Oracle Claims The Worst Is Over And Turns To KISS For A Boost Part 1: The News

Part 1: The News
P.J. Jakovljevic - July 10, 2001

Event Summary 

In June Oracle Corporation (NASDAQ: ORCL), the largest database provider and one of the largest providers of software applications for e-business, unveiled a new suite of online services aimed at capturing the small business market. It also announced changes to appeal to its larger customers, as well as its quarterly financial results.

This is Part One of a three-part article on recent Oracle announcements. This part contains the details of the announcements; Parts Two and Three will discuss the Market Impact, with User Recommendations based on this news in Part Three.

For the Small Business Market 

On June 26, Oracle unveiled a new suite of online services aimed at capturing the small business market. This new suite, called the Oracle Small Business Suite, is powered by the award winning NetLedger product (which is 55% owned by Oracle's CEO Larry Ellison), and provides small companies, with typically less than 100 employees, an integrated, easy-to-use suite of hosted application services that manage key business processes, including financials, customer relationship management (CRM), purchasing, and e-commerce.

Oracle touts that small companies no longer need to use several disparate applications to manage their business, since with the Oracle Small Business Suite, all operations are managed centrally, and are available to users via the Internet. Further, because the applications are being delivered as an online service, there is no hardware to procure, no large, up-front license fees, and no complex set-ups. Customers can be up and running on the Oracle Small Business Suite in a matter of minutes, according to the company.

The Oracle Small Business Suite is available immediately at an introductory price of $99 per month. The new service is available through Oracle.com, Oracle's online services business, extending Oracle's online service business to all market segments. Currently the Oracle Small Business Suite is available in English, and supports US and Canadian tax requirements. Future versions are planned to support global users. This is yet another of Oracle's attempts in its "war on complexity" that surfaced during its user conference in February.

For Oracle's Larger Customers 

In addition to expanding its hosting services to smaller enterprises, and in order to boost demand for its hosted services, Oracle also tried to appease its larger customers. These will finally be allowed to host applications on their own servers as a part of Oracle E-Business Suite Online Any Place program. The new offering is designed to make application hosting more appealing to users who do not want important business data to be stored on systems that they do not control, according to Oracle. Now, customers can either go the traditional ASP route, or buy certified, pre-configured servers from Sun Microsystems or Compaq Computer Corporation. Oracle also pledged to work in the future with a number of new partners (hardware makers, data center providers and telecommunication companies) to host, manage and distribute services via the Internet as a part of the Oracle Online Partner Network program.

Also, at the beginning of June, Oracle announced its plans to host the e-Procurement application called Procure-to-Pay. Oracle guarantees the implementation in 30 days, with the price tag of approximately $235,000 to install and operate for the first year. Afterwards, Oracle plans to charge a $5 fee per purchase order line, with a minimum of 5,000 lines per year. The product will offer pre-sourced catalogs, requisitioning, purchasing, invoicing, receiving, and will also provide reconciliation/settlement services, and group buying from WorldCrest. Other similar offerings that were unveiled earlier in the year and are based on Internet Business Practices or FastForward Flows with catchy names and possibly attractive benefits are CRM in 90 Days and Supply Chain Now.

To simplify and modernize business, Oracle recommends companies should 1) consolidate data, globally, 2) automate and integrate all core business functions, and 3) change processes not software. In other words companies must "centralize, transform and simplify" their businesses in order to implement applications in a "plain vanilla" manner.

Quarterly Financials 

The latest initiatives came less than two weeks after the company announced somewhat disappointing results. On June 18, Oracle announced that Q4 2001 income was $855 million, an 8% decline compared to $925.9 million (excluding investment gains from sale of marketable securities) in Q4 2000, on revenue of $3.3 billion, which is a 3% decline compared to $3.4 billion a year ago. For the full fiscal 2001, however, net income (excluding investment gains from sale of marketable securities) increased 25% to $2.6 billion, while revenue increased 7% to $11 billion (See Figure 1). Software license revenue declined 10%, to $1.6 billion, from $1.8 billion in Q4 2000. Particularly disappointing was an applications software revenue decline of 24% to $338 million from $447 million in Q4 2000 (See Figure 2). Nevertheless, the annual applications license growth was at a satisfactory 11%, although significantly less compared to 42% a year ago.

Figure 1.

Figure 2.

Nevertheless, Oracle executives remain cautiously optimistic, saying the worst may be over. "While the economy slowed our sales growth, we still managed to increase profits and improve margins to record levels this past year," said Oracle CFO, Jeff Henley. "That's a pretty good financial result in this difficult economic climate."

"Our technical accomplishments this year position us for accelerating sales next year," said Oracle CEO, Larry Ellison. "We introduced Applications Release 11i -- the E-Business Suite -- just 12 months ago. In those 12 months more than 400 companies have gone live and are running their businesses using the E-Business Suite. In one short year the E-Business Suite has completed the transition from untested idea to proven technology. Our references are a who's-who of global business. Several General Electric divisions use the E-Business Suite for Internet procurement, supply chain automation, manufacturing, accounting, and customer relationship management. One major GE implementation took less than 6 months and required not a single modification to Oracle software. Hewlett-Packard implemented sales force automation for more than 2,000 sales reps in 30 countries. Alcoa, Boeing and Ford went live with no software modifications. BellSouth automated 10,000 call center agents. Cap Gemini and Westpac and Cathay Pacific went live globally. And Sony Electronics took just 45 days to implement supply chain automation. Well, that's 10 of the more than 400 customers running their businesses on the E-Business Suite. Not bad after just one year in the market."

This concludes Part One of a three-part article on recent Oracle announcements. Parts Two and Three discuss the Market Impact, with Part Three adding User Recommendations.