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1/5/2011
05:28 PM
Bob Evans
Bob Evans
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Global CIO: Larry Ellison Should Acquire Dell (And 10 Other Crackpot Ideas)

The acquisition would triple Oracle's revenue and spike its market share, says Motley Fool. But, there's just one problem: the deal would be a terrible fit.

So there's this guy who's an investor and he owns a lot of Dell stock and he'd like to see the value of that investment increase greatly so he's written an open letter to Larry Ellison suggesting that the Oracle CEO should pony up about $50 billion to acquire Dell because it'd be a super-duper bolt-on for Oracle.

This investor has published his open letter on the Motley Fool investment site, whose generic disclaimer says the following: "We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors."

After considering just where this idea would fit in that "diverse range of insights," I strongly recommend it be filed in a rubber-padded cell in the Absolute Lunacy section. Here's why:

"But for all your personal and professional success, you have a growing problem," writes Fool contributor Chris Baines. "That problem is called Hewlett-Packard. HP shipped 17.5 times more servers last year than Sun (which you recently acquired), and is No. 1 to your No. 5. And since when have you settled for being No. 5?"

Baines continues down this dead-end path by adding, "Mr. Ellison, critics are starting to doubt the Sun acquisition because of plummeting market share in servers (now at 6.7%). The company that fired Mark Hurd, unfortunately, also managed to oust IBM as this year's sales leader. And the trend shows no sign of abating. In the third quarter, HP and IBM grew server revenues by 22.2% and 9% year over year, respectively, versus Sun's own anemic 0.9% growth."

Now, I can't blame this guy for looking for someone—anyone!—to step in and bid up the value of a significant portion of his holdings by 250% (Dell's market cap is about $19 billion). But pitching Dell to Oracle to boost its commodity-server market share makes about as much sense as asking Warren Buffet to acquire Dell because it would diversify his portfolio.

As Ellison himself said just a few weeks ago in Oracle's most recent earnings call, "Our goal is to become #1 for both online transaction processing and data warehousing—both of those segments. We are not interested in the low-margins commodity segment of the server business [boldface emphasis added]; we are focused on high-end OLTP, high-end data warehousing, where the margins are good and we can have a highly differentiated product."

As we reported in Global CIO: Larry Ellison's 10-Point Plan For World Domination, Oracle's CEO went on to say, "Right now with our Sun servers, our numbers are behind IBM and HP in the high-end server business. We think IBM's hardware and software technology is quite competitive, while HP's big servers are slow, expensive and have little or no software value-add. That makes HP extremely vulnerable to market share losses in the coming year."

And then, as they say on late-night TV ads, "But WAIT—there's MORE!" Baines then proposes that Oracle shell out the bucks for an even bigger pile of fool's gold by promising Ellison that the Dell deal will bring him something he dislikes almost as much as he dislikes Microsoft: a big footprint in the PC business!

"And of course with Dell you're not just getting servers: You're getting the PC market," writes Baines. "And who better to help you understand this market than your newest hire, former HP CEO Mark Hurd? Do you have any doubt that Mark Hurd, who spruced-up HP, couldn't work some magic with Dell?"

Well, not to beat a glue-factory-destined horse, but yeah, I think Larry Ellison would have some doubts about that---particularly since he's got Hurd totally focused on driving sales of high-end optimized systems that sell for hundreds of thousands of margin-rich dollars instead of just hundreds of margin-hungry dollars.

Here's how Hurd himself described Oracle's hardware business during last month's earnings call as he emphasized the point that Oracle-Sun now has a record hardware backlog:

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