Oracle’s (ORCL: Charts, News, Offers) latest financial results are the second consecutive quarter in which the enterprise database management company has shown growth. As a bellwether for the software industry, Oracle return to growth is a good sign of the economic recovery for the industry, and ultimately the US. With a boost from Sun Microsystems, Oracle revenues were up 17% to $6.4 billion, of which, the acquired Sun contributed 10%. Although Sun boosted Oracle’s top line, it hurts Oracle’s profitability — Oracle reported earnings of $1.2 billion represents a drop of 10% compared to the same period last year. That said, was the Sun acquisition a good move for Oracle? And how is the integration going so far?
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It appears that Oracle is off to a fast start with its Oracle-Sun integration effort. So far, it has managed to curb Sun’s spending habits by reducing sales, general and marketing, as well as research and development costs. For the combined sales, general, and administrative costs, Oracle spent $236 million, or 4% of total revenue, which is in line with the same quarter last year. Prior to the acquisition, Sun spent nearly 30% of its revenue on these costs. Likewise, Oracle contained the R&D spending to 13% of revenue, which represents a 1% increase from the same period last year. This is a good cost containment effort considering Sun spent nearly 16% of revenue on its last reported stand-alone quarter. As such, it appears Oracle is on the right track, cutting out the fat where it matters the most and eliminating unneeded redundancies. In a prepared statement, Oracle President Safra Catz said “The Sun integration is going even better than we expected. We believe that Sun will make a significant contribution to our fourth quarter earnings per share as well as meet the profitability goals we set for next year.”
But the added revenue and cost cutting are not the reasons why Oracle acquired Sun in the first place. Since Sun is a key player in the enterprise hardware space and Oracle in the enterprise software space, there’s a significant opportunity to leverage Sun’s customer base to gain greater software market share, and vice versa. The question is, how well can Oracle integrate its two sales organizations, make them work together or understand each other businesses, and go out to sell. This is a tricky part that’s easier said than done. If Oracle cannot train its sale force how to effectively cross-sell hardware and software, it will be forced to do tag team selling — this will hurt its earnings as it needs two people to do the job of one. We’ll just have to wait and see if Oracle can pull this one off.
So it appears that the acquisition of Sun is a good move on Oracle’s part and that it’s moving right along with its integration effort. Frankly, I am impressed by how quickly Oracle is digesting Sun. But like I said, the hard part is still ahead of us. There are many companies that fell flat on its face when it comes to teaching an old dog new tricks. So let’s see what will happen with Oracle over the next 3-6 months. As for today’s stock price, it looks like good is not good enough for Wall Street and many investors were hoping for a blowout quarter from the combined company.
Other articles about Oracle:
- Oracle’s enemies of choice: IBM and SAP; Examining the prospects — The author believes that Oracle can eat into SAP’s (SAP: Charts, News, Offers) market share, but it’s unlikely that Oracle’s Sun can hurt the mighty IBM (IBM: Charts, News, Offers). What do you think?
- Oracle…Great, Good, But Not Enough (ORCL, SAP) — Why is the share price going down? Sometimes great is only good, and sometimes good is not good enough.
Other stocks in the news:
- Chrysler Offers New Franchises to 50 Dealers Who Lost Outlets — More sign of a better time ahead.
- Report: RadioShack Putting Itself up for Sale (RSH) — We covered Radio Shack (RSH: Charts, News, Offers) earlier this month. It’s making the news again today — apparently, it’s putting itself up for sale.
- Apple iPad To Come With 30k Free E-books, Report Says — Apple’s (AAPL: Charts, News, Offers) free e-books offer sure sounds scary for Amazon (AMZN: Charts, News, Offers) and Barnes & Noble (BKS: Charts, News, Offers), but it won’t matter if they are books that nobody read.
