First, Sun and Oracle have together contributed to the most robust Enterprise Unix computing platform available, and Oracle has already acquired other key constituents of this stack (including PeopleSoft, BEA and Hyperion).
Moreover, Oracle seems best positioned to dis-amalgamate Sun’s Software and Systems businesses to offer a bundle that is truly required by their many shared customers. And I believe it is well positioned to capably foster the promise of Java in the Enterprise.
Based on management comments, it is also plain they truly appreciate the value of Sun’s Sparc platform, at the center of which lies Solaris.
Plainly, Oracle’s acquisition of Sun offers an optimal solution to latter’s strategic conundrum—i.e., how to display the profitable growth of its software offering through the intense investment burden of the Sparc/Solaris platform.
And just as clearly, Oracle’s management has a plan to do so quickly, promising an annualized $1.5 billion in non-GAAP operating profit and an incremental 15 cents first-full year earnings.
These targets seem ambitious indeed, suggesting a roughly 10 percentage-point improvement in margins. Still, as a strategist, I see various means to achieving these ambitious goals. And having closely followed and invested in both companies over the years, I am pretty confident they will achieve them.
The key question to me is just how the burdensome assets will be provisioned to reveal the underlying profitability of the acquired businesses while allowing whatever development the platform will continue to require.
So what do we do with Oracle shares, now that they have embarked on this acquisition? I have been a buyer in the teens and a seller in the 20’s for quite a while, a strategy that works given their strong execution. This will be likely be a more difficult integration, but management has the levers they need and (I assume) a good strategy in which to use them.
Thus at these levels, I am happy to sit tight. Once the precise characteristics of the acquired assets become clearer, I am guessing I’ll justify a higher peak valuation for the stock.
Disclosure: No positions