Upside to Oracle’s Dominant Position in Database Software

January 27th, 2011 by Trefis Team
+12.16%
Upside
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Market
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Trefis
ORCL: Oracle logo
ORCL
Oracle

Oracle (NASDAQ:ORCL) continues to maintain its leadership position in the database software market with a share of close to 50%, thanks to constant innovation in its database business and positive feedback from the Exadata line of servers, which should also boost the company’s software business. With continued focus on lower costs and higher performance for its database products, we expect Oracle will maintain its market lead over competitors like SAP (NYSE:SAP), Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), and Sybase (NYSE:SY).

While we expect Oracle’s database software market share will rise slowly from 50% in 2010 to around 54% by the end of our forecast period, Trefis community members anticipate that this metric could hit 60% by 2016, implying a modest upside to our price estimate for ORCL stock. We note that our price estimate, at $35.98, already stands about 17% ahead of market price.

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Innovation, Wide Offerings Will Boost Oracle’s Database Share

According to Gartner’s market share numbers by relational database management systems (RDBMS) for 2009, Oracle leads worldwide RDBMS software market share and total software revenue, with its Linux and Unix garnering 74.3% and 60.7% market share respectively. [1]

Oracle’s RDBMS stores data logically in the form of tablespaces and physically in the form of data files. Oracle has introduced newer and upgraded products on a regular basis with a focus on improving performance and reducing costs. Oracle Database 11g Release 2 boasts of reducing server costs by a factor of 5, reducing storage requirements by a factor of 12, and eliminating idle redundancy in the data center. The company offers different services based on clients’ needs.

We believe that a sustained focus on innovation and efficiency will help Oracle maintain its lead in database software.

Oracle Database Business to Benefit from Exadata Servers

Oracle’s Exadata servers, launched in 2008, have seen a large number of satisfied users. [2] With the Exadata Database Machine, customers can reduce IT costs through consolidation, manage more data on multiple compression tiers, improve performance of all applications, and make better business decisions in real time. We expect Exadata to significantly boost Oracle’s hardware revenues.

Along with hardware revenues, the Exadata server will also benefit Oracle’s software business. Software operations like online transaction processing (OLTP) and data warehousing (DW) become more efficient with faster servers that facilitate bulk data uploads and store data in real time. (See Oracle’s Exadata & Software Give Oracle 20% Upside)

Trefis Community Forecast

Trefis members expect Oracle’s market share in the database software market to increase from 54% in 2010 to nearly 60% by 2016, compared to the baseline Trefis estimate of an increase to 53% during the same period. The member estimates imply a slight upside to our base $35.98 price estimate, which already implies a roughly 17% premium to market price.

Our complete analysis for Oracle’s stock is here.

Notes:
  1. Oracle is #1 in the RDBMS market for 2009, Oracle Press Release sourcing Gartner Research dated April 30, 2010 [↩]
  2. Oracle Exadata in the Real World, Enterprise Storage Forum, October 28, 2010 [↩]