Oracle-Acme Packets deal analysis

Telecom Lead America: Oracle has announced its intent to acquire Acme Packets in a deal valued at $2.1 billion. Ovum analysts discuss software market opportunities.

Dana Cooperson, principal analyst, Ovum, says the acquisition should strengthen Oracle’s hand both with enterprises and carriers by giving it a more central role in controlling and improving how devices and subscribers interact and communicate.

READ Oracle-Acme Packets deal HERE

Oracle’s move to acquire Acme Packets illustrates several very important on-going trends in global communications:

IT and Telecom are rapidly blending:

Telecom and IT are coming together in ways that are shifting the vendor competitive framework significantly. IT-focused companies like Oracle see a real opportunity to strengthen their position in both markets through extending their product lines and are acting aggressively. Companies that specialize in either telecom or IT will need a strategy of how they will benefit from this blending of what were two largely separate domains. Any vendor that wants to be a full-service partner to the telcos and other large communications and content providers will need such a blended strategy to be credible. Specialists will need to align with full-service partners.

Software increasingly driving network capabilities:

Although hardware is still important in many applications to provide needed performance, software is more and more critical for both differentiating and monetizing network capabilities. Performance without monetization is only half the equation.

Communications needs are anytime, anywhere: People want to be connected, at work or at play, through a variety of devices and access means. Controlling these sessions securely and at the needed quality is increasingly critical.

Oracle Communications has a value proposition that encompasses telcos, enterprises, and other ICT (information and communications technology) infrastructure vendors. In fact, Oracle both sells to and competes with telecom infrastructure vendors. But unlike many of these companies, Oracle has a comparatively large bucket of cash to use for acquisitions— as a communications infrastructure vendor bested only by Cisco. Oracle and Cisco can both afford to be aggressive with M&A whereas many of their peers cannot. Expect the buying spree to continue.

Matt Walker, principal analyst, Ovum, says telecom-centric vendors are having a tough time, again, as in the last several quarters they have seen margins decrease significantly; 4Q12 earnings issued to date have not reversed the trend.

Even with some consolidation and extensive layoffs, several big vendors (e.g., Alcatel-Lucent) are hurting. A weak Capex climate among service providers has worsened the outlook, as has the continued growth of Huawei.

Ovum’s latest forecast calls for telecom Capex bumps in some country markets, but Chinese vendors are positioned well in many of these. In the near-term, vendor earnings should be watched closely, with an eye on both margins and cash conservation. In the longer-term, consolidation will help, but this is never easy; slow integration is the biggest challenge to this approach.

“Looking ahead to what you want to be when you grow up is a better approach as the IT and telecom worlds converge. This blending impacts network design, product choice, sales models, purchasing decisions, and ultimately the competitive landscape,” Walker added.

[email protected]