Na dann besteht ja noch Hoffnung :-)
Getting to the Point On Oracle
Last week, Oracle was plagued with rumor and error. The company remains a database powerhouse, however. Much of the speculation regarding slowing applications sales comes warranted. Oracle is banking on businesses jumping at the chance to purchase all of its applications under one umbrella. The near-term barrier to adopting the end-to-end solution is that many companies have spent million of dollars buying expensive applications from niche providers. Yet, over time it's likely businesses will slowly gravitate toward a full suite of applications.
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Oracle
By Mike Trigg (TMF Tonto)
November 7, 2000
Last week was plagued with rumor and error for the world's largest database and software company, Oracle Corporation (Nasdaq: ORCL). Although much of the speculation regarding slowing applications sales and its end-to-end e-business solution is warranted, conjecture regarding death and retirement of upper management is quite the contrary.
Buzz began Thursday that CFO Jeff Henley resigned and CEO Larry Ellison kicked the can. The company gave no such guidance. But when a trade at $22.25 per share -- representing a $50 billion decline in market capitalization -- hit the Nasdaq, the appearance of authenticity gave way. However, that trade ultimately was attributed to clerical error, with someone apparently entering the wrong price. Nevertheless, the stock was down 9% prior to the miscue, and the false trade certainly didn't help.
Where does this stuff come from?
Once the rumors were refuted and the erroneous trade cancelled, the stock began to pick back up, regaining nearly half of what had been lost, on a day the Nasdaq was up nearly 3%. Still, the damage had been done. Quickly examining some of the causes for all of this, I found a Forbes article that quoted an analyst speculating the rumor of Henley's departure could, in part, be attributed to his recent purchase of a multi-million dollar home in Santa Barbara, California. "That's a lot of house for somebody that doesn't live in Santa Barbara," the analyst adds.
Further, speculation was rooted in the CFO's recent decision to sell 500,000 Oracle shares for roughly $18 million. Despite being a small portion of his overall holding and in-line with his history of regularly selling option shares, it was more gasoline wrongly fueling the rumor fire.
One must even search harder for a plausible reason to suggest the second-richest man in the world had died. I can only speculate that Ellison's leisure pursuits, which include trying to buy a Russian MiG for $20 million and speed-racing his 78-foot carbon-hull sailboat named Sayonara, forced someone to think he had attempted to live out real life versions of films Perfect Storm and Top Gun.
Of course, the financial media gave life to this erroneous information, later blaming discussion boards and chat rooms for spreading the tales. Meaning, investors were provided with "report first, refute later" tactics, rather than insightful reactionary reporting dispelling the overtly apparent bogus tales. In the end, the day's reports coupled with the recent onslaught of Oracle press releases -- which feature exaggerations ranging from claims of customer relationship management (CRM) supremacy to leading the business-to-business (B2B) evolution -- left this Fool clamoring for commentary discussing the company's business model and e-business suite.
The important stuff
Arriving back at work Friday morning, I noticed a Lehman Brothers research note titled "Six Slices of Bologna about Oracle." The first two slices refuted the untimely departures of Larry Ellison and Jeff Henley, perhaps that spurred its creation, but the rest dealt with Oracle's alleged slowing database and applications businesses, and the likelihood Oracle would miss earnings come mid-December. Alas, a Fool's heart content.
The note appears right on the money regarding the bread-and-butter database business, citing the Sun Microsystems (Nasdaq: SUNW) relationship and competitive environment as causes for optimism. Sun is a major software partner of the Redwood City, California-based company, and the server appliance vendor reported revenue growth of 55% in the recent quarter, boding cheers for Oracle.
After reporting database revenue growth of 32% in the recent quarter, Oracle's management stated no deals were lost to Microsoft (Nasdaq: MSFT) and only a few to IBM (NYSE: IBM). The growth reaffirmed Oracle's dominant position in the segment after reporting 12% growth in the previous quarter, due to a one-time restructuring of the sales force.
Thus, the note reaffirms earlier company guidance and dispels speculation concerning lost market share, referring to Big Blue's success on the RS/6000 platform, but its lack of presence elsewhere. Also, it notes Oracle's use of Web-based sales and distribution to take down Mr. Softy in the low-end market. Plainly spoken, the company still boasts 60-70% market share and customer relationships remain intact. Every company will lose a few deals over the years and there has been no sign of a changing trend.
The application business
Lehman also portrays a bright near-term outlook for Oracle's applications business, calling for 60% growth in the second quarter. However, in the recent period growth was light at 42%. The company cited a long sales cycle for its end-to-end 11i suite and a historically weak seasonal first quarter. This remains Oracle's best long-term opportunity for growth. However, questions regarding adoption rates and management guidance lead me to question not the demand for the solutions, but near-term success.
There has been much reported on Oracle 11i, the end-to-end solution that will save businesses time and integration expense. Oracle is banking on businesses jumping at the chance to purchase all of their applications under one umbrella. The near-term barrier to adopting the end-to-end solution is that many companies have spent millions of dollars buying expensive applications from niche providers--like Siebel Systems (Nasdaq: SEBL), SAP (NYSE: SAP) and i2 (Nasdaq: ITWO) -- and are unwilling to abandon those investments.
Yet, over time it's likely businesses will slowly gravitate toward a full suite of applications. The near-term affect of this market behavior has been slower-than-expected applications growth and customers picking and choosing applications one by one. That shouldn't be a big deal long-term, after all once getting a customer in the door it should be easier to sell additional applications over time.
However, investors are no longer provided with sales figures regarding specific applications, making it nearly impossible to gauge the company's ability to steal market share from the pure-plays. Motley Fool Research Analyst John Del Vecchio commented one this very subject in his Oracle Earnings Report, noting Ellison failed to break out customer relationship management (CRM) sales growth during the quarter, unlike before, suggesting the company is less optimistic about its success in the space.
Thus, there are important questions regarding the future of Oracle. It's a shame the company's beleaguered with the rumor of death and retirement and criticism of its CEO's ego. All the same, its end-to-end strategy is intriguing long-term and should prove successful as businesses slowly come calling. The only question is whether or not it will happen quickly enough to satisfy investors and the Street's expectations.
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