Oracle (
ORCL
) entered the storage hardware market with its acquisition of Sun
Microsystems in January last year. It competes with IBM (
IBM
), EMC (
EMC
), NetApp (
NTAP
), HP (
HPQ
) and Hitachi Data Systems in the storage hardware market by
selling products like flash drives, magneto-optical drives,
magnetic tape drives and compact drives that are used for backing
up data on servers.
Oracle's share in the storage hardware market has remained in
the range of 5%-6.5% over the past few years, but we anticipate a
steady increase going forward, ultimately breaching 6.5% by the end
of our forecast period. Initiatives like open storage technologies
should help drive this improvement.
While we anticipate Oracle's storage hardware market share will
increase to just below 7% by the end of our forecast period, Trefis
members expect this share to cross 8%. This optimism for Oracle's
storage hardware market share is notable, but we note that the real
impact on the company's stock value is negligible. This is because
Oracle's core focus lies within the software market (particularly
database software). The storage hardware business only constitutes
about 2% of our price estimate for Oracle's stock.
We currently maintain a
$38.16 price estimate for Oracle's stock
, roughly 20% ahead of market price.
Storage Hardware Not a Core Focus for Oracle
Oracle has traditionally been a software player (and market
leader in the database software market). We believe Oracle
will continue to focus more on database, middleware and
applications software licenses, where it has a strong market
presence rather than focusing on storage products where it lags
behind players like NetApp and EMC.
See our full analysis and $38.16 price estimate
for Oracle's stock
Trefis Community Forecast
Trefis members forecast that Oracle's storage market share will
increase from 6% in 2010 to beyond 8% by the end of our forecast
period, compared to the baseline Trefis estimate of an increase to
just below 7% during the same period. The price impact of the
Trefis members' optimism is negligible, as the storage software
business represents only 2% of Oracle's stock value by our
estimates.
The storage business constitutes so little to Oracle's stock
that any gain in market share here 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 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.