Can Oracle really generate a $1.5B profit from Sun?
My analysis leads me to question Oracle's target of generating over $1.5B in operating profit from Sun in the first year after the acquisition
Follow @SavioRodriguesThis post is not a commentary on the impact of Oracle's profit target for Sun on Sun and Oracle employees. I don't want to make light of any potential cuts that may result. I simply want to understand what it will take for Oracle to hit the $1.5B profit target for Sun:
"We estimate that the acquired business will contribute over $1.5 billion to Oracle's non-GAAP operating profit in the first year, increasing to over $2 billion in the second year. This would make the Sun acquisition more profitable in per share contribution in the first year than we had planned for the acquisitions of BEA, PeopleSoft, and Siebel combined," said Oracle President Safra Catz.
[ For all news related to the acquisition, visit InfoWorld's special report: Oracle buys Sun for $7.4 billion ]
I started with Sun's fiscal 2009 results. Revenue from the first two quarters of fiscal 2009 is currently available. Going back to fiscal 2008, Sun's revenue appears to be fairly consistent, at approximately 25 percent per quarter (see page 92 of 172). I assumed we could double the first half of fiscal 2009 results to get a full-year fiscal 2009 view. You can see this in the "Est. Full Year @ Run Rate" column. Next, I estimated "Sun's Yr 1 as part of ORCL" column based on the assumptions below.
First, I assumed that product and services revenue would decline 12 percent and 4 percent, respectively, in the first year. These figures are the reported year-to-year declines for Sun's product and service revenue in the first half of fiscal 2009 versus first half of fiscal 2008.
