So there's this guy who's an investor and he owns a lot of Dell stock and he'd like to see the value of that investment increase greatly so he's written an open letter to Larry Ellison suggesting that the Oracle CEO should pony up about $50 billion to acquire Dell because it'd be a super-duper bolt-on for Oracle.
This investor has published his open letter on the Motley Fool investment site, whose generic disclaimer says the following: "We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors."
After considering just where this idea would fit in that "diverse range of insights," I strongly recommend it be filed in a rubber-padded cell in the Absolute Lunacy section. Here's why:
"But for all your personal and professional success, you have a growing problem," writes Fool contributor Chris Baines. "That problem is called Hewlett-Packard. HP shipped 17.5 times more servers last year than Sun (which you recently acquired), and is No. 1 to your No. 5. And since when have you settled for being No. 5?"
Baines continues down this dead-end path by adding, "Mr. Ellison, critics are starting to doubt the Sun acquisition because of plummeting market share in servers (now at 6.7%). The company that fired Mark Hurd, unfortunately, also managed to oust IBM as this year's sales leader. And the trend shows no sign of abating. In the third quarter, HP and IBM grew server revenues by 22.2% and 9% year over year, respectively, versus Sun's own anemic 0.9% growth."
Now, I can't blame this guy for looking for someone—anyone!—to step in and bid up the value of a significant portion of his holdings by 250% (Dell's market cap is about $19 billion). But pitching Dell to Oracle to boost its commodity-server market share makes about as much sense as asking Warren Buffet to acquire Dell because it would diversify his portfolio.
As Ellison himself said just a few weeks ago in Oracle's most recent earnings call, "Our goal is to become #1 for both online transaction processing and data warehousing—both of those segments. We are not interested in the low-margins commodity segment of the server business [boldface emphasis added]; we are focused on high-end OLTP, high-end data warehousing, where the margins are good and we can have a highly differentiated product."
As we reported in Global CIO: Larry Ellison's 10-Point Plan For World Domination, Oracle's CEO went on to say, "Right now with our Sun servers, our numbers are behind IBM and HP in the high-end server business. We think IBM's hardware and software technology is quite competitive, while HP's big servers are slow, expensive and have little or no software value-add. That makes HP extremely vulnerable to market share losses in the coming year."
And then, as they say on late-night TV ads, "But WAIT—there's MORE!" Baines then proposes that Oracle shell out the bucks for an even bigger pile of fool's gold by promising Ellison that the Dell deal will bring him something he dislikes almost as much as he dislikes Microsoft: a big footprint in the PC business!
"And of course with Dell you're not just getting servers: You're getting the PC market," writes Baines. "And who better to help you understand this market than your newest hire, former HP CEO Mark Hurd? Do you have any doubt that Mark Hurd, who spruced-up HP, couldn't work some magic with Dell?"
Well, not to beat a glue-factory-destined horse, but yeah, I think Larry Ellison would have some doubts about that---particularly since he's got Hurd totally focused on driving sales of high-end optimized systems that sell for hundreds of thousands of margin-rich dollars instead of just hundreds of margin-hungry dollars.
Here's how Hurd himself described Oracle's hardware business during last month's earnings call as he emphasized the point that Oracle-Sun now has a record hardware backlog:
"We've got 295,000 database customers that can run their Oracle workloads orders of magnitudes faster by deploying Exadata," Hurd said. "Exadata customers are experiencing immediate performance increase, measured in multiples, not percentages. Customers are seeing 15 to 50 times the improvement with Exadata.
"We are seeing a lot of enthusiasm at the end of the quarter as we begin to build a backlog for Exalogic [Elastic Cloud Machine], which will be available next quarter in both Intel and Sparc versions. There are 150,000 middleware customers , many of them using our market-leading WebLogic app server, that ultimately, are prospects for Exalogic. We've made more announcements relating to Sun's core technologies," Hurd continued, "specifically Solaris and Sparc. As an early indicator, we entered the quarter with a record hardware backlog."
Dell's a great company with lots of potential, but trying to suggest that it would be a perfect fit with Oracle and its strategy of high-end systems that Ellison has been articulating for the past year is, well, foolish.
But inspired by Mr. Baines' poorly researched idea—or, to be more charitable, let's call it his out-of-the-box thinking—and in the hope of illustrating just how badly a Dell acquisition would mesh with Oracle's new direction, I've come up with 10 acquisition ideas that I feel would be far better deals than Dell for Ellison to pursue:
1) The Pennsylvania portion of Interstate 80: No one in state government has any idea how to keep this 350-mile strategic link connecting San Francisco and New York City functional. Oracle could cover all related costs by imposing a 22% "support" fee on all drivers, which would also create a new industry vertical and source of ongoing revenue growth.
2) The Borders bookstore chain: Teetering on the edge of financial collapse, Borders could be snapped up for a pittance. Oracle could turn the stores into combinations of (a) briefing centers for customers and prospects and (b) retail outlets selling America's Cup merchandise.
3) IBM: By acquiring IBM, Oracle would instantly become the dominant world player in all the markets Ellison considers essential: everything from high-end systems to analytics to middleware and databases. Of course, the Justice Department would never allow it, but that's not my concern here—I'm just trying to come up with a list of 10 ideas that aren't as bad as Oracle buying Dell.
4) General Motors: Another relatively inexpensive buy, GM could provide Oracle with a unique entre' into the mobile market and into the lucrative federal-government IT market, since Uncle Sam's a primary owner of GM stock. Plus, GM could fill the void left by BMW in the former Oracle-BMW racing syndicate: "Oracle-GM" has a rather nice ring it, don't you think?
5) United States Postal Service: If Oracle president Safra Catz could turn Sun into a highly profitable business—Catz recently said that Sun's financial turnaround has been so strong that "we could be back at pre-Sun operating margins quite quickly"—then she and Oracle can do the same thing with the USPS. And again, think of the captive market the Post Office would provide for all kinds of systems!
6) New Orleans Hornets of the NBA: Kinda strange to have the Golden State Warriors play in Oakland's "Oracle Arena" when a primary owner of the Warriors is Tibco CEO Vivek Ranadive, so Ellison can buy the Hornets and move them to San Jose. Then, the Oracle/Borders retail chain can sell Hornets stuff alongside Oracle-GM Racing and America's Cup stuff.
7) SCO Group: Oracle's recently exhibited some stellar legal prowess and since SCO Group's unique value proposition was suing its customers and partners, perhaps Oracle's legal expertise could improve SCO's disastrous fortunes. But I just don't see much of a market for SCO-branded gear in the Oracle/Borders retail store.
8) San Francisco: Yes, it would be a tad unconventional, but Catz and Oracle could fix the city's massive financial problems while the new ownership arrangement would make planning and construction for San Francisco's hosting of the next America's Cup much easier to manage. Also, think of how this could improve logistics at Oracle Open World!
9) University of California Berkeley: Sets Oracle up with a steady pipeline of bright computer-science students, relieves some financial pressure on incoming Governor Jerry Brown, and gives Ellison a bit of the granola-and-Birkenstocks persona that some image consultants claim he lacks.
10) HP: Could be a tough fit if IBM's already in the bag, but would nevertheless provide Ellison with assurance that new employee and HP CEO Leo Apotheker would be compelled to accept service on any future subpoenas relating to litigation involving Oracle and either HP or SAP.
So I'm sorry, Mr. Baines of the Fool, but your Dellapalooza ship's just not coming into harbor until after all of these more-rational deals get done. (Pssst: have you contacted Bill Gates?)
Bob Evans is senior VP and director of
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