On a day when the
was down 2.6% in morning trading, stock in the Redwood City, Calif., business software company was off 10.3%, or $2.28, to $19.82, as word filtered out regarding comments made Tuesday by IBM's general manager for software, Steve Mills, at a Goldman Sachs software retreat in New York.
Another factor contributing to the decline in Oracle's stock might be Citigroup research that came out Thursday suggesting IT business spending will slow in the near term, especially in financial services.
In an informal discussion on IBM's acquisition strategy, Mills said competitor
organic growth strategy is winning the market share war over Oracle.
Since 2005 Oracle has mounted an aggressive acquisition strategy, buying 36 companies, many of them market leaders with overlapping capabilities, largely for their customer base. By contrast, SAP has focused on organic growth, buying smaller "tuck-in" companies for their technology. SAP recently made an exception to its strategy when it bought Business Objects, which makes business intelligence software.
"You've seen the data," Mills said. "SAP has gained
application software market share throughout Oracle's acquisition cycle of
application software companies. Oracle buys a company, downsizes the company. It may look good temporarily, in terms of profitability, but the market share goes to SAP, not to Oracle."
"That's one of the problems of buying overlapping assets," Mills said. "It has a tendency to create confusion, and you end up with a downsizing phenomenon. That's not to say the strategy can't be made to work."
A spokesman for Oracle declined comment.
But Mills and IBM have an ax to grind: IBM is losing share of the market for database software to Oracle -- according to Oracle. In middleware, Oracle trails IBM but claims it is growing faster there, too.
Indeed, Oracle's acquisition strategy has worked to the benefit of its shareholders: The company grew revenue 26% year over year for the most recent quarter, while boosting net income 25.4% and operating margin 1%, to 37%. Oracle also added another $1 billion in free cash flow, year over year, while paying down $1.4 billion of commercial debt during the quarter.
On Oracle's most recent conference call, CEO Larry Ellison said the company is No. 2 in enterprise application software. "We're growing faster than our primary competitor SAP" at 65% during the quarter to SAP's 18%.
"I'd like to highlight the radically different strategies of the two companies: Our strategy for growth is to find a way to add more value for the customers we serve," Ellison said. Oracle is doing that by adding to its industry-specific software portfolio.
But Oracle's strategy draws criticism from all sides. Doug Merritt, vice president of SAP's Business User Group, said at the conference Wednesday that Oracle doesn't sufficiently "rationalize" or integrate overlapping technologies it acquires.
IBM, which has the third-largest market share in business software, has taken a middle-of-the-road approach to growth, with some large software acquisitions in recent years.
Given the "strength of our position in middleware, we're far less likely to buy an overlapping asset than Oracle is," Mills said. He poked fun at the rumor mill that often suggests IBM would bid on middleware developer
BEA recently rejected Oracle's offer of $17 a share.
Oracle Chairman Jeff Henley said at the same conference that Oracle is interested in BEA's maintenance revenue, rather than any emerging technology the company owns.
Mills discounted the idea that IBM would be interested in BEA, as suggested by many analysts. "You see us buy complementary technologies," rather than overlapping capabilities. Noting that BEA had been in play since 2000 and the rumors were getting "annoying", Mills said "I'd wish they'd just get it over with."
But Mills stoked the buyout rumor mill himself when he said, "The year's not over yet. You never know what we might announce between now and New Year's."