Oracle's (ORCL) Acquisition of Sun (JAVA) Might Be Smooth, But Layoffs Still Linger - Barron's
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With the announced acquisition of Sun Microsystems (NASDAQ: JAVA) last April, and with all approvals and regulations met, Barron's believes that this integration may be feasible, and profitable, for Oracle (NASDAQ: ORCL).
Oracle provides corporate enterprise application software, among other offerings, on the same plane as Germany's SAP AG (NYSE: SAP), IBM (NYSE: IBM), and even Microsoft (NASDAQ: MSFT). With the acquisition of Sun, Oracle now has a foothold in the hardware sector, something they have never had before.
Barron's states that hardware is more of a commodity that software, being that the customers' ability to switch hardware is generally fraught with less problems that converting and transferring all company programs and databases into a new format.
Oracle is expected to hire about 2,000 sales people focused on the higher-end server market, while still laying off about 1,000 form the company. Oracle will also expand its R&D budget to $4.3 billion for FY11, compared to $2.8 billion in FY10. A Pacific Crest Securities software analyst believes that this bump-up really shows that Oracle is quite serious about the hardware business.
An analyst from Cowen is taking a slightly different viewpoint, saying that Oracle's job announcement was to gain a positive reaction while in the spotlight, but smaller, spaced-out cuts could happen once the commotion fades. The analyst believes that the "ace up Oracle's sleeve" is more layoffs if the integration of Sun' supply chain, sales focus, and support-services operations prove to be a less-than-perfect match.
This may provide some solace to Oracle's investors, and some nervousness to Sun's employee's.
Oracle's shares are trading up 1.24% in the early afternoon session, to $23.69. The P/E ratio is about 14.9x the FY10 EPS estimate of $1.59. This compares to SAP's 15.6x the FY10 EPS estimate of $2.82, and 11.2x for IBM's (NYSE: IBM) FY10 EPS estimate of $11.11. Oracle is placed between its two competitors, and is still the cheapest of the three, adding yet another level of attractiveness.
Oracle provides corporate enterprise application software, among other offerings, on the same plane as Germany's SAP AG (NYSE: SAP), IBM (NYSE: IBM), and even Microsoft (NASDAQ: MSFT). With the acquisition of Sun, Oracle now has a foothold in the hardware sector, something they have never had before.
Barron's states that hardware is more of a commodity that software, being that the customers' ability to switch hardware is generally fraught with less problems that converting and transferring all company programs and databases into a new format.
Oracle is expected to hire about 2,000 sales people focused on the higher-end server market, while still laying off about 1,000 form the company. Oracle will also expand its R&D budget to $4.3 billion for FY11, compared to $2.8 billion in FY10. A Pacific Crest Securities software analyst believes that this bump-up really shows that Oracle is quite serious about the hardware business.
An analyst from Cowen is taking a slightly different viewpoint, saying that Oracle's job announcement was to gain a positive reaction while in the spotlight, but smaller, spaced-out cuts could happen once the commotion fades. The analyst believes that the "ace up Oracle's sleeve" is more layoffs if the integration of Sun' supply chain, sales focus, and support-services operations prove to be a less-than-perfect match.
This may provide some solace to Oracle's investors, and some nervousness to Sun's employee's.
Oracle's shares are trading up 1.24% in the early afternoon session, to $23.69. The P/E ratio is about 14.9x the FY10 EPS estimate of $1.59. This compares to SAP's 15.6x the FY10 EPS estimate of $2.82, and 11.2x for IBM's (NYSE: IBM) FY10 EPS estimate of $11.11. Oracle is placed between its two competitors, and is still the cheapest of the three, adding yet another level of attractiveness.
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