The storage market has undergone a bit of consolidation over the
last few years, with Oracle (
ORCL
) acquiring Sun Microsystems, EMC (
EMC
) acquiring Data Domain and HP (
HPQ
) acquiring 3Par. According to IDC, EMC leads the external
storage market with a share of 26% as of Q2 2010, while IBM (
IBM
), NetApp (
NTAP
), HP and Dell (DELL) follow EMC in this market. Sun's
storage market share had been on the decline prior to the company's
acquisition by Oracle, and does not figure among the top five
players.
Storage hardware constitutes only 2% of our
$38.16
price estimate for Oracle stock, which stands well ahead of market
price.
Oracle's New Storage Hardware Launch
Oracle recently launched a new storage hardware product named
StorageTek T10000C Tape Drive. Oracle suggests that this product
provides the highest performance at the lowest cost of ownership.
According to the company, StorageTek T10000C Tape Drive is far
superior to market leader EMC's storage product.
Oracle claims that this product scales to 30x the capacity and
50x the performance, while requiring 99 percent less power and
cooling, than EMC's product. Oracle's main line of business has
been the sale of software products like database, middleware and
applications, but it is making a push in hardware like enterprise
servers and storage products through its acquisition of Sun.
Can Oracle's High Performance Storage Product Move the
Needle?
Before the acquisition, Sun's market share declined from around
6.5% in 2008 to 5.5% in 2009. However, we expect that Oracle will
be able to leverage Sun's technological expertise going forward to
expand its storage market share to almost 7% by the end of our
forecast period.
See our full analysis and $38.16 price estimate
for Oracle
The storage business constitutes so little to Oracle's stock
that any gain in market share from the launch of high performance
storage products will not be of great impact to the company's
overall equity value.
However, faster hardware helps Oracle speed up the performance
of its software as well (See
Oracle's Exadata & Software Give Oracle 20%
Upside
). This means that Oracle's software business will receive an
indirect boost each time the company launches new and improved
hardware.
To summarize, although better storage products do not directly
add much value to Oracle's stock, their impact is felt indirectly
through software products. Notably, our estimates indicate that
Oracle derives almost 86% of its stock value through its software
products.