Data warehousing is a fast changing and growing market, and Teradata is the current market leader. Nevertheless, there are clouds on the horizon. First of all, over the past year, Oracle (ORCL) got increasingly serious about data warehousing, and little will stop them from encroaching on Teradata's business. Data warehousing functionality that bolts-on to a familiar Oracle enterprise database is much likely to gain broad market acceptance than any push by Teradata into a standalone database market.
Then there is Teradata's partnership with SAP AG (SAP). Announced a year ago and now shipping in product form, it allowed SAP's NetWeaver Business Warehouse software to run natively on Teradata's database. This was good news for TDC, as it favorably positioned the company versus Oracle, Microsoft Corp. (MSFT) and International Business Machines (IBM), whose competing databases dominated customer SAP integration implementations. This was an especially interesting twist, since SAP had its own database, MaxDB.
However, just this Wednesday, SAP announced that they agreed to buy Sybase Inc. (SY), a company that last year had only 3.1% of the database market, for $5.8 billion cash or $65 /share, a premium of a whoping 64% over last Friday's closing price of $39.54. This can't be good news for TDC and here is why:
For at least two years SAP has been obsessed with integrating various sources of data, including email communications, messaging and their flagship ERP product data with data warehousing and analytics. By all accounts they have succeeded technically, but market has been slow to adopt. Backward IT departments, budget constraints and ignorance are certainly to blame, but absence of a robust and trusted integrated database at the core of the application is a legitimate concern.
Perceived database weakness is the problem that SAP is hoping to alleviate and the reason that they are willing to pay such a hefty price for Sybase. This is their admission that they can't do it without a better known database. They must think that they can do it without Teradata's data warehousing and analytics. This is why they chose to buy Sybase and not the similarly sized Teradata.
At this point, Teradata's data warehousing leadership market position and premium P/E are theirs to lose. Also, IBM or ORCL could be in the market to buy TDC. However, I don't want to own a company squarely positioned to be squeezed by Oracle on the one end and SAP on the other.
Oppenheimer didn't see things the same way, and upgraded TDC shares Thursday morning. This followed a Merriman upgrade less than a week before. Both of the upgrades added to the stock's recent technical strength. I took Thursday morning's drastic over 3x spike in volume as a sign that we have reached this rally's turning point and that it will fizzle shortly. I closed my TDC position at $33.99 / share - too cheap if the company gets acquired.
I acquired Teradata when I got into NCR Corporation (NCR) on June 19, 2002. NCR spun off TDC in September of 2007, and I closed my NCR position shortly thereafter - on November 2, but I kept Teradata until this Thursday. There are only two more positions still in my portfolio that I have held this long - Moog Inc. Class A shares (MOG.A) and Berkshire Hathaway Inc. Class B shares (BRK.B).
Disclosure: Author long MOG.A and BRK.B