I’m in San Francisco prepping for the Cube’s second annual broadcast at Oracle OpenWorld. While the world is kind of dissing Ellison’s Sunday keynote, it’s important to remember that Larry usually saves his best for the mid-week slam of the competition. If you can put up with the mega (or should I say Exa-) marketing pitch it’s worth listening to his comments. And we’ll be analyzing it all week. Ellison is not the pitchman that Steve Jobs is but he’s pretty passionate about his products and will stop at no length to de-position the competition and place Oracle at the top of the food chain.
While many don’t like his approach – the fact is Oracle is putting its money where its mouth is; literally. To wit:
- In the last four quarters, Oracle threw off $12.3B in free cash flow. Oracle is a money-making machine. And while much of that cash is via maintenance…
- The company’s new license revenue grew 17% last quarter and it has seen quarters in the past year where new license revenue grew in excess of 20%.
- The Sun acquisition is a home run – Next to VMware and maybe PWC it is perhaps the best acquisition ever in the enterprise tech business. Oracle not only secured the ownership of Java (on which it writes many of its applications) but it also is driving a huge profitability focus into Sun’s once-sagging business by leveraging software and hardware integration – something Sun was never in a position to do as a mostly hardware player (more on this in a second).
- Oracle is making all the right product moves. Its Exadata platform is exploding in the marketplace with hundreds of new customers each quarter. Exadata changed the data warehousing game and has the competition scrambling to catch up. Its Exalytics appliance takes a page out of SAP’s HANA and is sure to freeze the market and keep many Oracle loyalists on its platform.
On the performance of Sun, Oracle is guiding that revenues may be flat to down next quarter, causing many to question Oracle’s success. But Oracle clearly is winning in the marketplace with Sun’s former business. Oracle is going after profits, not revenue. Ellison recently stated “I don’t care if our commodity X86 business goes to zero.” He means it. Oracle’s operating margins are running in the mid-to-high 30% range consistently and management has stated that next year it will return to pre-Sun acquisition levels in the low 40% range. Let’s think about what that means for a second. Oracle paid $5.6B for Sun (net of cash). It paid less than $1 per Sun revenue dollar. So even if the Sun business shrinks to say $7B it’s a financial grand slam for Oracle.
Why is that? Well Oracle, long after the Sun acquisition is still trading at 4X revenues. So at $7B in revenue, Sun is worth $28B to Oracle shareholders. That doesn’t even take into account the long term strategic value of so many other factors including the integration of hardware and software story that Oracle is pounding, control of Java and its ability to heavily influence mobile platforms, ownership of MySQL and the strong presence of Sun in certain verticals such as telco. Safra Catz has stated Oracle’s goal of getting the entire company back to pre-acqusition operating margins of say 42%. What will that do to the value of the Sun asset. While it’s hard to say because by then it will be one big mashup – I promise it’s more than $30B assuming the broader stock market doesn’t tank.
Oracle is not without warts. It’s mobile strategy seems to be limited to screwing up the mobile open source community by using its legal leverage with Java. While the Google lawsuit seems to have merit one can’t help but wonder if Oracle’s moves will come back to bite it some day. In addition, Oracle’s cloud rhetoric is unnerving to many. Ellison’s flip flop from the Churchill Club rant to last year’s “cloud-in-a-box” announcement is classic cloudwashing at its best. Will Ellison’s “cloud is water vapor” comments become his Ken Olsen “Unix is snake oil moment.” Maybe not but the cloud is as much as a philosophy as was open systems and Oracle is not the poster child for “open” – however you define the term. And when it comes to so-called “Big Data” it’s unclear that Oracle’s strategy will win. Oracle believes that its databases will be the final resting place for big unstructured data. We’ll see if that’s the case or if the Oracle big data boxes are boat anchors.
Nonetheless, whatever your opinion of Oracle, you have to admire its strategy and management’s intensity. The company doesn’t follow – it creates its own path and right now that path is paved with gold.