Last modified: March 13, 1998 1:00 PM PST
Warning signs in Oracle's books
The chairman and chief executive of Oracle (ORCL) had predicted that database licensing revenues in the Americas would jump 25 percent, and the company fared even better than that in numbers released yesterday for the third quarter. That performance by the bellwether company, following a particularly dismal report in December, is sure to ease at least some concerns that the database industry is comatose.
But not all of the news was good. Oracle's applications licensing business--an area targeted for expansion that has received most of the company's recent attention--missed its 50 percent annual growth projection, rising 35 percent in the Americas and 30 percent overall. It marked the second consecutive quarter that the business disappointed Wall Street, falling far short of the near triple-digit growth earlier in the fiscal year.
Analysts say this raises questions about Oracle's long-term ability to become a leader in this market. "Their applications business was up 30 percent, whereas their big competitors grew 60 percent. Given that applications is where they are focusing their business, this is concerning," said Jim Pickrel, an analyst with Hambrecht & Quist.
In some ways, the company has only itself to blame for this situation. Given that Oracle is the No. 1 provider of databases, it stands to reason that the company should be able to sell the applications that work with them. But the company has been accused of pressuring applications customers to buy other Oracle products--database software, tools, and middleware--in addition to consulting services, which can get expensive in a hurry.
"They tie themselves so tightly to the Oracle database that, for people who have other databases or don't want to be so dependent on one vendor, that kind of hurts them a bit," said Thomas Berquist, an analyst with Piper Jaffray.
A look at how some competitors have fared shows what he means. PeopleSoft reported a 64 percent jump in fourth quarter licensing income, while Baan and SAP each racked up an increase of roughly 60 percent in 1997 revenues. SAP still dominates the high end, Baan has a strong European presence, and PeopleSoft leads in a lot of the areas outside of manufacturing.
Moreover, partnerships between Oracle and some of these companies make things even more complicated. Oracle supplies database software to SAP and PeopleSoft, deriving a sizable piece of its database server revenue from their sales. As a result, Oracle finds itself in the unenviable position of competing against the very companies it has partnered with.
In addition, many of the its customers had business applications in place long before they bought they bought Oracle's database software--and most are in no rush to trash existing systems that work just fine.
Applications account for 18 percent of Oracle's licensing revenues. The company next month plans to roll out the 11th version of its Oracle Applications suite, which will feature additional Java support and changes intended to make the software more attractive to buyers eyeing competitors' packages.
So where does Oracle stand as it moves into the future?