Oracle offers both products and services for corporate information technology environments as well as platforms and infrastructures. Oracle’s products and services are deliverable via the cloud computing or onsite deployment. Their product mix can be divided into two categories: software and hardware. Their hardware consists of servers, storage and networking equipment. Their software products are often deliverable via cloud services through Software as a service, Platform as a service, and Infrastructure as a service packages; but Oracle also sells “On premise IT environments” selling hardware and software together while offering support. In summary, Oracle is in the “technology integration business” with goals to improve operations and performance.
Since 2013 Oracle has invested $15.6B in R&D improve products and services as well as develop new products and services. (Note: Ratio calculations in spreadsheet at bottom of page)
Oracle’s Competition & Performance Measures
Oracles most prominent competitors are Intel, Hewlett Packard, Microsoft, and google. Specifically, in the application software industry, Oracle also competes with many other more specialized smaller companies who offer more specialized application software and cloud services. Such growing competitors are Box Inc. and Salesforce.com. The industry is also beginning to move to the software as a service business model which I believe will increase Oracles competition over the long run
I will be benchmarking Oracle to Intel primarily because they are similar in size when using both market and book value. Both businesses have approximately a $150B market cap. Intel and Oracle’s book value of equity are $55.9B and $48.7B respectively, yet Intel’s market value added is almost 100B compared to Oracles at approximately 140B. On the books, Oracle and Intel’s equity are similar, but Oracle’s market value added is about 40% higher than that of Intel’s.
Intel’s business operations and focus are different in one primary way. A large part of Intel’s business is through the manufacturing of microprocessors. A large part of Intel’s business is networking, security and networking software. Intel’s Data Center Group (DCG) focuses on energy efficient server, network and storage platforms. Intel is a strong hardware competitor of Oracle since Inel’s DCG is lowering the cost of enterprise and cloud infrastructure.
Oracle’s Financial Profitability & Efficiency
Oracle has a lower return on assets (ROA), 2% percent lower, than Intel (I believe this is because of of Oracle’s recent capital investments). Oracle’s profit margins are almost 5% higher than Intel’s which is a result of the relatively low asset turnover of .38 compared to Intel’s of .6. According to the text book operating profit margin and asset turnover are inversely related as seen through the DuPont analysis when calculating ROA. In my analysis, the differences between asset turnover and profit margins are negligible and different in part to the difference in asset turnover and profit margin. Additionally I believe a contributing factor might be because of differences in product mix and the types of assets owned.
Under Property Plant and Equipment, Oracle owns 3.7 billion in assets while Intel owns 33.2 Billion. This 30 billion dollar difference is mostly due to operations differences and the need for long term assets for producing micro processing components. Although Oracle sells hardware they do not have this cost of manufacturing.
Both companies practically have an identical return on equity (ROE). They both have ROEs of about 20%. Oracle provides .03% higher return on equity.
It is also important to note that Oracle’s net income is down 9.3% since last year and 9% since 2013. I do not know why this happened, but it prompts me to ask why. Perhaps it is the recent capital investments and depreciation methods. Perhaps it is higher cost, or a more competitive market?
Oracle’s Financial Position Regarding Leverage
Oracle is recently a more highly leveraged company. According to the Long-Term Debt ratio, 46 cents to every dollar of long term capital is in the form of debt. To me, this is concerning especially since debt owned long term capital doubles Intel’s who has a long term debt ratio of .18.
Even with the total debt ratio, Oracle is highly leveraged with a total debt ratio of .55 which is the same as saying Oracle is only 45% finance with equity; and when compared to it’s competitor, Intel’s Total debt ratio is 38% or 62% equity owned.
Oracle’s Financial Position Regarding Liquidity
Oracle is is extremely liquid, which I suspect is due to Oracle’s high leverage ratios. When being compared to Intel, Oracle has 21.7 billion dollars of cash on hand while Intel 2.5 billion. Oracle holds 88.5% more cash on hand than Intel. This difference can also be compared through the current ratios where Oracle has 4.1 and Intel has a 1.9. Oracle can cover its current liabilities 4 times over while Intel can only cover its current liabilities twice. Although Oracle is far more leveraged, Oracle current financial position is very liquid.
Oracle has a high plowback of 77% compared to 62% of Intel. I believe part of the result of having a high plowback is not to invest it back into the company but rather to satisfy debt holders.
Overall Oracle is a financially stable company with a long-term outlook. It seems like Oracle’s recently high R&D expenditures are proof of management’s long-term outlook in a changing market place. My analysis indicates Oracle is a long term buy and hold.
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