Oracle Sails Slower In The Low Tide, But Mayday Signal Is Quite Far-Fetched
Oracle Corporation, the largest database provider and one
of the largest providers of software applications for e-business, said
on March 20 it plans to cut 866 jobs, or 2% of its workforce, in an attempt
to reduce costs amid a slowing economy. As it warned earlier, Oracle posted
Q3 2001 results below original expectations.
March 15, Oracle announced that third quarter income increased 16% to
$583 million, while revenue grew to $2.7 billion, a 12.5% increase compared
to $2.4 billion in revenue Q3 2000. Application software sales increased
25% to $249 million while database software sales grew 6% to $823 million.
Service revenue increased 12% to $1.5 billion for the quarter. On a less
optimistic note, application license revenue dropped 10.7% to $249 million,
while applications service revenue dropped 5% to $471 million, compared
to $279 million and $497 million respective revenues in the previous quarter
(See Figure 1).
Oracle remains moderately upbeat as it claims over 3,000 customers in
the process of implementing the 11i E-business suite, while
more than 210 of those customers have already gone live on 11i applications.
Also, the company touts that this past quarter, hundreds of additional
companies have committed to the E-business Suite including Healthsouth,
Cisco, Qwest, Americredit, Ciena, and McGraw
application implementation is the key to customers getting a quick return
on their software investment," said Oracle CEO Larry Ellison. "Oracle
applications are ideally suited for rapid implementations because our
E- business suite is complete and integrated - no application customizations
are required. Customers can begin selling more with our Global
CRM in 90 days, and spending less with our Internet Procurement
in 30 days. No other applications can be implemented so quickly and inexpensively.
Rapid application implementation is important in this economic climate
because companies focus on projects with a rapid ROI."
U.S. economic downturn over the past several months clearly affected our
revenue and profit growth more than we anticipated, due to a sharp downturn
in completed transactions in the last few days of the quarter, and the
current economic uncertainty continues to limit our visibility going forward,"
said Oracle CFO Jeffrey O. Henley. "However, we are proud of our ability
to achieve 33% operating margins in the quarter, resulting in a 2 percentage
point improvement compared to last year. Our ongoing efforts to improve
our cost structure over the past two years have positioned us well to
weather the current economic storm. Looking ahead, we plan to tightly
adhere to the e-business cost reduction plan already in place, which hopefully
will allow us to maintain our improvements in productivity and efficiency
despite a difficult environment."
Oracle Corporation remains one of the fastest growing and the most respected
(or feared) software companies, with an impressive profitability track
and a stellar balance sheet. However, the slowing of its profits cannot
be denied, and the 64,000 dollar question is whether this is completely
attributable to the slowing economy, or the problems run deeper than that.
Perplexing was the company's misjudgment of applications' growth, which
turned out to be less than a half of the preliminary expectations.
only recently, Oracle seemed complacent and unscathed by the economic
slowdown affecting most of the market, justifying it by the fact that
enterprises have still been dedicating IT budgets to create their e-business
infrastructure, including trading exchanges, SCM and CRM systems, where
Oracle remains a major player (see Oracle
Sails Despite Market's Low Tide; How Far Will It Go?). The tune was
abruptly changed immediately before the Q3 announcement and the blame
was mainly pushed onto the slowing US economy, which left many shaking
their heads and wondering where the truth lie.
truth usually lies in the middle. It was somewhat nave not to expect
the slowdown to affect Oracle's revenue, particularly given that its products
had a very good acceptance among dot-com startups that are now going out
of business in droves. On the other hand, it is even more nave to believe
that the economy is the only reason to blame. Companies that sell strong
e-business products that should solve supply chain inefficiency or improve
customer relationship management should indeed be prodded if they hold
the economy responsible for their underperformance. Recent positive announcements
by some of the companies that compete in the same space, like Manugistics
or IFS, speak in that regard.
e-business and the Internet likely maintaining the enterprise applications
market's growth and given Oracle's international diversification, we expect
Oracle's further growth to continue. Still, its future also remains burdened
with challenges. In the past, Oracle has miraculously been able to deliver
just enough product functionality in time to continue to sail the latest
Oracle has a reputation of releasing unstable software to early adopters,
relying on them to indicate the bugs and request patches afterwards, which
would in turn provide for more reliable subsequent releases to other users.
The 11i product release was no exception - over a few thousand of patches
have been reportedly requested by early customers and subsequently released.
Ironically, the latest product release, 11i.3, while perceived as stable
and much improved over its previous incarnations, may suffer from the
bad timing of the release. Namely, the customers' weariness and wait-and-see
attitude may have been exacerbated by both economic slowdown and bad publicity
of early 11i installations/migrations.
Oracle may have rounded up an unrivaled portfolio for almost all aspects
of e-business, it may also have overstretched itself by trying to be "all
things to all people". "The lone warrior" stance has put it on a collision
course with a number of formidable competitors, particularly in the promising
e-business space, such as the duo of SAP and Commerce One
and the number of strong niche players like Siebel Systems,
i2 Technologies, Manugistics, PeopleSoft, and Ariba,
which have also seen strong demand for their products. The competition
in the database space against IBM and Microsoft remains
fierce too, while Microsoft also joins the slew of competitors in the
applications market with its acquisition of Great Plains.
'one-stop' shop mantra should be a compelling message, especially in the
lower-end of the market. We were made aware of Oracle's success within
the mid-market with its Fast Forward program. The fact that the first-time
Oracle users experienced smooth 11i implementations may be encouraging
for other prospects, too. Further, the tight integration with the native
Oracle database where all configuration data, user fields modifications,
etc. are stored, should facilitate upgrades. Also impressive is search
capability throughout the entire suite and the availability of native
business intelligence and data warehousing tools. However, as other established
players will have made every effort to deliver integrated hybrid bundles
of best-of-breed point solutions, it is unlikely that the high-end of
market is going to buy Oracle's integrated solution mantra - flexibility
is the word more valued in this environment.
fact remains that most of Oracle's potential large customers have already
invested in other solutions for some parts of their overall business requirement;
most of them also have a significant man-hours of legacy code in place
that they do not want to throw away. Even in an unlikely scenario of these
customers deciding to replace existing components with Oracle's, Oracle
would face a challenge of integrating with other vendors' software.
Oracle consultants do not have expertise in integrating Oracle applications
to other 3rd-party and/or legacy products, and Oracle even recently pleaded
with its customers to refrain from any customizations and to rather wait
for these features in future product releases. This conspicuously resembles
SAP's arrogant attitude during its complacent period of mid 1990s. Now
that it has abandoned that attitude, realizing its inappropriateness in
the current market, SAP seems to have regained its once stalled momentum,
with mySAP.com contributing the lion share of the revenue (for more information,
Defies Economic Slowdown, For Now). Thus, Oracle has to be willing
to be more flexible and humble in terms of increasing its products' openness
and of reducing module interdependencies if it is going to succeed in
obtaining lucrative consulting projects. It should also attempt to be
more accommodating towards potential customers in terms of providing them
with 3rd-party and/or legacy applications integration and with certain
levels of customization.
Oracle' offering still has not achieved the maturity and depth of more-established
niche CRM, SCM and e-business vendors such as Siebel, i2 and Ariba. The
same holds with providing a significant number of reference sites where
the notable range of 11i modules has been implemented. The merit of functionality
gains even more importance here given that Oracle is only the leader in
the database market; the only way it can overtake SAP's, Siebel's, Ariba's
or i2's mind shares in their respective ERP, CRM, e-procurement, and SCM
markets is through superior functionality, which has yet to happen. And,
by being reticent to collaborate with more nimble software companies,
a large vendor such as Oracle can and will lag months or years in terms
of innovation and leading edge products or ideas.
should 11i.3 demonstrate maturity and should Oracle start orchestrating
its product releases in smaller, more manageable chunks and improve relationships
with system integrating and consulting partners, Oracle's prospects will
continue to be rosy, although less glowing for some time to come. Look
for Oracle's more aggressive 'the turnkey e-business' message in the future,
as it will strive to keep application sales rolling.
Potential and current Oracle users can rest assured about its viability
and market position. The company disposes with gigantic resources and
will be around for a long time to come, as opposed to a number of its
smaller competitors. The scope of Oracle offerings is attractive and compelling
at first sight as an e-business provider must be able to address all major
aspects of a company's business. Therefore, ask every vendor in the selection
process to demonstrate its ability to deliver functionality within your
business environment, not in an ideal conference room world where everything
works well on the vendor's proprietary technology.
reported improvements in 11i stability, beware of possible functional
gaps and implementation issues. Existing users of earlier Oracle's systems
should diligently inform themselves about their peers' experiences. Potential
customers should vigorously demand a reference site with a similar company
profile. In any case, insist on a service level agreement that will unequivocally
spell out either Oracle or its implementation partner as responsible for
fixing any glitches.
comprehensive recommendations for both current and potential Oracle users
can be found in Oracle
Applications - An Internet-Reinvented Feisty Challenger.