), which is primarily known for its database software business,
also draws a significant portion of its value from middleware
software and applications software. Oracle's database software
business constitutes about 38% of the
$36 Trefis price estimate for Oracle stock
, while middleware software adds another 24% and applications
software also contributes 24%.
Oracle has posted market share gains in middleware software
licenses since 2006, despite facing stiff competition from players
like IBM (
) and Microsoft (
). Here we examine the headwinds these competitors pose on Oracle's
ability to continue its market share run.
Our $36 price estimate for Oracle
currently stands about 13% ahead of market value.
What is Middleware?
Middleware is a portfolio of software product tools used to
build and deploy software applications. It acts as an interface
between front-end applications (like web-based applications) and
back-end applications (like the database). Hence, middleware
software sales depend heavily on database application software
Oracle's Presence in Middleware Software Market
We estimate that Oracle's share in the middleware software
market has increased from around 8% in 2006 to 16% in 2009. We
project that Oracle will continue its run, but at a slower pace,
approaching 20% by 2016.
IBM has observed more modest growth in its market share, from
around 28% in 2006 to 31% in 2008, while Microsoft, a much smaller
player in the market, grew its share from 2.4% in 2006 to 3.6% in
Oracle's sharp rise in market share is attributable to its
acquisition of BEA in April 2008. With this acquisition, Oracle
acquired important middleware tools like the Weblogic Server (a
tool for deploying Java based enterprise applications) and Tuxedo
(a tool used to deploy mainframe-based applications).
Since the middleware software products are tightly integrated
with database and application software products, we expect that
Oracle's increasing presence in the database and applications
market could lead to a corresponding increase in its middleware
software market share. We expect Oracle to continue to increase its
share in the database as well as applications software market.
Although the middleware market share growth of IBM and Microsoft
has come at the expense of smaller players in the past, their
growth nonetheless presents a threat to Oracle's expansion. If
competition from IBM and Microsoft halts Oracle's middleware market
share gains, there could be downside risk to our price estimate for
Oracle. We estimate downside of roughly 5% to our price estimate if
Oracle's middleware market share declines to around 12% by the end
of Trefis forecast period, instead of the 20% that we currently
Drag the trend-line in the chart below to see the impact of
various middleware software license market share trends on
Oracle's stock value.
You can see the complete $35.98 Trefis Price
estimate for Oracle stock here