(By Mani) Oracle Corp.'
) database business is likely to experience above-average industry growth over the next few years. The growth is due its leading IT supplier positioning for its customers in two megatrends in the form of data center consolidation, big data, and potential for a refresh of the product suite.
Meanwhile, investors are undervaluing Oracle's storage business. As data volumes grow exponentially, new systems and tools are needed to analyze them for better business outcomes and for the regulations that mandate storing them.
Oracle's big data storage options provide substantial performance improvements, bottleneck reductions, cost savings, and infrastructure simplicity, which are attractive selling points.
"We believe that investors are underappreciating the disruptive impact that Oracle's new and future engineered systems could have on the big data storage market," Oppenheimer analyst Brian Schwartz wrote in a note to clients.
The big data storage market is likely in its infancy, yet big data volumes are not. The biggest industry users of big data are the public sector, financial services, telco and high-technology, which are all top verticals for Oracle.
Oracle's engineered storage system capabilities provide simplicity for the customer since the software, hardware, configuration and networking are all engineered together for easy customization, reliable performance and tuning, improving efficiencies and are cost-effective compared to the competition.
"The bottom line is that substantial performance improvements, bottleneck reductions, cost savings, and infrastructure simplicity are attractive selling points for existing and future engineered storage systems products and management tools, in our opinion," Schwartz said.
The analyst said Oracle could add approximately $500 million in total annual revenue with each additional 1 percent share gain in the storage market, which was valued at $13.5 billion in 2011 by market research firm IDC.
Meanwhile, Oracle's prime rival in the database sector is SAP (NYSE:SAP), whose HANA product is said to be a threat to Oracle. However, Oracle has developed more than 1,000 capabilities into its database architecture over the past 30 plus years and continues to spend more than $4 billion annually on R&D, which gives Oracle an unassailable technology lead against the competition.
"We do not share the viewpoint that HANA is going to replace the Oracle database or Enterprise-scale databases in general because not all very high computer processing can be done in-memory, in our view," Schwartz noted.
HANA is an excellent selection for a customer utilizing a single data warehouse environment, but most Enterprise businesses may not be interested in separating data with one data warehouse but prefer to use multiple data warehouses for data analysis. This could mean that HANA might face technology and adoption barriers in trying to replace the database.
Also, Oracle also has a formidable in-memory competitor to HANA in the form of Exalytics, which is already comparable in both price and performance.
"We believe data complexity, fragmentation and storage remain considerable pain points for the global 2,000 and expect the Oracle database and its popular options to remain the industry gold standard for many years to come," Schwartz said.
In addition, Redwood City, California-based Oracle is likely to gain future share of its customers' IT budgets due to new product innovations around engineered systems and the Fusion architecture. Oracle has expanded its technology footprint with its customers in tough economic environments in the past, and its engineered systems strategy should gain account control in the future too.
"We view this as an attractive defensive trait for the stock, especially in the increasingly tougher selling environment for larger deals," the analyst added.
While the medium and longer term outlooks for Oracle's database business look promising, the near-term outlook could be choppy because of the current IT selling environment. The current macro environment remains a headwind for new strategic IT business initiatives. If these trends continue, there may be smaller budgets for new IT projects in the second half of this calendar year.