In the long run, we're all dead. Some are just dead faster than others.
Oracle (NYSE:ORCL) has been swimming against industry trends for many years, with a broad smile on CEO Larry Ellison's face. But recent events show that the company is rapidly losing the plot, and that its game of extorting huge sums from captive customers may be coming to an end.
The first tell came right after its latest earnings call, when Ellison himself showed off the company's newest SPARC servers. Ellison went on and on about how fast their new chips are, as if that matters in a cloud-centric age. Hint: It doesn't.
Paying extra for small boosts in performance is a game that's becoming niche, not mainstream, important only in areas like financial transaction processing. Mainstream computing is moving rapidly toward cloud architectures, hybrid clouds in which servers are just racks of PCs with software at their center, connected via fiber to public clouds that offer the best price for performance.
What Oracle calls "Oracle Cloud" doesn't meet this definition. It's proprietary hardware and a proprietary software stack. It makes sense only if you're desperate to resist this market change, desperate enough to pay any price to keep doing what you were doing, as you were doing it. There are customers like that, more than you may think. But again it's a niche, one that is getting smaller over time in terms of prospects, if not currently in terms of revenue.
The second tell came in Oracle's decision to join Microsoft's (NASDAQ:MSFT) Fairsearch effort, an effort to overturn Google's (NASDAQ:GOOG) growing monopoly on search using antitrust law and lobbying. In particular, the group is accusing Google of building a mobile monopoly by giving away the Android operating system. The suit is a direct attack on open source, something Oracle itself claimed at one time to be supporting through its purchase of Sun's open source assets, including Java, Solaris, mySQL, and OpenOffice. Of those assets it has had the most success with mySQL, which it made more proprietary and attached high prices to, collecting those prices because its customers had become dependent on it.
But when you're using lawyers and lobbyists to defend obsolete business models, and attack something that is in general use, it shows you know which way the wind is blowing. And that it's blowing away from you. Oracle made a good run from 2009-11, but since then it has been range-bound, trading between $35 on the high side and $25 on the low end. At its present price of $33.75, it's near the high, leaving a yield of just 2.15% for income investors.
I think it goes down from here, and at some point it goes down decisively. My guess is that happens no later than 2015, unless the company can get back on the path of the industry's progress.