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In order to strengthen its communications portfolio, Oracle (ORCL - Analyst Report) recently acquired Tekelec for an undisclosed sum. This is Oracle’s second acquisition in the communication segment after Acme Packet in Feb 2013 for $2.1 billion.

Tekelec provides network signaling, policy control, and subscriber data management solutions for communications networks. Tekelec’s services help in measuring the use of data in broadband and mobile networks. The technology is being used by more than 300 customers across 100 countries, including the likes of AT&T (T - Analyst Report), Rogers Communications (RCI - Analyst Report) and T Mobile.

The combination of Oracle’s existing set of communication services and Tekelec’s services and solutions will deliver a comprehensive solution that will enable service providers to rapidly build and install communications service, improve operational efficiency and control network resources.

Moreover, with the combination of both Tekelec and Acme Packet’s technologies, Oracle is expecting to take advantage of the rapid growth in the use of mobile devices and wireless data management demands from the networking companies.

Year to date, Oracle has acquired 3 companies and we expect Oracle to continue pursuing strategic acquisitions of technology start-ups that can be easily combined with its product lines. These acquisitions will help Oracle to expand its customer base over the long term. The strategic acquisitions will also help Oracle to reduce competition by eliminating rival products going forward.

However, we believe that competition remains stiff for Oracle, which will limit its growth potential going forward. Oracle’s hardware business continues to decline, putting massive pressure on the software side to perform consistently in order to drive growth. In such a scenario, competition from Cisco (CSCO - Analyst Report) in the network communications segment and sluggish IT spending will hurt profitability going forward.

Currently, Oracle has a Zacks Rank #3 (Hold).

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