Is Oracle Becoming Invincible?
According to the press release on June 20, Oracle Corporation announced
that in its fiscal fourth quarter adjusted net income increased 76% to
$926 million, or $0.31 per share, while revenue grew to $3.4 billion.
This compares to $2.9 billion in revenue, $527 million in adjusted net
income, and $0.18 per share in Q4 1999. Fiscal year 2000 adjusted net
income increased 61% to $2.1 billion, or $0.69 per share, while revenue
grew to $10.1 billion. Last year revenue was $8.8 billion and adjusted
net income was $1.3 billion, or $0.43 per share (See Figure 1).
the quarter, total net income, which includes investment gains, increased
to $4.9 billion, or $1.63 per share. This compares with $527 million in
total net income, or $0.18 per share in Q4 last year. The investment gains
primarily came from the sale of 12% of Oracle's holdings in Oracle Japan,
of which Oracle Corporation now owns 74%. This equity reduction was necessary
for Oracle Japan to comply with the listing requirements of the Tokyo
Stock Exchange (TSE1).
software sales increased 61% to $447 million in Q4, led by CRM sales,
which grew at a 161% rate (See Figure 2). Database software sales increased
12% to $1.2 billion. Consulting, education and support revenues increased
7% to $1.5 billion.
past quarter Oracle sold more application software than SAP, $447 million
vs. $352 million," said Oracle CEO, Larry Ellison. "Applications Release
11i - the Oracle e-Business suite - hurdled us into the number one position
in the applications software business. Our e-Business suite is the first
complete and integrated set of applications that automate all aspects
of a business. The Oracle e-Business suite competes in marketing with
Broadvision, sales with Siebel, service with Clarify, supply chain with
I2, Internet procurement with Ariba, exchanges with Commerce One, manufacturing
and accounting with SAP, and in human resources with Peoplesoft. So, customers
can buy all these applications from all these different vendors, and then
hire a consulting firm to assemble the different applications and try
to make them work together. Or, customers can buy the Oracle e-Business
suite, where all the applications already work together - on the Internet."
year ago Oracle set out to save one billion dollars annually by using
our own Internet e-Business applications. We did that - and more," said
Oracle Chief Financial Officer, Jeff Henley. "A billion dollars in annual
savings translates to a 10 point improvement in our margins. In Q4 our
operating margin improved 13.7 points - from 27.4% to 41.1% percent. As
we enter the second year of our e-Business transformation, we are beginning
to benefit from the sales and marketing productivity gains that will accelerate
revenue growth in fiscal 2001."
While the statement that Oracle is the most improved ERP vendor within
the last few years would be a dead certainty, the idea of it becoming
the No. 1 applications vendor remains too far-fetched. "One swallow does
not make a summer". Oracle's first quarterly sales numbers greater than
SAP are an encouraging victory for Oracle and disturbing news for SAP
(which, in a knee-jerk reaction, released an abrasively toned rebuttal
press release), but do not represent Oracle's inauguration as the No.
1 ERP vendor yet.
Oracle is surely winning, however, is in its quest to prove a point that
the business application market's move toward e-business and the Internet
is a prerequisite for survival and any subsequent success. To that end,
the company has radically changed its product architecture within a short
time bracket. Three years ago, it was struggling with its fat client architecture,
and had a significant Y2K compliance issue. Today, Oracle has a head start
on most of its competition pertaining to Internet-based applications,
and the company still leads the ERP pack both on product technology vision
Oracle had suffered initial setbacks as it abruptly moved its entire enterprise
product line to the Internet, and was losing customers that were not ready
to buy into the vision, we believe that Oracle's far-sighted strategy
has begun to pay off through increased sales of its enterprise applications,
particularly beyond its core ERP product, not to mention the improvements
in current mind share and market perception.
has also undisputedly succeeded in its declared objective of saving internal
costs by deploying its own eCRM product. It has unified many of its sales
and administrative processes and has reduced overhead by over 44% as a
result. While the aim was to reduce cost by $1 billion, the actual savings
have almost reached double that figure. Would anybody need a better living
proof of what Oracle products could possibly do for another similar global
we believe Oracle will continue to post strong results and generate strong
new sales, its competition will inevitably rebound and become reciprocally
hostile. Oracle will not create many friends with its swashbuckling rhetoric,
and SAP realizes that it needs to change. Its partnerships with Commerce
One and Clarify are a confirmation of a significant shift in its strategy
as it tries to reinvent itself from a large, inert European business applications
software company to an Internet leader, ready to fiercely fight even under
more relentless American rules of the game.
Oracle's 'one-stop' shop mantra is a compelling message, other established
players, such as SAP, J.D. Edwards, and PeopleSoft will not sit still
- they will make every effort to deliver a seamlessly integrated bundle
of point solutions.
It should be irrelevant for users who the biggest vendor is. Both Oracle
and SAP are viable companies and will be around for a long time to come.
Attention should be paid to satisfying customers' unique requirements.
While selecting a strategic software partner is a challenging and risky
undertaking, the positive news is there are more companies competing for
your dollars. We generally recommend including Oracle in an enterprise
application selection long list within the following industries: telecommunications,
utilities, service providers, financial institutions, public sector, manufacturing,
existing and potential users currently evaluating Oracle products, particularly
its eCRM suite of products, will have to decide between opting for the
'one-stop' shop hype (which means integrated suite and possibly sub-optimal
functionality) and considering disparate but fully functional products
from other vendors. Users are also advised to consider both the maturity
and the functionality of the product in their evaluations and make comparisons
to competitive offerings. Any organization evaluating Oracle Applications
should only consider existing functionality.
should insist on a contractual timeframe for delivery of a solution, and
seek reference sites (preferably in their vertical market space), which
have been successful with the product suite. Each eBusiness component
should be put through its paces using a well-documented set of requirements,
scripted scenario demonstrations, and rigorous reference checking. Moreover,
companies within industries for which Oracle has not developed vertical
solutions may want to inquire about impending customization ramifications.