Oracle and Cisco On A Collision Course

Today Oracle announced it was acquiring session border controller equipment supplier Acme Packet for about $1.7 billion.   Acme Packet has roughly 50% market share of the $500 million session border controller market.  What I find interesting in this strategic move by Oracle is that they are entering a market (albeit a relatively small market) that is served by traditional communications equipment suppliers like Cisco, Alcatel-Lucent and Ericsson.  One has to ask, why is Oracle entering such a market?  My view on this is Oracle sees that the combination of high speed public roaming wireless technologies like LTE, the maturation of IP Multi-Media System (IMS) for IP service manageability (which SBC is a part of), more sophisticated mobile devices (e.g. tablets and smartphones) and cloud hosting as allowing for the first time communications service providers (e.g. Verizon and AT&T) to truly offer a full suite of managed fixed and mobile services to the enterprise customers.    Oracle wants to be a solution provider to service providers and large enterprises in the areas of business/services operations, IMS core manageability and application creation elements.  Oracle already does a significant amount of business with service providers in business/services operations and is likely looking to expand its offering in IMS core and application creation.  Acme fits into the IMS core.  I would not be surprised to see Oracle acquire Layer 4-7 application companies within the Software Defined Networking (SDN) architecture as well to enhance their offerings in application creation.  These companies, however, may not necessarily be public companies, but rather private start-ups developing pure software applications rather than special purpose network appliances.

What is also clear to me in this move by Oracle is how Cisco and Oracle will become more competitive over time. This is not surprising, as both companies are somewhat mature and seeking new growth vehicles.  What probably also accelerates this increasing competition between the two companies is Cisco’s recent strategy shift to being more of a software company.  Acme was a main competitor to Cisco, albeit in a small market of only about $500 million.  Even so, this deal likely portends of more competitive clashes between the two companies in the future.  So while the street has been focused on the increasing competitive dynamics between EMC and Cisco after VMware acquired Nicira back in July of 2012, now we can add another competitive battle with Cisco in the form of Oracle.

Large cap technology companies like IBM, Oracle, Cisco, EMC and HP all are mature when one looks at single digit organic revenue growth or even less for IBM and HP.  We are likely to see more of these technology titans continue to compete with each other as we have already seen in the past several years.   Even though this is obvious, predicting the actual M&A decisions by each company has not always been so obvious.  While VMware acquiring Nicira was not too shocking, I don’t think many were predicting Oracle would buy Acme Packet.  More such surprises are likely in 2013 and beyond to the point one has to question how the networking equipment industry landscape will look like in a few years.

Disclosure:  I currently own shares of Cisco and Ericsson mentioned in this blog post.  NT Advisors LLC may currently or in the future solicit any company mentioned in this blog post for consulting/advisory services.

2 thoughts on “Oracle and Cisco On A Collision Course

  1. Good call Nikos; the future of networking is software-based and we are in the early stages of the next round in networking wars.

    We are both old enough to remember that IBM lost that war to Cisco because Big Blue had legacy hardware (and market share) to protect. Imo, Cisco is today’s IBM and Oracle is that ‘neutral’ player that transcends legacy hardware vendors, each with their own versions of SDN.

    I have always seen telecom as a giant mother board and only a pure and neutral software vendor would know how to control it. If you still ship hardware while you pretend you are a ‘sofware company’ you are doomed! My bet is on software and Oracle just may be the future of networking…–bb

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