) acquisition of Sun Microsystems has brought in a whole range of
hardware products to its existing software products, including
enterprise servers. Some of the server categories include: SPARC
enterprise servers, CoolThread servers, x64 servers and high-end
servers. Of this, SPARC enterprise servers contribute more than 50%
of servers revenue for Sun, however the growth has been declining.
Oracle competes with SAP (
), Microsoft (
), IBM (
) and HP (
) in the enterprise servers market.
Oracle's share in enterprise servers that was at a high till
2006, due to Sun's domination in UNIX market, but is now declining
because of reduced customer demand as products are reaching their
end of lifespan, and decreased x64-based product sales due to the
delayed introduction of AMD quad core-based products.
While we expect Oracle's enterprise server share will decline
gradually to 8% by the end of Trefis forecast period, Trefis
members predict the server share will increase from current level
of 9.4% and then stabilize at 10.2% over the forecast period. The
positive member estimates don't have a significant impact on ORCL
stock because enterprise servers constitute less than 6% of
Oracle's stock price according to our calculations.
We currently have a
Trefis price estimate of $38.16 for Oracle's
, about 18% above the current market price of $32.40.
x86 Server Market Grows Driven by
According to market research firm Gartner, the worldwide server
shipments market grew 14.2% and revenue increased 15.3% year on
year (YOY) in Q3 2010. Gartner credits x86-based servers as the
main driver for market growth. Customers are purchasing servers
with more high-end configurations for use in virtualization of
server workloads. This has resulted in higher average selling price
of servers, thereby pushing revenue higher than shipments.
… But Oracle's Share is Declining
The x86 market is on an uptrend as it has virtualization
capabilities and provides low cost advantage to companies while
UNIX servers are high-end and would struggle in a tough
environment. Sun derives almost 90% of its revenues from UNIX-based
servers and the rest from the x86 servers. Though Oracle-Sun has
been trying to diversify and consistently increase its x86 servers
portfolio, the incremental effects are much too small. All of the
top five global server vendors, except Oracle, had year-on-year
revenue increases for Q3 2010, according to Gartner. HP led the
server market with 32% share; IBM followed close in second spot at
30.2% share, and Oracle had a share of 6.2%.
Trefis Community Forecast
Trefis members predict Oracle's enterprise servers market share
will remain steady at around 10% in 2011, compared to the baseline
Trefis estimate of a decrease from 9.2% in 2011 to 8% during the
same period. This implies a slight increase to our price
complete analysis for Oracle's stock is here