I said in my post on November 12 Larry Ellison should ask himself whether it is even worthwhile for the new Oracle (NYSE:ORCL)/Sun (JAVA) combination to do business in the information technology (IT) backwater that is the European Union (NYSEARCA:EU). Why go through the hassle of dealing with EU regulators when it appears the return on investment is so low? My suggestion is to just consummate the merger without EU approval and don’t do business in the EU.
A bunch of Euroblatherers on seekingalpha.com commented that my idea was anti-Europe bashing. One even criticized the quality of my photograph, which I love because it is a snapshot taken by a friend in front of an old restaurant on Helsinki harbor. I love to go to places like that in Europe and look at the old cathedrals and decrepit palaces. It’s just that the over-regulated EU is an increasingly bad place to sell enterprise software and IT. Look at the numbers.
According to its 10K, Oracle received less than 15% of its revenue from the EU big three—the UK, France and Germany—during fiscal 2009. And that’s down from 16% in fiscal 2008. Given those countries’ contracting economies, that number is bound to keep dropping. Because the revenue is based on GAAP accounting, it would take some work to figure the real compare (e.g., would need to factor in the percent of business BEA and other acquisitions did in the EU) but maybe—best case and counting Slovenia and Wexford and all those other great bastions of industry—Oracle gets 20% or 25% of its revenues from the IT consumers regulated by the non-tech-savvy bureaucrats in Brussels.
According to its 10-K, Sun on the other hand gets almost as much revenue from Europe (that's not the same as EU but that’s the best number we have) as it does from the U.S. And a third of Sun’s U.S. revenue comes from Avnet. In fact, while Sun revenue in the U.S. dropped 25% in the last few years, it only dropped 15% in Europe. The trendline of Sun’s EU numbers vs. the U.S. numbers should forever be considered a good leading indicator of failure in the IT market for all companies. Clearly when everyone in the U.S. is bailing out of a company’s IT products and services as with Sun, but the IT consumers of the EU haven’t got the word, sell your shares.
As with the Oracle numbers, there might be some falling/rising/falling dollar issue in those statistics. But I bet it wouldn’t take a lot of analysis to figure out that that revenue—whatever the apples-apples revenue numbers are—is nowhere near as profitable as doing business in real markets where politicians don’t try to regulate the shape of fruit. For example, it looks like half the employment of the combined company would be European even though only 25% of the revenue comes from there. If Snoracle gets out of the EU, that salary expense drops to the bottom line.