Oracle Corporation (ORCL): Will Hewlett-Packard Company (HPQ) Win Big Bucks From It?

In total, BCS revenue dropped from $2.3 billion in FY10 (the last full year before the dispute) to $1.6 billion in FY12, and is continuing to decline. These systems bring very high margins, and also generate a continuing stream of support/service revenue. At an evidentiary hearing last month, an economist consulting for HP estimated that HP’s losses could be $4 billion. Oracle’s attorneys counter that Itanium revenue declines may have been driven by other factors — such as a decline in HP’s reputation due to rapid leadership turnover — but the drop-off in Itanium sales correlates very closely with Oracle’s announcement that it was ending development for Itanium. It therefore seems fairly clear that Oracle’s actions were the primary driver of the platform’s rapid demise over the past two years.

This week, Bloomberg reported that HP might be asking for only $500 million in damages, far less than the $4 billion figure thrown out last month. While it is hard to predict legal strategies, I would be surprised if HP asks for less than $1 billion (although I believe that the company would probably settle the case for $500 million). The high cost of litigation — especially given the length of this case — makes it almost self-defeating to take a case to trial over “only” $500 million.

Foolish conclusion
Ultimately, a jury will decide how much Oracle Corporation (NASDAQ:ORCL) owes HP for the havoc it has caused. If Hewlett-Packard Company (NYSE:HPQ) can collect $500 million to $1 billion, this will be a significant win for the company. I don’t think the market is currently pricing in any significant damages award. HP has scaled back its share repurchase program since Meg Whitman became CEO, in an attempt to rebuild the balance sheet. Generating some additional cash from a settlement with Oracle will accelerate the return of cash to shareholders, which could provide a nice boost to HP stock.

The article Will HP Win Big Bucks from Oracle? originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg owns shares of Hewlett-Packard. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel, Microsoft, and Oracle.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.