Will Oracle Corporation (ORCL) Eat Cisco Systems, Inc. (CSCO) For Lunch?

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Near the end of Oracle Corporation (NASDAQ:ORCL)‘s conference call last week, co-president Mark Hurd was asked about the company’s ambitions in the telecom space, following its acquisition last month of Acme Packet for $2.1 billion.

“Phone companies have two IT systems,” he said, “One that manages the business, one that manages the network. This was an opportunity to get into the network side of the business.” On Monday the company accelerated the move into that business by buying Tekelec, a long-time provider of network signaling, subscriber data management and policy control software.

The big dog in the telecom space for most of the last decade has been Cisco Systems, Inc. (NASDAQ:CSCO), which itself has been moving into the cloud space with acquisitions like Solve Direct.

With Oracle and Cisco Systems, Inc. (NASDAQ:CSCO) now on a collision course, who is likely to win?

Telecom Becomes Software

The big trend in this space over the last decade was the dominance of IP networks over old-fashioned analog networks, like those companies such as AT&T had run for 100 years. The new trend is the dominance of software over hardware, exemplified by the rise of Software Defined Networking, which envisions the replacement of specialized network hardware with software housed in commodity systems.

Oracle Corporation (NASDAQ:ORCL) is moving into a version of this space, but in its own way. The companies it has been buying build software and hold patents that are important to the way fixed and mobile networks run now. Since that old-line business is dwindling, they’re bargains. Oracle hopes to turn these bargains into dominance of the phone industry customers, who still buy billions of dollars in equipment per year and are looking for a way forward.

Cisco Systems, Inc. (NASDAQ:CSCO) until now has been mostly focused on SDN start-ups, and on rivals like Juniper Systems, which have been building their own SDN solutions for IP networks through acquisitions and internal development. They’re adapting their existing fast switching fabrics to the new environment, and figure they have a big moat around the space.

But what if they don’t? Oracle Corporation (NASDAQ:ORCL) does not think they do. They seem to believe that, by controlling the heart of the old-line software, they can control standards, defining what customers do next.

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