Oracle, With Virtual Iron Buy, Boosts Data Center Offering

Oracle Corp.'s (ORCL) purchase of a small virtualization company is another signal from the database giant that it wants to be a serious player in the emerging fields of data centers and cloud computing.

On Wednesday, Oracle said it bought Lowell, Mass.-based Virtual Iron Software, Inc., for an undisclosed amount. The acquisition, which had been speculated about for several months, brings Oracle a suite of open-source virtualization tools and virtualization-management software.

The Virtual Iron purchase underscores the increasing importance to Oracle of being able to provide tools and services for data centers - server farms for heavy-duty computing. Though many customers can use this technology to host their data in-house, the move may also suggest Redwood Shores, Calif.-based Oracle is revising an earlier position on "cloud computing," a set of technologies that allow customers to access computing power and data from a computing vendor over the Internet.

In addition to Virtual Iron, Oracle agreed to pay $7.4 billion for Santa Clara, Calif.-based Sun Microsystems Inc. (JAVA), a deal that will give it the hardware specialization it needs to construct data centers for its clients.

Oracle declined to comment on the Virtual Iron acquisition. The company's shares, which are up 2.3% this year and outperforming the S&P 500 index, were down 1.4% at $18.12 in recent trading Wednesday, amid a lower overall tech market.

Buying Virtual Iron gives Oracle a key tool to help companies who are either building data farms or hosting their data offsite and accessing it on a pay-per-usage basis. Virtualization is important because it "tricks" computers into believing they have more computing power than they do, increasing the amount of computing power available on existing servers.

That market is dominated by Palo Alto, Calif.-based VMware Inc. (VMW) and Fort Lauderdale, Fla.-based Citrix Systems Inc. (CTXS). Microsoft Corp. (MSFT) is also competing in the space.

Virtual Iron is a small player with just 1% of the market, according to Jefferies & Co. Its products are aimed at small and medium-sized businesses, a different client base than Oracle typically serves. But the technology is one that Oracle will likely be able to adapt for its bigger clients.

"While small, we believe the purchase of Virtual Iron is very strategic for Oracle," Jefferies analyst Katherine Egbert wrote in a note predating Wednesday's announcement. "It's likely they are buying the asset to improve their prospects in the fast-growing server-management space."

Although corporate technology spending has been squeezed across the board, many observers think this market will be one of the key growth opportunities after the economy recovers.

Chris Wolf, an analyst with Burton Group, says virtualization will increasingly be used not just on servers but on databases and other core applications on which a whole organization depends. Oracle, one of the largest vendors of these products, needs to be able to offer a full suite of virtualization products.

"The trend is towards a modernization of the data center infrastructure and I have no reason to think this has peaked - it's still early on in the cycle," Bob Beauchamp, the Chief Executive of BMC Software Inc. (BMC) said in an interview Tuesday.

-By Jessica Hodgson; Dow Jones Newswires: 415-439-6455; [e-mail]