How SAP-Sybase Could Threaten Oracle’s Database Business

 |  Includes: ORCL, SAP, SY
by: Trefis

Oracle (NASDAQ:ORCL) is the market leader in the database software market, and competes with IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT) and Sybase (SY), which is being acquired by SAP (NYSE:SAP) for $5.8 billion.

Sybase earns around half of its revenues by selling database software and presently has share of only around 3% in the database market compared to 50% share for Oracle.

We believe that SAP can leverage its resources and its position in the application software market to increase Sybase’s database market share, posing a long-term threat to Oracle’s database business.

Oracle Database Market Share Expected to Increase

We estimate that the database software business constitutes around 40% of the $35 Trefis price estimate for Oracle’s stock. Oracle has been able to increase its market share in the past, and we currently forecast that the trend will continue from 49% in 2009 to 53% by the end of Trefis forecast period.

However, there could be a downside of 2% to the $35 Trefis price estimate for Oracle’s stock if SAP’s acquisition of Sybase were to limit increases in Oracle’s market share, resulting in flat Oracle market share over our forecast period.

The SAP-Sybase combination could pose a threat to Oracle’s database business in two ways:

1. Improved Sybase Database Capabilities

SAP’s in-memory technology is different than the traditional method of storing and retrieving data physically in database machines. In-memory technology enables data to be stored in the computer’s CPU rather than reading and writing data on disks, which makes data storage and retrieval much faster. Oracle’s Exadata data-processing platform, which runs on the traditional database technology, could come under threat if SAP successfully integrates its technology with Sybase databases.

2. SAP Software Applications Bundled with Sybase Databases

SAP’s software applications are usually compatible with Oracle’s databases, and SAP depends on Oracle to win some customer deals. With this acquisition, SAP can optimize its software applications for Sybase’s database and sell bundled packages of applications and databases to customers. We believe these bundled packages can help SAP-Sybase to win new database customers at the expense of Oracle.

You can modify our forecast above to see how Oracle’s stock could be impacted if its database software market share were to remain stagnant rather than increase as we forecast.

Disclosure: No positions