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Monday, October 02, 2006

Microsoft And Oracle: Who Says Grandpa Can't Dance?


Over the course of the quarter ending September 29, Oracle's stock was up 20.3% to $17.74 and Microsoft's share price rose 16.5% to $27.35. Both were near their 52-week highs.

Big, old software companies were supposed to be dead, run down by smaller more nimble competitors. The evidence was pretty compelling. Oracle traded below its five-year peak of $16.69, reached in January 2002 until it topped that number last month. Microsoft has not been above $28 since November 2004. The stock is approaching $28 again now.

The two companies took very different paths on the road to recover. Oracle largely bought its way back, with acquisitions of companies like PeopleSoft and Siebel to wrest market share from arch-rival SAP. Sales in the quarter ending August 31 rose 30%. Oracle, the world's largest database software company, created scale by taking over rival companies with complementary software. Recent wisdom would say that Oracle's strategy has worked as the company takes share from SAP.

Microsoft has taken another path altogether. Its next big thing will be its new operating system, Vista, created in-house. Microsoft has forecast that its desktop software will bring in nearly $14.5 billion over the next fiscal year, ending in June 2007. Constantly updating the Windows OS is essential to Microsoft's financial health.

Microsoft has also stayed inside the company to creat Xbox and the new Zune multimedia player. In the one case, the company is competing with the market leader, Sony PlayStation. In the other, the market leader is the Apple iPod.

Stock prices that lanquished too long may have been the impetus for radical changes in both companies, but one bought its new home and the other built it.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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