What Is Oracle Corporation (ORCL) Really Gaining From Acme Packet, Inc. (APKT)?

Page 1 of 2

Oracle (ORCL)A lot has been made about Oracle Corporation (NASDAQ:ORCL)‘s  recent $2.1 billion all-cash acquisition of Acme Packet, Inc. (NASDAQ:APKT). Since the announced deal, shares of Acme Packet have surged 24% to just more than $29 per share. However, for myriad reasons, I’ve argued that Oracle overspent. Not the least of which has had to do with Acme Packet’s recent performances, including a subpar fourth-quarter report which has caused the stock to languish below $20.

Despite having a sizable lead in the session border control — or SBC — market, Acme Packet posted a 15% decline in revenue, while product revenue shed 20% year over year. This was the effect of poor spending from the likes of Verizon Communications Inc. (NYSE:VZ) and other carriers, which comprise of 80% of Acme Packet’s business (thus the level of risk that Oracle now assumes).

Considering Oracle’s acquisition of Sun Microsystems three years ago has not exactly panned out, including 16% drop in hardware revenue recently, I was astonished that the company was interested in pursuing more hardware assets. Then again, this is why the company’s CEO, Larry Ellison, is considered shrewd by many experts and one of the best in the business. The company does things that are completely unexpected. And more often than not, they work.

What is Oracle getting in this deal?
All of that aside, this is what investors want to know. And does it make sense, given Acme Packet’s recent decline in profitability? That may or may not matter now given Oracle’s solid track record in execution. Nonetheless, the swift shift in the communications industry strongly influenced this deal. Users are becoming more connected with their mobile devices and Oracle sees an opportunity to diversify its service offerings, particularly in the enterprise.

What’s more, Acme Packet presents Oracle a way to leverage what Oracle already does well, especially with there being a growing demand among service providers who are looking for ways to engage their customers in more effective ways. To that end, Acme Packet’s “Net-Net” line of products is arguably the best in the realm of SBC. Oracle sees a way to effectively compete with the likes of Cisco Systems, Inc. (NASDAQ:CSCO) , which has recently formed a partnership with Oracle’s cloud-rival Citrix Systems, Inc. (NASDAQ:CTXS).

However, for Oracle, it’s not as easy as just buying one’s way into a market and expecting the dynamics to change. Granted, Acme Packet’s SBC lead is meaningful at a 40% share. But Oracle still has to deal with the fact that this lead is highly levered to 80% revenue from carriers, whereas Cisco does not have such a dependency. Plus Cisco and Juniper Networks, Inc. (NYSE:JNPR), which have more enterprise leverage, continue to make inroads in the SBC market through product upgrades.

Then again, neither can compare to Acme Packet’s Net-Net 6300, a product that supports 1 million subscribers and has the capability of handling 200,000 simultaneous calls. This will allow Oracle to offer enterprise clients secure network sessions that supports multiple applications. Plus the device is intelligent enough that it can prioritize delivery based on network policies.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!