Oracle: Spending Money to Make It

Coming off a quarter in which higher product support sales drove surprisingly strong profits, Oracle tacked on an acquisition Mar. 23 that could broaden the market for those contracts.

Oracle built up its presence in the pharmaceutical industry by acquiring Irvine, Calif. company Relsys International for an undisclosed sum. Relsys sells software that helps pharmaceutical and biotech companies comply with drug safety regulations during clinical trials, and it adds to the lineup of products in Oracle’s “health sciences” business unit, created last year. “It’s a smart tuck-in acquisition,” says Stuart Williams, an analyst at consulting company Technology Business Research. “You can’t make the next generation of blockbuster drugs without having all the data pulled together for testing and analysis.”

More broadly, pushing deeper into specialized software markets in industries including health care, insurance, and telecom furnishes Oracle with new customers for its broader database and applications software. The company, which is locked in a battle for market share in business software with German maker SAP, has been on an acquisition spree since 2005, snapping nearly 50 software companies in areas including application-linking middleware and data analysis tools.

Part of Oracle’s strategy for growth involves selling a broad palette of products—and attendant support contracts—to the customers it adds with each new acquisition. There appears to be lots of green field. Of Oracle’s 320,000 customers, 96% have bought four or fewer of the 23 categories of software the company offers, Citigroup software research director Brent Thill said in a Mar. 18 report. “Maintenance renewals are showing no signs of deterioration,” he said.

Investors have bid up Oracle shares in recent days on a positive earnings report and dividend announcement. The stock has gained 18% since Mar, 17, compared with an 8% rise in the Nasdaq Composite Index. On March 19, Oracle declared a 5¢ per share quarterly dividend that starts May 8. The prior day, Oracle reported third quarter profits that beat Wall Street’s expectations, buoyed by revenue from ongoing technical support agreements with customers.

Not every Oracle acquisition has worked out. But overall, the company is protecting profits in a downturn by acquiring new customers for its expanding portfolio of products.

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