Oracle's New Solaris 11 for Cloud

Oracle Corp. (ORCL - Analyst Report) recently launched Solaris 11, which is claimed to be the first operating system completely dedicated to cloud computing. The updated version of Solaris has been specifically designed to address the security, performance and scalability needs of all types of cloud, vis-à-vis private, public or hybrid.

Solaris is a UNIX operating system originally developed by Sun Microsystems that fell into the hands of Oracle after the latter acquired Sun in January 2010. The new updated version is the maiden fully virtualized operating system that can be integrated with Oracle VM for both X86 and SPARC based systems. Oracle VM server is a free server virtualization solution that makes enterprise applications easier to deploy, manage and support. 

Solaris 11 helps customers to deploy even their most demanding enterprise applications in any type of cloud smoothly and also at a considerably lower cost than other systems (reduces storage cost by 10 times), due to the integration of file de-duplication and encryption features, part of the Zettabyte File System (ZFS), and an add-on for Solaris 10 into Solaris 11.

Solaris 11 can also be upgraded to hundreds of zones per physical node at a 15 times lower overhead than VMware Inc. (VMW - Snapshot Report), a company renowned for its virtualization solutions.

Oracle has said that Solaris 11 is already in production at over 700 top companies around the world and deployed across thousands of Oracle's ZFS Storage Appliances, as well as the Exadata Database Machine and the Exalogic Elastic Cloud engineered systems. We believe this high level of adoption reflects strong demand trends from a rapidly growing cloud computing market.

According to research firm IDC, cloud services are moving from early adopter stage to a core part of the new mainstream. IDC forecasts that approximately 80% of new software offerings would be available as cloud services by 2014 and over one-third of software purchases would be through the cloud. Most importantly, public and private clouds are expected to drive 15% of IT spending, growing at four to five times the rate of the overall IT market.

According to research firm Forrester, cloud computing is expected to increase from approximately $41.0 billion in 2011 to $241.0 billion in 2020, while another firm Gartner projects revenue of $148.8 billion by 2014, higher than Forrester’s forecast of $118.7 billion for the same period.

We believe that the new Solaris operating system will boost Oracle’s market share going forward. The updated version is also expected to provide a competitive edge to Oracle over the likes of International Business Machines Corp.’s (IBM - Analyst Report) AIX system and Hewlett-Packard Co.’s (HPQ - Analyst Report) UX 11i systems, in terms of attracting enterprise customers going forward.

However, we also note that Oracle is a late entrant in the cloud computing space compared to some of its more illustrious peers such as Salesforce.com and Microsoft Corp. (MSFT - Analyst Report) and although the company has successfully resorted to acquisitions for growth in this market, we expect Oracle to face tough competition over the long term.

We remain Neutral on a long term basis (6-12 months). Currently, Oracle has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.

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