Global CIO: Why Oracle's Earnings Will Improve With Sun
Oracle CEO Larry Ellison promised Sun's profitability would start last month, and here's an analysis showing why CIOs should believe him.
Few acquisitions sparked more ill-informed speculation than Oracle's takeover of Sun: from the angst of the EU's anticapitalists, to SAP's and Microsoft's delusional attacks on Larry Ellison's hardware strategy, to the UBS analyst who said Oracle will fire 14,000 Sun employees, to the Motley Fool blogger who said it's a bad deal because Oracle doesn't understand hardware (yes, he really said that).
So as an antidote to all that nonsense, here's a pretty rigorous financial evaluation of the prospects for Oracle-Sun from a long-time investment manager—and I'm betting that when Oracle releases its quarterly results on March 25, they'll track a lot closer to his analysis than to those of the various "experts" cited above.
The financial outcome of the Sun integration and of Oracle's radically different strategy from here on out is important for a number of reasons, including the degree of confidence CIOs can place in Oracle's ability to execute. If CIOs believe the Sun deal will cost Oracle dearly on the financial side and will distract Oracle from its key traditional businesses, then those CIOs will certainly look for alternatives.
On the other hand, if CIOs believe that Oracle's impressive earnings and stock-price record will be enhanced by the addition of Sun, then those CIOs will be more likely to be open to investing significant portions of their IT budget in Oracle's new strategy of offering integrated and optimized systems.
(Of course, IBM has had a lot to say about Oracle's dreams versus its deliverables—as the company that Larry Ellison himself has said he wants to emulate, IBM has scoffed at Ellison's claims of software and hardware superiority and has pointedly stated that the journey to truly optimized systems requires much more than an acquisition. You can read all about IBM's positions in the "Recommended Reading" list at the bottom of this column.)
So below are a few excerpts from investment manager Chuck Carnevale's analysis of Oracle and his expectations for the financial outcome of Oracle-Sun. I've taken these from his post on SeekingAlpha.com, which includes some excellent graphs that illuminate his comments—but I also want to emphasize that Carnevale holds a long position on Oracle and therefore has a strongly vested interest in seeing Oracle's share price increase: