Deutsche Bank’s Tom Ernst today reiterates a Hold rating on shares of Oracle (ORCL), writing that the company may top estimates for the fiscal Q2 that ended last month given that the macroeconomic disruptions the company anticipated in September haven’t materialized.
Ernst raised his price target to $33 from $30.
It looks like the company has been disciplined in holding the line on pricing of maintenance contracts for software, and that the public sector, 15% of revenue, is holding up alright despite worries over budgets.
And Exadata, Oracle’s dedicated database machines, may have upside:
Our channel checks and analysis indicate that hardware revenue and associated software from the Exadata machines likely grew 600% y/y in FY12 and could grow another 50% to reach $3.9b in FY13, based on software pull-through that could reach 3x the cost of hardware. We believe there could be further upside to our/Street estimates as the Exa-machine lineup expands and sees wider adoption.
However, much of Ersnt’s report is caught up with the possibilities of who the company might buy, given that “cloud” based software is a valid threat.
“we believe that industry dynamics have forced Oracle to start considering SaaS a valid threat to the on-premise business,” he writes.
Whom might they buy?
The list is long, and Ernst throws in everything from hardware and networking vendors to medical health application vendors: Salesforce.com (CRM), Conquer (CNQR), SciQuest (SQI), Teradata (TDC), Informatica (INFA), Verint Systems (VRNT), Check Point Software Technologies (CHKP), Taleo (TLEO), Netsuite (N), Medidata Solutions (MDSO), Fortinet (FTNT), Websense (WBSN), Athenahealth (ATHN), BMC Software (BMC), CA (CA), Allscripts Healthcare Solutions (MDRX), Cerner (CERN), Blue Coat Systems (BCSI), Tibco (TIBX), Ariba (ARBA) NetApp (NTAP), CommVault Systems (CVLT), Brocade Communications (BRCD), F5 Networks (FFIV), VMWare (VMW), Radware (RDWR), Open Text (OTEX), Comverse Technology (CMVT), Computer Sciences Corp. (CSC), Cognizant Technology Solutions (CTSH), Accenture (ACN), Convergys (CVG), Unisys (UIS), Celadon Group (CGI), and privately held SAS Institute.
He thinks the most likely ones are the “software as a service,” SaaS companies, like Netsuite.
But Ernst thinks Oracle has the will to do more deals:
Oracle may be shifting their acquisition strategy to smaller, but significantly faster growing businesses. In October, we estimate that Oracle spent about $2.5b for ~$470m of CY12 revenue (we estimate Endeca was purchased for ~$1b and $1.5b for RNOW), which is growing at 25-30% y/y. We believe that Oracle needs to make a few more acquisitions of ￼this magnitude to have a noticeable impact on the company’s growth profile.
Oracle shares today are down 62 cents, or 2%, at $30.92.