Can New Storage Products Move the Needle for Oracle Stock?

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Symbols: EMC , HPQ , IBM , NTAP , ORCL

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