Oracle Corporation (ORCL), Intel Corporation (INTC): Why International Business Machines Corp. (IBM)’s End Could Be Near

The upside for Oracle Corporation (NYSE:ORCL) is that the company is the leader in the database field. Selling databases to customers is the entrance to selling them systems, infrastructure, software, etc. And as long as Oracle keeps its leading position in the database world, it will not lose its power.

Unfortunately, cloud computing is also a strong risk for Oracle Corporation (NYSE:ORCL)’s business, but the company could adapt itself to the new paradigm better than IBM. For example,  it has already been taking advantage of the new shift by providing support of legacy applications to companies that are in the process of moving to the public cloud. If you want to know more about Oracle Corporation (NYSE:ORCL)’s cloud challenges, check outmy previous article on Oracle Corporation (NYSE:ORCL).

In the hardware field, competitor Intel remains a strong value investment, despite a terrible year in terms of stock performance and disappointing dividends. Intel’s server and high performance computing business segments are experiencing mild growth. The problem with Intel, though, is not the data server business, but the fact that revenue is too dependent on a shrinking PC market. In 2012, Intel reported full-year revenue of $53.3 billion, of which $34.4 billion (roughly 65%) came from the PC client group and only $10.7 billion (21%) came from the data center group. That being said, Intel Corporation (NASDAQ:INTC) also has plenty of upside potential. The company hasn’t lost its R&D focus and keeps launching new architecture every 2 years or less: the new “Haswell” architecture maximizes power efficiency and could boast sales. Its  current P/E ratio (12.1) also makes Intel Corporation (NASDAQ:INTC) an attractive stock.

Final foolish thoughts

I agree with Alsin in the sense that the demand for expensive, multi-million dollar systems (let them be private clouds or something else) is contracting. Companies are moving to the public cloud instead. Expensive frameworks and commodity-like x86 servers are becoming endangered species.

That being said, I also don’t want to underestimate the ability of IBM to change its business radically. Big Blue has done it several times. The latest time was when it exited the PC business in 2004 by divesting its PC unit to Lenovo. This was done 2 years after HPQ acquired Compaq and at a moment where the PC business was still strong. The elephant prioritized the sustainability of the business rather than meeting the street consensus for the next quarter.

A similar strategy and radical changes of focus are in great need again. This goes beyond acquiring companies with strong exposure to the public cloud (IBM recently acquired SoftLayer for $2 billion, 5 times revenue).

Finally, there will always be demand for expensive private clouds, for institutions willing to pay 100% more in price for an additional 5% safety improvement. What International Business Machines Corp. (NYSE:IBM) needs to do is to reduce the exposure to such business, as soon as possible. In the meanwhile, the safety of having institutional clients and its vast resources will allow Big Blue to survive, but don’t expect superb returns during the transition. It’s gonna take a while, since it’s just starting!

The article Why IBM’s End Could Be Near originally appeared on Fool.com and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel, International Business Machines (NYSE:IBM)., and Oracle.

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