IBM's Netezza Deal Swipes at Oracle

IBM/Netezza story updated with additional analyst comment.

ARMONK, N.Y. ( TheStreet) -- IBM ( IBM) is increasing the pressure on arch-rival Oracle ( ORCL) through its $1.7 billion Netezza ( NZ) acquisition, which was announced early Monday.

Netezza makes a data warehousing appliance that competes directly with Oracle's popular Exadata device. Exadata helped boost Oracle's strong first-quarter results last week, and CEO Larry Ellison said Exadata could bring in more than $1.5 billion this fiscal year.
IBM

Ellison is no stranger to IBM-baiting, particularly in the aftermath of Oracle's Sun acquisition. But it seems that now Big Blue is doing some trash-talking of its own.

"I am happy to compete with Oracle and the Oracle/Sun mixture on the quality of our engineering," Arvind Krishna, a general manager within IBM's software group, told TheStreet Monday. "I am confident that, in any bake-off, we will win."

Jim Baum, the CEO of Netezza, added that his firm's win rates against Oracle are "very, very high" and said that Netezza has racked up over 350 customers. These include the New York Stock Exchange ( NYX), Time Warner ( TWX), Neiman Marcus and eHarmony.

Whether IBM has to up the ante for Netezza remains to be seen. Jayson Noland, an analyst at Robert W.Baird, believes that, given the strength of Netezza's technology, another bidder could easily enter the fray.

" NEC stands out as an interested buyer to us though we would mention Hewlett-Packard ( HPQ), Dell ( DELL) and SAP ( SAP)," he wrote in a note. "Though Oracle is unlikely, we would not rule them out and would guess they weren't pitched Netezza for competitive reasons."

IBM and Netezza are longstanding partners and IBM's BladeCenter hardware already features within Netezza's data warehousing appliance, which would complicate an Oracle bid.

Krishna also insisted that IBM's Netezza buy was not a reaction to Oracle's Exadata push, adding that the acquisition is part of a much broader technology effort. "Our stated strategy is to take business analytics mainstream to all employees in an enterprise," he said, adding that IBM has acquired more than 23 analytics companies in the last five years.

Netezza, which is expected to bring in just under $250 million in revenue this year, may not be a massive cash cow for IBM, but it will use the device as a launchpad for selling other software and services. These will include the company's InfoSphere data management and warehousing software, as well as data mining technology from IBM's SPSS acquisition.

"We do believe there are tremendous synergies with IBM's Cognos business intelligence/analytical toolset," added Brian Marshall, an analyst at Gleacher & Company, in a note. "Perhaps IBM will bundle a Cognos reporting engine with a Netezza appliance to create a more robust offering for the marketplace (i.e. higher performance and simplicity at a lower cost)."

IBM spends $6 billion annually on R&D, but Krishna told TheStreet that Netezza's core data warehousing technology made it an attractive acquisition target. By combining storage, compute power and networking within one device, Netezza has made it significantly easier for firms to mine their data, he added.

"Netezza took something that takes a lot of people to integrate and did real innovation about making that simpler to deploy," said the executive. "That has real value."

Oracle, however, is set to make a slew of announcements at its annual OpenWorld event in San Francisco this week. The database giant unveiled a set of new Fusion business applications on Monday and also took the wraps off its Exalogic Elastic Cloud, a mixture of hardware and software aimed at companies that need to deliver cloud services.

Shares of Netezza surged $3.03, or 12.32%, to $27.63 on Monday, and IBM's move also sent shares of data warehousing firm Teradata ( TDC) northward, climbing $3.55, or 10.3%, to reach $38.02. IBM's stock rose $1.13, or 0.87%, to $131.32.

--Written by James Rogers in New York.

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