Oracle (NASDAQ:ORCL) filed a patent infringement lawsuit against
Google (NYSE:GOOG) in August 2010 over the use of Java in Google's
Android mobile operating system and is claiming billions in damages
from Google. The latest filing by Oracle reveals that Oracle is
demanding $900 million to $1.4 billion up front as well as 15% of
the advertising revenue that Google earns from advertising on
phones that run the Android OS.
We have a
$37 price estimate for Oracle
, which is around 10% ahead of the current market price.
Advertising on Android: A Billion Dollar
While Oracle's demands are not as audacious as reported earlier
($1.4 billion to $6.1 billion), they still amount to a huge number
considering that the ad revenue Google earns from Android devices
is expected to be close to $1.3 billion in 2012. Oracle claims that
Google's use of Java in Android infringes a patent which it
acquired through its acquisition of Sun in 2009.
Potential 25% Upside for Oracle Stock
While far from certain, if Oracle won this case against Google,
its cash reserves would get a $1.40 billion boost ($0.28/share) and
its Java licensing revenues would receive 15% of Google's Android
ad revenues. We estimate Google's ad revenues from the Android
platform will increase significantly in the next couple of
years touching $1.3 billion in 2012 and reaching $26.4 billion by
the end of the Trefis forecasting period.
Oracle's 15% cut would boost its Java licensing revenue by
almost $4-5 billion by the end of the forecasting period based on
forecasts. Taking these factors into account, if Oracle wins the
lawsuit, we would revise the Trefis price estimate upwards from $37
to $41.20, implying a 25% upside from its current market price.
Even in the event of a settlement for a lower amount, Oracle could
still see meaningful upside.
You can tweak the chart above to check the potential upside.
See our complete analysis of Oracle's Stock