Despite Oracle Corp.’s (NYSE:ORCL) $20 billion spending spree on various software companies over the past few years, the company’s investors haven’t benefited from the acquisitions, according to an article this past weekend in the San Jose Mercury News. Instead, the company’s stock market value has barely budged in the past three years, despite the fact that its annual sales have increased more than 50% in that time.
Oracle has acquired more than 20 software companies in the past few years, most notably PeopleSoft Inc. and Seibel Systems Inc., but smaller competitors as well. CEO Larry Ellison has long preached consolidation in the industry, and he sees Oracle as a top consolidator. Today, Oracle’s chief rivals are fellow software and database giants Germany’s SAP AG (NYSE:SAP), Microsoft Corp. (NASDAQ:MSFT), and IBM Corp (NYSE:IBM).
Most notably, Oracle’s shopping spree has done little to solve the company’s fundamental problem: sluggishness in its flagship database business. Stripping out the big acquisitions, Oracle’s underlying business, including database sales, grew only 5.6% in the past year.
Oracle’s buys may not be helping its investors in the near term, but the company is doing what’s right for its industry. The problem as it stands is too many competitors. Since they all have cash-rich balance sheets and no debt, they are not going to exit via the bankruptcy process. So the only remaining option is for the industry leaders to acquire them.
It will be a long, sometimes painful process, but the end result will be fewer competitors and a more stable pricing environment for Oracle.
ORCL 3-yr chart: