Oracle Can Benefit from Growing Mobile Phone Market with Sun’s Java

March 15th, 2010 by Trefis Team
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Oracle (NASDAQ:ORCL), with its acquisition of Sun Microsystems for $7.4 billion, is set to enter the mobile phone market with Sun’s Java software, a core component for building mobile phone applications and games.

Oracle makes money by selling crucial database, application, and middleware software primarily to medium and large businesses worldwide.  Companies use Oracle software to efficiently collect, process, and store important customer and business information.

With the Sun acquisition, Oracle gets access to Sun’s Enterprise Server Hardware, Storage Hardware and software businesses.  Sun’s software includes Java and the Solaris operating system.

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Below we explain why we believe Oracle could benefit from Java software and what could mean for Oracle’s stock.

Growing Demand for Mobile Applications

The demand for mobile phone applications and games is increasing, and this should result in more sales of Java software licenses.  For instance, Apple’s (NASDAQ:AAPL) iPhone applications were downloaded 2.2 billion times in 2009, and we expect this number to reach 52 billion by the end of Trefis forecast period.

The success of iPhone apps has triggered a wave of application development for other platforms and we believe that this will have a long-term impact on the creation of mobile applications for basic mobile phones.

Growing Mobile Market

We estimate that the global mobile phone market will grow from 1.2 billion phones sold in 2009 to 1.8 billion mobile phones sold by the end of Trefis forecast period.  The majority of phones sold are basic phones (not smartphones like the iPhone) and an increasing percentage of these basic mobile phones sold will have internet access.  As more basic mobile phones access the internet, the user base for Java-based mobile applications will rise rapidly.

Increasing Java and Solaris Software Revenues

We estimate that Sun earned about $690 million in revenue from Java and Solaris software in 2009.  We forecast that Java and Solaris revenues will increase to $1 billion by the end of the Trefis forecast period due in part to increasing demand for Java-based mobile applications.

You can modify our forecast above to see how Oracle’s stock would be impacted if the increase in Java-based mobile applications drives Oracle’s Java and Solaris revenues higher than we forecast.

For additional analysis and forecasts, here is our complete model for Oracle’s stock.