After Successful Sun Integration, Oracle Looks to Open Source for Future Profits

Aug. 2.11 | About: Oracle Corporation (ORCL)

Despite a host of headlines about how Oracle (NYSE:ORCL) would fail with its acquisition of Sun Microsystems and that company's open source heritage, Oracle has done pretty well.

Since the deal was done in January 2010 Oracle has outperformed enterprise computing rivals IBM and Microsoft (NASDAQ:MSFT), with the stock rising over 50%. At its Monday opening of $30.58 per share, Oracle also sports a much higher price-earnings multiple than its rivals, 18.38.

Despite the good news, Oracle is still considered cheap by the Investment Underground, which recommended it here last week. The lesson here is not to confuse press headlines with reality.

With Sun, Oracle acquired three of the “crown jewels” of open source – Java, mySQL and OpenOffice.org. Here is what happened with these assets:

  • Oracle gave OpenOffice to the Apache Foundation, after the developers forked the code to LibreOffice. That's a dead loss.
  • Oracle has released a new version of the Java Platform, Java 7, incorporating community contributions, as well as a new Java Developer Kit.
  • Oracle has announced a new version of mySQL, Version 5.6, and pledged to integrate it more closely with its operating system.

In addition Oracle has made other moves to strengthen itself in open source:

  • Oracle has released Oracle VM VirtualBox 4.1, a new virtual desktop available as a free download.
  • Oracle has bought an open source developer called Ksplice so it can continue moving its open source projects forward.

What the media is talking about, by contrast, is Oracle's suit against Google (NASDAQ:GOOG) concerning Java. The coming deposition of Google CEO Larry Page, and the possibility courts might give it billions of dollars in damages. That's very entertaining, but any damage award is some years away, unless a settlement is reached, and any settlement would likely be for much less than Oracle is asking.

The fact is, Oracle has succeeded in integrating Sun with its other operations, and has been able to use open source to penetrate new markets like insurance and health care, both highly profitable. Oracle has grown its net income in the last year while strengthening its balance sheet and continuing to buy smaller companies.

Oracle has learned open source and found ways to profit from it. It has continued to grow and still has nowhere near the dominance in its database niche that companies like Microsoft, Apple (NASDAQ:AAPL), or even Google have in their primary niches.

The press hasn't noticed any of this, but smart investors have, and they have profited from it. The company has even dealt with any management succession problems by hiring former HP CEO Mark Hurd.

Can sailing get any clearer?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.