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Insight Focus Latest on Oracle and Retek  Read all about it |
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Just what sort of company is Retek to inspire such chest-beating from two of software's biggest gorillas?
The Minneapolis-based software company specialises in complex business systems for retailers, offering programs that help big chain stores, including Gap and Best Buy, to handle merchandise. Specifically, the programs assist retailers with decisions about how much merchandise to order and how to distribute it among their various outlets. They also help keep tabs on inventory once it's in stores.
Retek is a leader in this niche, but it faces a slew of new hot-shot competitors that sell related technology, such as sophisticated tools for managing discounts and specials. It also struggles with the fact that big retailers are conservative in adopting information technology and typically demand lots of special treatment from their software suppliers, which has been a drain on profits.
Oracle and SAP certainly aren't chasing Retek because it's a profit machine. Its profit margin last year was just 4.7 percent -- a paltry sum for a software company and a big reason the company is on the auction block. Its revenue was just more than US$174 million -- a drop in the bucket for Oracle and SAP, which each bring in billions of dollars a year.
Other assets enticed SAP and Oracle, including Retek's enviable list of marquee retail customers. In addition to Gap and Best Buy, it includes Abercrombie & Fitch, Nordstrom, Radio Shack, Britain's Sainsbury's, Tesco in Germany and Sears, Roebuck.
That's a big draw, particularly for Oracle, which supplies some of these companies with database technology but not a lot of application software, analysts said.
"Oracle's merger and acquisition strategy ... it's not as simple as saying, what is the thing that Oracle has to have?" said Tad Piper, securities analyst at Piper Jaffray. "It is equally driven by gaining customers that they don't already have access to."
Oracle pursued PeopleSoft, the rival it acquired in January, for that reason. Its products largely overlapped with Oracle's, but PeopleSoft supplies software to thousands of multinational companies that Oracle sought as clients.
Retek has another thing going for it. Analysts expect retailers to ratchet up their software consumption soon, after a long stretch of relatively flat spending. While other industries gorged themselves on information technology during the Internet stock boom and have since cut back, retailers have yet to come to the table. Software makers are eyeing retail, which spends about US$10 billion annually on their wares, as an untapped opportunity in a sea of satiated buyers.
"Retailers have generally underspent on technology in the last few years; they didn't overspend like other sectors did," said Peter Coleman, a securities analyst at ThinkEquity Partners. "So they're on the beginnings of a fairly significant upgrade cycle."
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