not like this controlling element; they go out of their way to do things to break-free of this controlling element.

But for some reason, we stick with Apple’s products; we may hate the company but we love the product; we accept their control grudgingly. We like the fact that we don’t have to waste our precious time making things work together. And at the end of the day, we can get out of the relationship with Apple pretty easily if we really decide we don’t like them.

Now let’s take Oracle and Sun; Larry has looked back at history to the IBM of the 60s and I suspect at his friend Steve and decided I want some of that control.  In fact, Oracle found people who say that are looking forward to Oracle controlling the whole stack? The one throat to choke but I’m willing to be that in big Enterprise computing, no-one really wants this; they don’t want to be locked in to a single vendor. We’ve been there and done that; we have choice, we have competition.

Yes, at one level, life would be a lot easier with a single throat to choke but we know where that leads and we know if we get too much into bed with Oracle, it’s going to be major struggle to get out of the relationship. There’s too much at stake to allow Oracle the same level of control we grudgingly accept from Apple.

© Martin for Gestalt IT, 2010. | Controlling Behaviour
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But the approvals haven’t stopped Mr. Ellison’s Team from redesigning the SUN ORACLE Exadata platform Version 2 (With SUN ORACLE logo’s on it). A joint venture between ORACLE and SUN has been on for several years now. Today was the day when the new Exadata platform version 2 was presented to the world by Mr. Ellison himself. It was truly visible, that Mr. Ellison is already taking a lot of pride with this acquisition even before its approved.

There was an advertisement earlier this week from ORACLE SUN challenging IBM and all its products and how Mr. Ellison now wants to go after IBM to become the top Infrastructure company. Said that, there are only 3 big infrastructure companies today, IBM and HP going neck to neck in terms of revenues competing for the 1st position, while the pending approval of ORACLE – SUN at number three.

Through it is great to see the vision of Mr. Ellison and how he is internally transforming ORACLE from being a software database company to an Infrastructure company. Today’s announcement of SUN ORACLE Exadata version 2 platform is very unique in that sense. Exadata products has been developed with years of partnership between SUN and ORACLE, but goes to show how both the combined companies can fulfill the datacenter vision END to END.

This platform extensively uses the SUN FlashFire technology and is truly the first OLTP (Online Transaction Processing) System designed to optimize customer data processing using a mix of SUN hardware and ORACLE software. It was very noticeable during the 35 minutes introduction where Mr. Ellison drove the presentation for more than 25 minutes and then handed over to John Fowler, EVP SUN for a technical talk.

Clearly ORACLE is targeting IBM and NCR – Teradata products with the release of this platform. It was obvious in the presentation that Mr. Larry Ellison used the word “THEY” numerous times signaling towards IBM and NCR. Though it was not said during the presentation, “THEY” could include HP as well. At this point without the final approval of the SUN purchase, it wouldn’t make a lot of sense for ORACLE to make another enemy, HP.

Here are some SUN ORACLE Exadata Version 2 platform highlights

1. Exadata Version 2 is optimized for OLTP (Online Transaction Processing), first in its kind to hit the market.
2. Typically SUN ORACLE Exadata Version 2 should give customers a 50X to 100X better performance than standard data warehousing servers.
3. Optimized for Random I/O
4. 1M IOPS per system cabinet
5. Each system cabinet has 8 Compute servers, 176 total processors, 336 TB of Raw Disk, 5TB of Flash Cache (56 Flash Cache cards), 400GB to total DRAM in the 8 compute servers.
6. Intel Nehalem processors, Infiniband switching, FlashCache, 4 Ethernet links per database node.
7. Runs Linux System, Oracle manages cache, fully redundant compute servers and storage. On demand capacity expansion as it relates to compute servers, storage or Infiniband switches.
8. 1 Node (computer server) is the smallest configuration, large configurations can be 8 nodes in one cabinet or 32 cabinets combined together to massively have 32 Million IOPS or several 100 Petabyte of storage optimized for OLTP.
9. Infiniband speed per link is 40 Gbps aggregating to 880 Gbps for a system (cabinet), Non Blocking switch gives a full open & distributed system access for faster processing.
10. Power consumption less than Exadata version 1.0 by 14%
11. Fastest OLTP system, Fastest Data Warehousing system in the world
12. All calculations done in memory (FlashCache), optimizing the system.
13. Massively Parallel Processing, the scale out architecture helps and enables easy on demand expansion.

Couple things to note:

1. Mr. Ellison calls Flash Disk as Dumb Flask Disk, truly remarkable.
2. Also another highlight was to use 56 Flash Cache cards per system (5 TB) and then use 168 x 2TB SATA drives (Possibly 7.2K RPM) to optimize data space (Somehow didn’t make a lot of sense).

Some Questions to Consider :

1. Is this a real threat to Storage & Host providers where you have specialized Hardware / Software combination optimizing your performance for certain applications?
2. Is this the power of ORACLE SUN that we will see in the future?
3. How does this compete with EMC COMPUTE platform (rumors) or the Cisco – EMC Alpine Project (rumors)?
4. Does the VCE (VMware – Cisco – EMC) partnership really focus towards the giant to come ORACLE SUN?
5. What will happen to the ORACLE – HP partnership if the ORACLE SUN buyout gets approval, what happens to HP – Oracle Exadata?
6. Does this create any Antitrust scenarios for the future?
7. Is Mr. Ellison’s dream to own the infrastructure end with the purchase of SUN?

Here are some links for references if you would like to read more about Exadata products

http://www.orafaq.com/wiki/Exadata_FAQ

http://www.sun.com

http://www.oracle.com

© Devang for Gestalt IT, 2009. | SUN ORACLE Exadata Version 2: Showing the power of ORACLE SUN
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