It took Oracle 30 years to cobble together all the component pieces it needed to become the modern equivalent of IBM at its technological and entrepreneurial peak in the 1960s. With the Sun Microsystems acquisition finally completed, Oracle CEO Larry Ellison has now built the company he always envisioned and he isn’t wasting any time putting it to work.
Today Oracle (NASDAQ: ORCL) is holding a daylong event for customers, partners and press detailing its strategic vision now that it has added Sun’s operating systems, servers and storage components to its existing business applications, middleware and database software.
“We’ve been talking about this for years,” Oracle president Charles Phillips said during the presentation. “We’ve extended it down to more and more layers.”
“One upside of this transaction taking so long to close was that it gave us plenty of time to work on the details,” he added. “We have a complete system that’s engineered to work together and be delivered faster across domains.”
For the first time since the heyday of the IBM mainframe, Oracle now believes it has the breadth and depth of products to deliver an entire open systems package to enterprise clients and, perhaps most important, give these customers one throat to check when something goes awry.
The Redwood Shores, Calif. company has come by this portfolio honestly, making a total of 52 acquisitionssince 2005, including the purchases of BEA Systems for $8.5 in 2008 and Siebel Systems and Hyperion in 2006 for $5.8 billion and $3.3 billion. In 2005, it closed the $10.3 billion acquisition of PeopleSoft.
“The breakthroughs will be the interaction between the stacks,” Phillips said. “With separate vendors developing products at each level, it’s very hard to get engineers to work together. It just never happens. It’s hard to get them to work together even when they work at the same company. Ask IBM. They know.”
Investing in Solaris, SPARC, servers and Java
Along with increasing its investments in Sun’s popular Solaris operating system, Oracle plans to throw more money at developing next-generation SPARC chipsets and servers and, of course, continue to build its applications — and deliver new releases — of the Java programming language, perhaps the crown jewel of the acquisition.
In fiscal 2011, Oracle plans to spend $4.3 billion on research and development, up from $2.8 billion last year and more than triple the amount it spent in product development after its PeopleSoft purchase.
“We’re going to spend money to re-energize the key assets at Sun, the products,” Phillips said.
To make it happen quickly, Oracle said it will hire 2,000 sales and engineering workers to help sell Sun hardware integrated with its industry-leading database software and other business applications, effectively offsetting the layoffsit announced after the deal was consummated.
By combining hardware and software in one stack, Oracle’s evolution to more of a systems provider mirrors the movesmade by the likes of HP (NYSE: HPQ), Microsoft (NASDAQ: MSFT) and Cisco Systems (NASDAQ: CSCO) which have all made multibillion-dollar acquisitions outside their specialty to offer a packaged offering of software, hardware and networking gear.
Despite this industry-wide transformation, Oracle officials believe their company is best positioned to make it work.
“There’s no other company that can claim that they’re in the complete systems business,” Phillips said. “We’re in all these categories and engineer across all of them. They couldn’t do it from a coordination perspective and simply don’t have components.”
“This is a completely different experience for customers,” he added.
A simplified service model
Servicing this new integrated suite of applications, hardware, networking and storage components (the bread and butter of the modern version of IBM) will also be simplified, Oracle said, giving enterprise clients the ability to call one vendor to resolve any service issues — or update any applications — with one phone call.
“It is odd that the computer industry ships all these separate parts and expects customers to assemble them,” CEO Larry Ellison told The New York Timesearlier. “You will now be buying this complete system, and don’t have to hire IBM or someone else to assemble it for you.”
Ellison was scheduled to address attendees later Wednesday afternoon.
While Wall Street has long embraced Oracle’s ravenous growth-through-acquisition strategy; the Sun deal fundamentally changes the company’s business model and product portfolio, putting it in direct competition with longtime rivals and allies alike.
“Unlike Oracle’s other acquisitions, Sun Microsystems transforms Oracle from a software company to a systems company,” wrote Patrick Walravens, an analyst at JPM Securities, in a research note. “Given the risks inherent in such a transformation, we remain on the sidelines for the time being.”
Last quarter, Oracle easily toppedanalysts’ estimates, earning $2 billion, or $0.39 a share, on sales of $5.9 billion and growing its total software licensing sales by 2 percent.
Those profits figure to improve as Oracle’s sales team can now go out into the market and use this new portfolio of hardware offerings as a fulcrum to negotiate better prices for prospective software customers who might otherwise have opted for competing apps from the likes of IBM, Microsoft or SAP.
By bundling hardware and software together Walravens said Oracle will be able to offer creative pricing terms that pure hardware or pure software vendors simply can’t match.
Oracle officials said they plan to sell directly to Sun’s top 4,000 customers directly rather than relying on third-party partners that Ellison said were largely responsible for Sun’s moribund sales and profits in recent years.