Riding on Oracle and RIM's coattails

Shlomi Cohen

Oracle's duo of Larry Ellison and Safra Catz have proved again that they have the magic formula for making large acquisitions work.

The month of September, infamous for poor stock market returns, continues to pleasantly surprise. As of the end of last week, Nasdaq was up 9.5% for the month.

Two technology giants who reported results last week, Oracle (ORCL) and Research in Motion (RIMM) distanced investors from fears of a double dip recession, because even the word slowdown wasn't mentioned by either one. With Oracle, analysts competed for superlatives to describe one of the best quarters ever seen at the firm, despite the acquisition of Sun Microsystems, which had worried them a lot.

The duo leading Oracle for many years already, CEO Larry Ellison and former Israeli, CFO Safra Catz, proved again that they have the magic formula for making large acquisitions and optimally integrating them in a short time.

In contrast, at Research in Motion, nearly all analysts believed that despite better than expected results, and despite its strong growth and its profitability, the problems of Nokia were expected to infect it sooner or later, so many of them recommend distancing from the stock, which did not respond to the good results.

The two giants have a strong connection with two Israeli companies whose shares I hold in my portfolio tracked by "Globes" - Marvell Technology Group (Nasdaq: MRVL) and Mellanox Technologies Ltd. (Nasdaq:MLNX; TASE:MLNX).

Instead of buying Research in Motion shares on Friday, investors jumped on its processors supplier, Marvell, as an indirect way of profiting from strong growth at Research in Motion.

Marvell ended Friday at nearly $18, compared with less than $14 only about a month ago, when investors fled because of fears of weakness in the disk processor market, which over the years accounted for about half its sales.

In the past month, with the release of Marvell's results, it became clear to investors that the weighting of the disk processor sector fell to 40% of total revenue, and that the cellular and wireless chip niche is growing quickly, and becoming a significant part of its overall sales. It's happening because, among other reasons, of the strong growth in Research in Motion's Blackberry devices, most of whom come with Marvell processors.


Mellanox has a direct connection to one of Oracle's strongest growth engines, about which Larry Ellison spoke quite a bit with analysts after the release of results: data storage platform Exadata. It’s a platform that became a hit based on Sun hardware, and at its base is Mellanox's Infiniband technology for fast communications.

According to Ellison, the orders backlog of the platform grew quickly, and today is at $1.5 billion for the current fiscal year, which makes it a "giant deal for us".

Ellison noted that new systems based on Sun hardware will be launched this week at Oracle's annual conference in San Francisco, and I assume that Mellanox will also have announcements at the conference.

It pays to take part in conferences

The massive participation by Israeli companies in investor conferences that took place recently in New York did wonders especially for two shares which I hold in my portfolio here. AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC) jumped 28% in very large turnover, and Ceva Inc. (Nasdaq:CEVA); LSE:CVA) hit a new 52-week high at two cents shy of $14.

There are more than a few Israeli companies with unique technologies whose profit multiples are low, and whose business is seeing impressive growth, but the problem is that they are not exposed to the US institutional investor market, because analysts don't cover them. Audiocodes is one of those companies. Just before the recent run-up, it was dropped by the last large bank analyst who covered it in recent years, Vivek Arya, who works with Tal Liani at Banc of America Securities-Merrill Lynch Research.

The bank did not say why the coverage was dropped, but from what Arya wrote in the past year, I understood that while he warmly recommended the share, he was very frustrated by the fact that the company did not have US institutional investors - or in other words, that he did not succeed in interesting them, and so he abandoned the company.

In my opinion, the only reason for the rise last week was the fact that the company's management, which was in New York for the conferences, succeeded to bring some large institutional investors to invest in the share. Founder and CEO Shabtai Adlersberg had what to sell them, in terms of leading technologies and impressive growth numbers. When you see turnover of 350,000 shares on Yom Kippur eve, and a rise to a $3.70 per share price, it's clear that you're talking about mostly US activity.

Ceva management, led by CEO Gideon Wertheizer, also did good work. Investors got the sense that in the short term, the company will not have a problem meeting market forecasts in light of its many revenue-generating licensing deals. In the medium term, between the fourth quarter of this year and the second quarter of 2011, the company is expected to increase revenue significantly from Nokia's new launches, based on chips of Ceva's customers. In the long term, beginning in 2012, there will be a jump in revenue from licensing deals that were signed, and will be signed, for Ceva chips, which will be integrated into 4G devices.

Published by Globes [online], Israel business news - www.globes-online.com - on September 21, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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