Is EMC the Next Step in Oracle’s Journey to $100B?

Oracle bought Sun Microsystems, hired former HP CEO Mark Hurd and declared that as “Oracle continues to grow, we need people experienced in operating a $100 billion business,” and ever since, the technology world has waited to see what other acquisitions Larry Ellison might have up his sleeve. This past week, we saw strong reactions to the rumor that Oracle might make a bid to buy EMC, due to the acquisition’s outlandish nature and monetary mismatch. Oracle will need to more than triple its revenue to reach that $100 billion target, so anything is possible.

That said, the rumor whips up a bunch of financial questions, because EMC owns 80 percent of VMware. EMC has a market capitalization of around $43 billion, and VMware around $32 billion. Match that up with EMC’s annual revenues of around $15 billion and VMware at $2.4 billion, and it isn’t hard to figure out where most of the value is, as well as where Oracle might be able to get a good deal on the multiple leading storage platforms.

So yes, the idea of Oracle buying EMC and VMware is a little crazy. But the idea of buying EMC and not VMware is within the realm of possibility, at least on paper, with The Register estimating that the non-VMware portion of EMC could be worth as little as $7.9 billion.

This is where things get interesting. The industry appears to be pushing towards server, network and storage consolidation following the moves of HP, IBM, Cisco, and Dell. Even Oracle has pushed a complete hardware and software package with Exalogic and Exadata using technology from Sun Microsystems to deliver an integrated solution. EMC and Network Appliance remain the large pure-play storage companies that could add significant heft to a server vendor that wants to dominate integrated stacks. HP and IBM have too much product overlap, and Dell can’t afford EMC, so that leaves an opening for Oracle and Cisco.

It seems likely that Oracle could be considering an EMC-only bid. I’ve heard some speculate that the reason Oracle became so tied to NetApp for certain solutions was the fear of EMC data center account control. Make no mistake; EMC knows how to close big deals, as their revenue number proves. If the goal for Oracle is to reach $100 billion, NetApp wouldn’t help them as effectively. NetApp currently has an $18 billion dollar market cap and just over $4 billion in revenue.

With Oracle, and potentially Cisco, interested in looking at a the EMC part of the equation, there could be impetus to move this deal forward. Even though Sun had plenty of great storage technology, they never had the commercial product success and storage revenues of EMC. If consolidation between servers and storage is the future, EMC better get cozy with someone soon.