Oracle to detail open-source moves

By Michael Kahn

SAN FRANCISCO:  Buoyed by a $20 billion acquisition spree to better compete with SAP AG in the business software market, Oracle Corp. next week may unveil moves to boost its open-source technology strategy to fend off Microsoft Corp.

After gobbling up rivals such as PeopleSoft and Siebel Systems to gain a foothold in the market for software that helps companies automate processes -- such as payroll and supply chains -- as its core database business matured, the question for many is: What's next?

At the company's annual user conference beginning on Sunday Oracle is expected to partly answer that question by outlining plans to push further into specialized markets in the software industry such as banking and communications.

But analysts also say Oracle may well announce new moves as part of a strategy to take advantage of the so-called open source movement of developers who create and share programs such as versions of the Linux operating system.

"Open source is going to be major for Oracle," said Charlie Di Bona, an analyst at Bernstein Research.

Chief Executive Larry Ellison said earlier this year the company was considering launching its own Linux operating system and had looked at buying one of the main suppliers of the technology.

Open-source is growing in popularity because it allows customers to use applications for free, paying only for custom features, maintenance and support.

Jumping into open source operating systems and applications would propel Oracle into sectors of the software industry where it has never directly competed.

It would also step up competition with rivals ranging from Microsoft to International Business Machines Corp. to Red Hat Inc. and dozens of up and coming open-source start-ups. Oracle could have the ability to sell both the operating system and applications, or what is known in the industry as a complete "software stack."

Many analysts say they do not see Oracle acquiring an open-source company but expect it to deepen a partnership with a provider like Red Hat -- an announcement that could come at the user conference in San Francisco.

This kind of scenario could help Red Hat boost its revenue while at the same time would give Oracle an important weapon to keep Linux as an important counter-balance to Microsoft's Windows operating system that Oracle and other companies have long relied on, analysts say.

"Whatever path Oracle takes, we think it is important to remember that the goal is to make sure Linux gains share at the expense of Windows," CSFB analyst Jason Maynard said in a research note.

The conference comes after Oracle surprised investors with faster-than-expected growth in new software licenses over the past two quarters, sending the company's stock to its highest levels since 2001.

Since the beginning of the year the company's stock has gained about 50 percent while SAP shares traded on the New York Stock Exchange have gained about 8 percent as investors question whether the company is losing share to Oracle.

According to industry research firm AMR, SAP's share of the business applications market is expected to grow to 43 percent in 2006 from 42 percent while Oracle's share is seen rising to 23 percent from 20 percent. The next biggest competitor, Sage Group Plc is forecast to shrink to 5 percent from 6 percent.

Because Oracle now has the size to compete with SAP, the next logical step is focusing more directly on the different sectors of the market, said Kim Caughey, who helps oversee nearly $1 billion in assets at Fort Pitt Capital.