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Oracle (ORCL) is in the server business now. So is IBM (IBM), Cisco (CSCO), and Hewlett-Packard (HPQ). But these four companies are fairly evenly matched. HP has annual revenue of over $100 billion. So does IBM. Oracle’s is less at $22 billion, but it has one of the highest operating margins in the software industry. Cisco’s operating margins are nearly as good. And, all four have market caps in the $85 billion to $135 billion range. They all also have highly diversified businesses.

The one other large company in the server business, Dell (DELL), has almost none of the advantages of the rest. Its market cap is only $20 billion, a sign that the market does not like its prospects.

Dell had revenue of $61 billion last year, but tiny margins. Its operating income for the period was only $3.2 billion. Dell does have scale in the PC business. It is the No. 2 PC manufacturer in the world. Dell falls behind HP and IBM in global server market share, and just ahead of Sun (JAVA). With Oracle’s financial and marketing services, Sun has a good chance to step that share up after it becomes part of the larger enterprise software company. 

I was talking with a colleague about this, you see I think Dell buying Sun would have been a great deal. You see Dell is already doing well in the SME and increasingly moving into the enterprise, with this in mind, would having not had Sun given them greater experience in the industrial strength type server market, given them more exposure in those start-ups/internet companies, you use Sun servers? Great, why not try our Dell laptop/desktops? That said it will be interesting to see how the Oracle/Sun deal goes ahead and what enterprise and range of products/services will be available going forward, also what goes on with MySQL?

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