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Sun Seen Boosting Oracle's Business Immediately

Just as Oracle CEO Larry Ellison promised last January, Sun Microsystems will be a contributor to Oracle's top and bottom lines, eventually raising earnings per share by about $0.15, according to a new financial analysis from UBS Investment Research.

Longer-term, it's still hard to project the overall impact of Sun because its server business was under considerable pressure from competitors like IBM (NYSE: IBM) and HP (NYSE: HPQ). Still, it seems Ellison's assurance that Sun would contribute right away could prove on target.

Oracle (NASDAQ: ORCL)'s second fiscal quarter ended Feb. 26. Because it only had one month of Sun's contribution -- the deal was finally closed on Jan. 27 -- Oracle's revenue will only benefit by about $636 million, according to UBS analyst Brent Thill. (Oracle plans to report its quarterly numbers after the market close on March 25.)

As a result, Sun is expected to have no Q2 impact on earnings per share (EPS). UBS projects Oracle to post revenue of $6.39 billion before taking Sun's contribution into account -- a performance already at the mid- to upper range of Oracle's guidance. A consensus of Wall Street analysts surveyed by Thomson Reuters puts Oracle revenue at $6.36 billion, with UBS estimates pro forma EPS of $0.37, in line with the Street's consensus.

However, Sun has the potential to yield up to $0.15 in EPS if things go very well, according to UBS. Thill believes there is pent-up demand as customers "who held off purchase pending the acquisition move forward," he wrote. "Long-term demand is less certain as Sun's high-end servers were under pressure and future prospects will likely depend on Oracle's revised approach."

For the next few quarters, UBS projects Sun to grow very slowly, bringing in $2.2 billion in the May and August quarters, then $2.3 billion in November, $2.4 billion in February 2011 and $2.6 billion in May 2011. Gross margins would hover around 50 percent with the operating margins at 15 percent.

Oracle acquired Sun at the end of January after a protracted merger that dragged on for nine months. Sun, already a troubled company a year ago, was initially betrothed to IBM but the deal was scuttled at the last minute for reasons never disclosed.

Oracle then moved in, but the deal was held up first by a close inspection by the Department of Justice antitrust division and then the European Union. Regulators gave their approval to the deal in mid-January and Oracle celebrated with a meeting at its Redwood Shores offices with clients to discuss the merger.

At the meeting, Ellison angrily refuted a report by Thill that Oracle would have to cut the Sun staffing by half. The issue of staffing is not addressed in the current report. While there hasn't been talk of major cuts, there have been high-profile departures, including open source veteran Zack Urlocker and XML co-creator Tim Bray, both of whom have resigned.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.