Today: Oracle (ORCL) makes its biggest move in nearly three years, spending billions on networking company that could signal big push into Cisco's (CSCO) specialty. Also: Wall Street can't sustain milestone as Apple (AAPL), Google (GOOG) and Facebook decline; Gilead wraps up stellar year.
Oracle broadens its offerings with acquisition that could spark Cisco rivalry
Oracle announced its biggest acquisition Monday since its $7 billion deal for Sun Microsystems in 2010, and the big-money purchase could put the Redwood City software giant on a collision course with fellow Silicon Valley heavyweight Cisco.
Oracle agreed to buy Massachusetts-based networking equipment maker Acme Packet for $2.1 billion, with a net purchase price of $1.7 billion minus the cash the company has in its coffers, a premium of 22 percent over Friday's closing price for Acme stock. The company specializes in equipment and software that helps telecommunications companies manage their wireless networks, offering both hardware and software to help manage ever-growing and -changing demand for data.
If that description of the company sounds familiar, it might be because San Jose networking giant Cisco made a similar deal just two weeks ago, agreeing to purchase Israeli networking-software company Intucell for $475 million. While Intucell is known for its software and Acme Packet is a hardware company, analysts told Reuters that the Acme Packet software was the key to Oracle's deal, as the company can bundle it into a new line of networking equipment with Sun servers.
"It's Oracle continuing to broaden out their product and footprint step by step," FBR Capital Markets analyst Dan Ives told Reuters. "This fits right in with their strategy."
Oracle and Cisco seem to be on a collision course as software-defined networking becomes more popular. The growing field encompasses the specialties of both Silicon Valley heavyweights, with software helping to build out networks much in the way that cloud software gave companies access to greater wealths of space for data without spending large amounts on servers. In fact, cloud software puts more pressure on networks, forcing them to be able to shift networking capacity around as needed.
"Software-defined networking is still in the early stages, but it is something that Oracle is clearly looking at," Gartner analyst Akshay Sharma told Reuters.
Oracle has already made its large cloud software acquisitions, kicking off a run on companies in the sector from software competitors like SAP and IBM. Now, Oracle has focused on networking, with CEO Larry Ellison also pulling out his checkbook late last year for San Jose network-virtualization company Xsigo, spending $1.3 billion. That purchase may have been a challenge to Cisco, but it also closely followed Palo Alto virtualization expert VMware's expensive move into the same space, its acquisition of Nicira.
While these big names in the tech field operated in completely different sectors for decades, it now seems they will be competing for the same enterprise dollars in some areas.
"All these big IT companies are looking for new growth opportunities ... expanding their product set wherever they're missing," Brian White, an analyst at Topeka Capital Markets, told The Wall Street Journal.
With those facts beginning to take hold, an acquisition spree similar to what the tech world has seen in cloud software during the past two years could be sparked in the networking sector, with Needham analyst Alex Henderson saying Monday that the Oracle-Acme Packet deal "has the potential to light a fuse." Indeed, Acme Packet competitors such as Sonus Networks and Broadsoft shot higher Monday on Wall Street, as did larger networking companies such as Juniper Networks, though Sunnyvale-based Juniper company eventually settled back down to a narrow loss.
Monday's acquisition did not have the same effect on Oracle's stock price, which declined 3 percent to close at $35.13.
Apple, Google and Facebook help pull Wall Street down
Oracle's decline was typical on Monday, as Wall Street suffered its worst day of 2013 in its first session after the Dow Jones hit a milestone mark. At the core of Monday's weakness was tech stocks, with the tech-heavy Nasdaq falling harder than the other two main U.S. stock indexes at 1.5 percent, and the SV150 index of Silicon Valley's largest technology companies declining 1.9 percent.
Apple, which rebounded slightly last week after tumbling far following its most recent earnings report, dipped 2.5 percent Monday to close at $442.32. Barclays analyst Ben Reitzes offered the Cupertino tech giant a possible solution to its recent weakness, suggesting the company go after the so-called "phablet" market by offering a mobile device that splits the difference between the 4-inch iPhone and 7-inch iPad Mini. Samsung and other Asian manufacturers have found success with models of 5 inches or greater, he pointed out, while "the larger screen seems to be more popular outside of the U.S. and the phablet has significant momentum in China."
Google, which hit all-time highs Friday as the Dow was topping 14,000, declined 2.1 percent Monday as its Chrome browser was blocking users from access to major media websites due to a malware scare. Monday's weakness likely had less to do with that issue than a downgrade from BMO Capital Markets, which reduced Google's grade to its equivalent of "Hold" while leaving its price target at $790. The Mountain View search giant closed with a price of $759.02.
Facebook continued to dive, losing 5.5 percent Monday after a 4 percent dip Friday, with both of those losses coming on the heels of its recent earnings release and introduction of a new e-commerce offering. Former close partner Zynga also suffered, losing 3.8 percent ahead of its earnings report, scheduled for Tuesday.
The one bright spot Monday for Silicon Valley on Wall Street was Netflix (NFLX), which shot up 6 percent in the first trading session after the Los Gatos video-on-demand company released its most-hyped original series so far, the Kevin Spacey-helmed "House of Cards." "Our view is that over the next couple of years as Internet TV really grows, people will look back and say that this was the turning point," CEO and cofounder Reed Hastings told Bloomberg News of the series debut.
Gilead continues to post strong results with HIV drugs
Earnings season is beginning to wind down after the end of a busy month of January, but several Silicon Valley companies are still waiting for their turn at the podium. On Monday, one of the region's most successful companies of 2012, Foster City-based Gilead Sciences (GILD), announced yet more record sales in the fourth quarter.
Revenue in the final three months of 2012 rose 18 percent to an all-time quarterly high of $2.59 billion, the company announced, with profits at 50 cents a share excluding one-time items. Both of those totals exceeded forecasts, which called for profits of 48 cents a share on revenues of $2.43 billion, according to Thomson Reuters.
Gilead's profitable year, which pushed its stock to all-time highs in 2012, was based on strong sales of HIV drugs such as Atripla and Truvada. The company has opportunity for growth with drugs aimed at people with hepatitis C, and the company announced Thursday that trials for those drugs were meeting expectations in trial studies.
Gilead stock fell 2.4 percent in regular trading Monday to close at $39.59, but gained back about 0.3 percent in late trading following the release of its earnings report.
Silicon Valley tech stocks
Up: Netflix, NetGear, Lam Research, Brocade
Down: Facebook, Zynga, Jive, Advanced Micro Devices, Oracle, SolarCity, eBay (EBAY), Apple, Gilead, Google, Yahoo (YHOO), Symantec, Palo Alto Networks, SunPower (SPWRA), Hewlett-Packard (HPQ), Workday, Nvidia, NetApp, Tesla, Applied Materials, Intuit (INTU), Electronic Arts (ERTS), VMware
The tech-heavy Nasdaq composite index: Down 47.93, or 1.51 percent, to 3,131.17
The blue chip Dow Jones industrial average: Down 129.71, or 0.93 percent, to 13,880.08
And the widely watched Standard & Poor's 500 index: Down 17.46, or 1.15 percent, to 1,495.71
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.