Stalled Oracle Fumbling For A Jump-Start Kit Part 1: Recent Events

Event Summary

On March 27, Oracle Corporation (NASDAQ: ORCL), the largest database provider and one of the largest providers of software applications for e-business, announced it reshuffled the responsibilities of two key executives with a view to revive precipitously dropping sales of its business software applications. Senior vice president Mark Barrenechea will now lead the company's new market development group, which will track installations of the company's applications and will also work with customers and prospects to collect requirements and feed them to the product development department. Barrenechea's goal, the company said, is to make certain that the implementations are successful and that customers become references. Oracle also said that Ron Wohl, the company's executive vice president in charge of building enterprise resource planning (ERP) software, would take on Barrenechea's former duties developing Oracle's customer relationship management (CRM) products and unite those development efforts.

The event comes on the heals of Oracle's March 14 announcement of Q3 2002 revenues of $2.2 billion and net income of $508 million, which represent 17% and 13% respective drops compared to $2.7 billion and $583 million a year ago. Owing to Oracle's efficient cost curbing mechanism however, the third quarter operating margin improved two percentage points to 35% versus 33% the prior year. While new software license sales were down 30% to $777 million from $1 billion a year ago, although software license renewals reportedly grew 5%. Overall even services revenues were down 7%, with support revenues flat with the prior year.

Most portentously however, total license revenue is forecast to fall possibly by half for the company's fiscal year, ending in May 2002. License sales were down in both the applications and the database business across all geographic regions. License revenues from the database division fell 16% to $1.09 billion from $1.29 billion in Q3 2001. Total database revenues fell 17% to $1.62 billion from $1.95 billion a year ago. The fall in database revenues can be attributed to a combination of a decline in the number of major development projects being started at the high-end of the market and stiffer competition from IBMand Microsoft. Oracle is also assaulted at the lower end by open source database packages, particularly MySQL and PostgreSQL.

Further, the applications business was hardest hit, with license sales falling 25% to $276.2 million from $368.6 million in Q3 2001 (See Figure 1 below). This was made more painful is a 49% license revenue drop in the Americas market, while total applications revenues fell by an unpleasant 15% to $612.3 million from $721 million a year ago. The company is also seeing a reduction in size of the contracts - while in fiscal 2001 ~45% of deals were worth more than $0.5 million, that percentage has fallen down to ~35% this year. Unless this freefall is curbed, Oracle could soon face the of being toppled from its number two position in the enterprise applications market by rival PeopleSoft. Only a short time ago, Oracle seemed invincible.

Figure 1:

This is Part 1 of a 4-part examination of recent Oracle announcements.
Part 2 continues the announcements.
Part 3 begins a discussion of the Market Impact.
Part 4 makes User Recommendations.

Countering the Financial News

To counteract the inexorable bad financial news, Oracle has focused on resolving product quality issues. Nearly two years after Oracle shipped its first major release of the Web-based 11i application suite, many customers are reportedly now starting to deploy it in earnest. The momentum behind the 11i suite building, as nearly 1,200 of the 12,000 customers with Oracle applications have deployed 11i and can now be referenced, while nearly 5,000 are in the process of doing so. Enterprises have long been hesitant to proceed with the product upgrade for many valid reasons. First, the Oracle 11i E-Business Suite, which tightly integrates many critical business processes across both front and back office operations, requires customers to replace applications and infrastructure at a time when IT managers are looking to rather consolidate and connect what they already have in place. In addition, the software requires a complex installation, replacing the client/server architecture and character-based user interfaces of the previous releases with a browser-based client. Also, until recently, Oracle 11i was plagued with software bugs and glitches. The issue is now seemingly all but resolved, albeit after six consecutive product upgrade releases, with the result that many Oracle customers are seriously considering deploying 11i.

The current application suite, 11.5.6, has some key advantages over its predecessors, as it offers an ever broader range of business processes and functions, and the thin client will require less maintenance in the long run. No version 12 is planned yet, which is not a big surprise. Oracle touts its E-Business Suite now also offers customers choice and flexibility in implementing business applications, as its open architecture and single data model allow applications to be deployed as individual modules, business flows, or as an entire integrated suite.

Oracle has also gradually been adding new functionality to the 11i suite, most importantly additions centered on the concept of a "Daily Business Close" that allows top management to view key business facts on a daily basis. A set of Business Intelligence (BI) products, support the concept, which is based on the idea of a personalized role-based information portal providing real-time data from processes across the enterprise. Close information includes performance metrics, financial ratios, profit & loss summaries and other indicators that roll up across all application models. Oracle is supplementing the Daily Business Close functionality with a pre-built Enterprise Portal interface that serves as an executive dashboard or as an online daily newspaper about users' business. The data generated from the Daily Business Close module is continuously summarized and displayed in the Enterprise Portal and is viewable by line of business, geography, department or product.

Fundamental to the ability to access and query real-time data is the notion of a single database with a single data model underlying all business applications, creating a so-called "single version of the truth" for all enterprise data. Oracle's Information Architecture - the foundation for the E-Business Suite - consolidates data from multiple sources and delivers it through the Enterprise Portal, and thereby enables Oracle to aggregate data across all applications in the suite to deliver real-time performance metrics. The key component of the Information Architecture platform is its unified data model, which contains a single definition for all common application objects that are accessed by all of the suite's application modules.

Furthermore, a number of additional products were unveiled at the beginning of 2001 as part of the 11.5.6 upgrade. Those products include Enterprise Asset Management, Oracle Customer Online, Oracle Partners Online and CADView 3D. The Enterprise Asset Management module (eAM) is designed to address the maintenance requirements of asset intensive companies by scheduling planned, preventative and predictive maintenance and component tracking tasks for each piece of equipment. The plans can be adjusted dynamically and automatically. The Oracle Customer Online offering provides an online customer repository and management system where businesses can collect, clean and enrich customer data consolidated from disparate in-house systems.

Oracle Partners Online and Oracle CADView 3D are designed to improve collaboration with trading partners. Oracle Partners Online is designed to help companies build, manage, maintain, and strengthen relationships with their channel partners, through the commercial partnering lifecycle. It is the entry point for Partner Relationship Management (PRM) services across the pre-sales, sales, and post-sales inter-company processes. Oracle CADView 3D should allow anyone with a Web browser to participate in collaborative design reviews of 3D Computer Aided Design (CAD) models over the Web. Oracle's streaming technology allows teams to view and mark up any size CAD model over limited bandwidth (56K) network connections and prohibits unauthorized distribution of valuable intellectual property.

New Products

Then in March, Oracle also released Oracle Collections that should allow enterprises to manage the entire collection cycle, from planning collection strategies, to interacting with customers, through managing cash collections. Collections have traditionally been tracked manually, which has been a tedious labor intensive and costly process. Oracle Collections is designed to help companies automatically identify delinquent customers and tailor collection campaigns based on the account history and status of particular clients.

It is the second recently delivered hybrid component that is blurring the line between CRM and ERP, as in February Oracle announced an expansion of its contract management software suite with new applications for Sales Contracts and Contracts Intelligence. Oracle Contracts is a family of applications that should help automate and simplify the creation, negotiation, management and renewal of complex business agreements with customers, suppliers and partners. Historically, contracts have been manually written and frequently customized, requiring a significant amount of human capital to manage the process.

By fully automating the contract negotiation processes, Oracle Sales Contracts enhances the effectiveness of the sales organization and reduces costs through increased contract renewal rates, improved order accuracy and compliance with regulatory guidelines. Contract negotiations are streamlined and improved forecasting augments up-sell and cross-sell opportunities. Oracle Contracts Intelligence provides executives with "Daily Business Close" information by converting transactional data into key business metrics, enabling executives to manage by facts. Companies using Oracle Contracts Intelligence can increase the accuracy of their business decisions and make more precise revenue forecasts based on up-to-the-minute, global information. The Oracle Contracts product family allows companies to automate and standardize business processes and more efficiently keep track of the status of sales orders, expiration dates, payment histories and other critical contract information.

This concludes Part 1 of a 4-part examination of recent Oracle announcements.
Part 2 continues the announcements.
Part 3 begins a discussion of the Market Impact.
Part 4 makes User Recommendations.

comments powered by Disqus