If 85 percent of Sun's revenue and approximately the same level of SG&A spending is linked to Sun's hardware business, can Oracle really find 63 percent of overlap or reduction in SG&A spending? Oracle doesn't have any hardware-related SG&A spending today. So where will the cost efficiencies of this magnitude come from? At an extreme, one could argue that Oracle will reduce software-related SG&A spending. But this is closer to 15 percent of SG&A than 63 percent of SG&A spending.
For completeness, if Oracle can maintain flat Sun revenue, versus a 12 percent and 4 percent decline in product and service sales, a 33 percent reduction in SG&A would be required to meet the $1.5B operating profit target. Yes, 33 percent is more realistic than 63 percent. But even a 33 percent reduction is difficult to see considering that approximately 85 percent of the current SG&A spending is linked to business lines that don't overlap with Oracle's current spending or staffing.
What do you think? Is the $1.5B Sun operating profit target achievable?
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