Oracle Corporation The Strategy of Acquisition as a Growth Mechanism Presenter: Craig A. Tedeton Course: SBAD 478 Business Policy

Introduction-Oracle, the Early Years ▫Began as database development company  1977: Oracle incorporated in Redwood Shores, California as Software Development Laboratories by Larry Ellison, Bob Miner and Ed Oates. ▫1979: SDL renamed to "Relational Software Inc ▫Tremendous past growth, but future growth was in question due to the speed of the industry

How Do We Best Grow? Two methods of Growth Organic Inorganic

Organic Growth Through Technology Expand application of their RDMS Build a better brand through partner programs Release limited versions of their products Licensing was left as a trusted model ▫1979: offers the first commercial SQL RDBMS ▫1983: offers VAX-mode database ▫1984: offers first database with read consistency ▫1986: offers a client-server DBMS Biggest of the Early Developments ▫Release of the first relational database model in 1979

Organic Growth Through Technology - Building the Power of the Relational Database Collection of data items organized as a set of formally- described tables from which data can be accessed or reassembled in many different ways without having to reorganize the database tables

Organic Growth Through Technology - Building the Power of the Relational Database Characteristics of Older Technology ▫Old file based database systems  First–in–wins (record locking)  Very poor performance  Closely tied to server systems  Usually found on mid-frames/mainframes ▫Reduced widespread utilization ▫Lowered ORA expectations of revenue

Organic Growth Through Technology - Building the Power of the Relational Database Traditional Revenue Growth ▫Drive fundamental sales of database product ▫Maintain or lower overhead/administrative costs ▫Rely on more product differentiation

Organic Growth Through Technology : Oracle version 1 & : Oracle version 3 & : Oracle version 5 & : Oracle version : Oracle version 8 & 8i 2001: Oracle version 9i 2003: Oracle version 10g 2007: Oracle version 11g This was an early problem for the company Prompted new approach

Inorganic Growth Through Acquisition If you can’t beat them buy them The practice of gaining market share by buying companies for their customer base and technology ▫Diversification of the Product Line ▫Expand application of their RDMS ▫Build a better brand through partner programs ▫Displace the still dominant midframe/mainframe ▫Cross-selling opportunities to application customers

Moving Into New Markets Diversification of the Product Line ▫Began purchasing technology in 1999 ▫Thinking Machines Corporation June 1999, Data mining technology  Supercomputer manufacturing ▫Continued with acquisition through the early 2000’s ▫Major acquisitions:  PeopleSoft in 2005, HR & Enterprise software  Value increase of $10.3 billion  Siebel Systems in 2006, CRM software  Value increase of $8.85 billion  BEA systems in 2007, Middleware applications  Value increase of $8.5 billion  50+ acquisitions since 1999  Value increase of +$45.5 billion

Strategy for Success or Trouble In Paradise How do we do this w/o destroying the company Weakening the Brand? Shifting the Core Focus? Building a Larger Customer Base? Expanding the Brand? »» Building value for the stockholders? ««

The Finance of Strategy Annual Sales Summary Data (Millions) YearSalesNet IncomeEPS May-0410, , May-0511, , May-0614, , May-0717, , May-0822, , Growth Rates

The Finance of Strategy Liquidity Ratios Current Ratio 181%137%173%105% Quick Ratio 176%134%169%102% Cash Ratio 110%75%110%60% Profitability Ratios Gross Margin 57%77%78% Operating Margin 35%33% 34% Pre-Tax Margin 35%33% 34% Profit Margin 25%24% Current Assets/current liabilities (Assets – inventory)/current liabilities Cash and equivalents/current liabilities Sales - Costs Sales/(Sales – COGS) or Operating Profit Operating Margin - Taxes

The Finance of Strategy Acid Test $47,268,000$34,572,000$29,029,000$20,687,000 $24,243,000$17,653,000$14,017,000$9,850, Stock Holders Equity Common Stocks$12,446,000$10,293,000$9,246,000$6,596,000 Retained Earnings$9,961,000$6,223,000$5,538,000$4,043,000 Other Equity$618,000$403,000$228,000$198,000 Total Equity$23,025,000$16,919,000$15,012,000$10,837,000 Acid Test = Short-term assets over short-term liabilities -short-term cash position -helps determine the ability to maintain immediate operations

The Finance of Strategy Database98%97%88%87% 80%77%74%61%56%47% Apps/Middleware2%3%12%13% 20%23%26%39%44%53%

Conclusion Many have questioned this strategy ▫Technology ▫Business The short answer is…. Opinion: Long-term Investment (stable) Average of 52 Week Stock Performance OpenHighLowClose/LastVolume ,783, Shares Outstanding:5,162,010,000Market Value: $ 94,619,643,300

References Edgar Online REDORBIT NEWS: Oracle's Growth Strategy: Buy, Buy, Buy Published: 2007/03/02 10:25:00 CST Forbes Oracle's Latest Growth Strategy Lisa DiCarlo, Forbes.com, , 2:30 PM ET Herald Tribune International Heir apparent at Oracle is credited with growth strategy By Rochelle Garner Bloomberg News Tuesday, December 19, 2006 ChannelWeb Oracle To Buy Document Capture Software Vendor By Rick Whiting, ChannelWeb Jan. 17, 2008Rick Whiting