Oracle (NASDAQ:ORCL) recently launched the next version of its virtualization solution – Oracle Virtual Machine 3.0. Oracle claims that the new version of Oracle Virtual Machine scales four times better than VMware’s solution, offers all the storage management features that VMware has, and costs less than VMware’s offering.^[1] Oracle is the largest database vendor in the world, but when it comes to virtualization, VMware (NYSE:VMW) is the clear leader in the enterprise market with about 44% market share.

Other major players in the virtualization market besides VMWare and Oracle are Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), HP (NASDAQ:HPQ) and Citrix (NASDAQ:CTXS). We currently have a $40 Trefis price estimate for Oracle, which implies a 40% upside to the current market price.

Oracle Tries to Fight VMware on Price to Gain Market Share

Oracle is marketing Oracle Virtual Machine 3.0 as a cheaper, yet better alternative to VMware’s hypervisor software. Oracle VM makes it easier to deploy and manage applications. It also comes with advanced storage management, network configuration and policy based management features. The software is claimed to be 4 times more scalable than VMware, supporting up to 128 processors in a single virtual machine. Oracle also states that compared to VMware vSphere5, Oracle VM 3.0 is seven times less expensive. Oracle VM is free to download, but enterprise support is available through a subscription model.

Servers A Small Part of Oracle’s Value …

After the acquisition of Sun Microsystems, Oracle currently has a 10% share of the enterprise server market.

We estimate that Oracle’s server business accounts for only about 8% of the Trefis price estimate for Oracle’s stock. By launching the new version of Oracle VM, Oracle is helping to boost its enterprise hardware sales to customers looking for a package of hardware and virtualization software.

… But Oracle’s Key Database & App Businesses Can Benefit As Well

In addition to helping Oracle’s server business, the new virtualization can boost sales of Oracle’s application and database software, which can be run directly in the Oracle Virtual Machine using templates or pre-configured virtual machine images. Oracle is aiming to provide a holistic solution for enterprises, comprised of an operating system, virtual machine, database and application software, and management tools for the entire system.

We estimate that the database and application software businesses of Oracle together constitute nearly 60% of Oracle’s value.

Check out our full analysis for Oracle.

Notes: