"Oracle (NASDAQ: ORCL) has fattened itself up by swallowing more than 50 companies in the past five years," says Richard Moroney.

In Dow Theory Forecasts, he suggests, "Oracle has proved itself capable of delivering predictable earnings even during tough times by squeezing higher returns out of its assets, including those inherited via $35 billion worth of acquisitions over the past half-decade."

"While some fear the software giant is choking on its latest meal, Sun Microsystems), the deal makes sense operationally. CEO Larry Ellison appears to be targeting Sun for at least two reasons: 

"First, the deal will augment Oracle’s services business, which tends to be less economically sensitive than its other units. Second, it could transform Oracle into a complete provider of the technology systems required to run big corporations.

"The Sun deal was originally expected to close in August but still awaits regulatory approval from the European Commission, which might not come until January. The EC cites 'serious concerns' in its review of the deal.

"One hesitation lies with Sun’s MySQL, a smaller, nimbler version of the database Oracle sells to large corporations. Most MySQL users employ a free, basic version of the software, with a few purchasing licenses for commercial use. 

"Critics warn Oracle could charge more for the software, which generates annual sales of about $50 million.

"European regulators will likely grant approval eventually, perhaps on the condition that Oracle sell or spin off MySQL, moves Oracle says it won’t consider. Sun bought MySQL for roughly $1 billion in early 2008, and Oracle would have trouble getting that price today.

"The deal would boost Oracle’s annual sales by roughly $14 billion to about $36 billion, more than doubling the size of its services segment (to $9.9 billion in annual sales) and adding new units that sell servers ($6.3 billion) and storage systems ($2.4 billion).

"Sun’s prize jewel is its popular programming language Java — and the royalties it collects from computer manufacturers and software developers. 

"Control of the programming language would help Oracle streamline a somewhat jumbled software portfolio amassed through acquisitions.

"Meanwhile, in September, Oracle introduced the fruit of its first collaboration with Sun. Built with Sun hardware, database machine Exadata 2 handles online transactions and data warehousing at twice the speed of its predecessor, according to Oracle. 

"Oracle’s operating results have held up better than those of many rivals over the last year. At 14 times trailing earnings, Oracle trades at a 30% discount to its three-year average P/E ratio and 21% below the industry average, cheap for a market leader with the potential to outperform expectations."