Oracle May Buy Chipmakers, Industry-Specific Software

Oracle Corp., CEO Larry Ellison
Oracle Corp., CEO Larry Ellison. Photographer: Tony Avelar/Bloomberg

Oracle Corp., building on a run of more than 65 acquisitions during the past five years, is looking to purchase semiconductor companies and makers of industry- specific software, Chief Executive Officer Larry Ellison said.

“You’re going to see us buying chip companies,” Ellison, 66, said yesterday at Oracle’s annual meeting in San Francisco. Acquiring chipmakers would extend Oracle’s push into computer hardware, initiated in January with its purchase of Sun Microsystems Inc., a server manufacturer.

Ellison said he wants to follow the approach of Apple Inc. CEO Steve Jobs by owning more of the intellectual property that underpins computer chips. Apple has bought semiconductor makers to help develop devices such as the iPad and iPhone. Oracle already acquired some chip knowhow from Sun, which makes servers based on its own chip design, Sparc, while also using personal-computer chips from Intel Corp. and Advanced Micro Devices Inc.

Oracle may buy a semiconductor company with technology for servers, said Doug Freedman, an analyst at Gleacher & Co. in San Francisco. Potential targets include AMD, International Business Machines Corp.’s chip division and Nvidia Corp., he said.

“You’ve got to think it’s focused on enterprise hardware, on the server,” he said. “AMD jumps off the screen.”

AMD and Nvidia shares rose in early trading today. ARM Holdings Plc, the U.K. designer of chips that power Apple’s iPhone, also gained.

Chipmakers Gain

Drew Prairie, a spokesman for Sunnyvale, California-based AMD, said the company doesn’t comment on rumors or speculation. Hector Marinez, a spokesman for Santa Clara, California-based Nvidia, also declined to comment. Lori Bosio, a representative of Armonk, New York-based IBM, didn’t return messages left after business hours yesterday.

AMD climbed 44 cents, or 6.9 percent, to $6.84 at 4 p.m. in New York Stock Exchange composite trading. Nvidia rose 64 cents, or 5.5 percent, to $12.26 on the Nasdaq Stock Market. The Philadelphia Semiconductor Index, which tracks 30 industry stocks, gained 4 percent to 346.14.

Oracle also plans to buy more makers of software focused on certain industries, Ellison said. By zeroing in on specific areas, the company aims to stand out from rivals such as SAP AG.

“We want to play in every important industry,” he said.

Oracle, based in Redwood City, California, fell 16 cents to $26.96 on the Nasdaq. The shares have gained 9.9 percent this year.

Cash Pile

Oracle, the world’s second-largest software company, had $23.6 billion in cash and short-term investments at the end of its fiscal first quarter. The company also hired former Hewlett- Packard Co. CEO Mark Hurd as co-president Sept. 6, leading analysts to predict that Oracle may acquire more hardware companies. HP is the world’s biggest computer maker.

Ellison’s remarks capped almost a week of presentations to customers and analysts around Oracle’s OpenWorld conference, which started Sept. 19.

At the conference, Oracle said new business applications software called Fusion would be available in the first quarter of next year, and the company unveiled two new computer systems that combine its software with Sun hardware.

As Oracle scouts for acquisition targets, it’s also working to make its hardware business more profitable by decreasing sales of lower-priced systems. Hardware sales yielded a gross profit margin of 48 percent in the first quarter, compared with 72.5 percent for the company as a whole.

Hardware Sales

Oracle plans to double the size of its hardware business, which generated $1.7 billion in revenue last quarter, Ellison said during a conference call last week.

The company is selling customers more high-end computer systems that contain computing power, storage, network connectivity and software designed to work together. Oracle introduced two such systems this week: Exalogic and a new version of its Exadata computer.

“I would be stunned if 10 years from now, most data centers didn’t rely on these engineered systems,” Ellison said. “We’re betting that this is the future of computing.”


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