3% Upside To Oracle’s Stock if it Can Gain Server Market Share

+3.58%
Upside
126
Market
130
Trefis
ORCL: Oracle logo
ORCL
Oracle

Oracle (NASDAQ:ORCL) entered the server hardware market through its acquisition of Sun.  However, Sun’s share in the server market has declined from 11% in 2006 to less than 9% in 2009.  Sun’s main competitors in the server segment are IBM (NYSE:IBM), HP (NYSE:HPQ) and Dell (NASDAQ:DELL).

We believe that Oracle / Sun server market share will continue to decline to around 7% by the end of Trefis forecast period.  However, there could be a 3% upside to our $35 Trefis price estimate for Oracle’s stock if Oracle were able to increase its server market share as a result of higher performance servers that better integrate Oracle software with Sun hardware.

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Enterprise Servers 3% of Oracle’s Stock

We estimate that enterprise servers constitutes only 3% of the $35 Trefis price estimate for Oracle’s stock.

Enterprise servers are the computer systems that host software applications for large organizations.  They:

  1. Have multiprocessors working together
  2. Manage large amounts of data
  3. Perform complex transactions. For e.g., core banking applications involves complex transactions like the end of day batch processing

Oracle’s Opportunity to Increase Server Market Share

Below we explain how better integration of Oracle software with Sun servers could increase its share in the enterprise server market:

1.  Oracle server transaction processing speeds could be twice as fast as IBM servers

Online transaction processing (OLTP) databases are used for recording transactions in real time.  For example, normal ATM transactions during the day will be stored in an OLTP database real time.  Oracle claims that it can produce twice IBM’s online transaction processing speeds with its new Exadata machines.

2.  Oracle could produce data warehousing speeds 10x as fast as IBM’s

Data warehousing is used to upload bulk data to servers.  For example, end-of-day operations in a bank use data warehouse database servers.  Oracle claims that it can achieve data warehousing speeds 10x faster than IBM’s.

3% Upside to Oracle’s Stock if its Enterprise Servers market share increases

Although we forecast that Oracle’s share in the enterprise server market will decline to around 7%, there could be an upside of $1 (3%) to the $35 Trefis price estimate for Oracle’s stock if the company’s market share increases to 15% by the end of Trefis forecast period.

You can modify our forecast for enterprise server market share above to see how Oracle’s stock will be impacted if it’s share were to increase rather than decline as we forecast.

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