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Oracle Passes IBM to Become World’s No. 2 Software Company

Douglas A. McIntyre

Oracle Corp. (ORCL) CEO Larry Ellison will use just about any excuse he can to brag about the company he founded. He discovered a new path, as Oracle used International Business Machines Corp.'s (IBM) earnings release to claim that the century-old corporation had fallen to the number three spot in global software sales. If so, that would mean Oracle now holds the number two spot behind Microsoft Corp. (MSFT). The change in positions says a great deal about the power of Oracle's enterprise customer base and the erosion of some of IBM's core businesses.

Oracle management wrote:

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Given IBM's recently announced quarterly results, we would like to take this opportunity to point out that Oracle's software business has been growing faster than IBM's software business and now Oracle has moved up to become the number 2 software company in the world while IBM has slipped to number 3.

Over IBM's last four quarters, they reported software revenue totaling $25.7 Billion, while during Oracle's last 4 quarters, we reported software revenue totaling $27.8 Billion.

IBM Software and Oracle Software (in millions): ORACLE Q2'13 Q3'13 Q4'13 Q1'14 LTM GAAP $6,649 $6,672 $8,428 $6,084 $27,833 IBM Q4'12 Q1'13 Q2'13 Q3'13 LTM External $7,915 $5,572 $6,423 $5,798 $25,708

In the most recent quarter, IBM's revenue dropped 4% to $23.7 billion from the same period last year. Software sales also performed badly:

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Revenues from the Software segment were $5.8 billion, up 1 percent (up 2 percent, adjusting for currency) compared with the third-quarter of 2012. Software pre-tax income increased 2 percent and pre-tax margin increased to 36.8 percent.

While what Oracle says may be true, a large portion of its growth has come from M&A, a process that Ellison has mastered. Based on years of results, he is as good as any large company CEO at integrating new businesses into the parent.

So, Ellison's claims may have an asterisk next to them. To IBM and Oracle's other competitors, that does not matter. Oracle is beating their brains out.

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