Oracle Corp. (ORCL) recently announced that one of the leading retail and commercial banks of Brazil, Banco Santander has chosen Oracle Exadata Database Machine to integrate the operations of Banco Real, which it acquired in August 2009.
The Brazilian division of the Spain-based global financial services firm was facing integration problems due to the huge amount of data that it was required to handle after the merger.
The challenges faced by the company included growing data volumes, inadequate processing speeds, lengthy batch processes and space limitations in their data center, which were impacting Santander’s regular operations, reputation and revenue growth.
Banco Santendar’s migration to Exadata has resulted in the consolidation of servers that led to a significant decline in infrastructure costs. The consolidation has helped in speeding up critical processes and has also improved system maintenance.
Banco Santendar also adopted Oracle’s OLTP (online transaction processing) and data warehousing system. Oracle Consulting provided support to Banco’s services division, Produban for creating the blueprints of the project.
After a thorough testing by Banco Santander's system development division (Isban) and Oracle, Banco shifted 25 critical processes successfully to the Exadata system in less than two months, well ahead of schedule.
The migration to Oracle’s Exadata Database system resulted in an 8X improvement in Banco Santander’s production efficiency. The Oracle Solution was able to compress data 10X, resulting in significant savings on storage and backup costs.
Oracle has been gaining traction as a technological solutions provider for financial institutions. Oracle’s Exadata has garnered strong customer base in recent times.
Oracle noted that the higher-margin Exadata and Exalogic systems (sequential unit and revenue growth of over 50%) drove higher revenues in the third quarter of 2011.Oracle expects this to grow even higher in the fourth quarter, thereby driving software margins going forward.
Oracle remains positive on its growing Exadata pipeline, despite intense competition from Netezza and Greenplum, acquired by International Business Machines Corp. (IBM) and EMC Corp (EMC), respectively. The company also aims to beat Hewlett-Packard Co. (HPQ) in the high-end server business.
Increasing adoption of cloud technologies is an essential part of Oracle’s growth story over the long term. Currently, less than 10.0% of global IT spend is on cloud computing. According to market research firm In-Stat, businesses in the United States will spend more than $ 13 billion on cloud computing by 2014.
Oracle, through its Exadata and Exalogic product lines, provides the infrastructure for companies to adopt cloud computing, where data is handled remotely in datacenters rather than on premises. Strong demand for these products will drive top-line growth over the long term, in our view.
Recommendation
According to research firm Gartner, Worldwide IT spending is forecasted to total $ 3.6 trillion in 2011, a 5.1% increase from 2010. Of this, both computing hardware and enterprise software are expected to grow 7.5% year over year.
We believe Oracle will benefit from this trend, as it remains well positioned with Sun hardware and Oracle software. The fact that both the Sun hardware and Oracle software are relatively higher-margin is an added bonus, indicating sustained profitability improvement in ensuing quarters.
However, Oracle faces significant competition from Hewlett Packard, IBM, EMC, Cisco Systems Inc. (CSCO), Red Hat Inc. (RHT), Teradata Corp. (TDC), Microsoft Corp. (MSFT) and SAP AG (SAP), which may hurt its profitability over the long term.
We maintain a long-term (6–12 months) Outperform rating on Oracle shares. Currently, Oracle has a Zacks #2 Rank, which implies a Buy rating on a short-term basis.
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