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Oracle Rays of Hope in Market Downturn, OnDemand Strategy

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What would you say about a down quarter (in generally-accepted-accounting-principle--GAAP--terms) and down fiscal year (after adjusting for the 2008 BEA and Primavera acquisitions and early 2009 acquisition of mValent), which is what Oracle announced at market close June 23?

 

The economy is in the tank. IT budgets were slashed after last year's financial crisis broke (and in many cases, even before AIG collapsed). Oracle's large customers in financial services and the automotive industry are either going to jail or begging politicians for bailouts (which is sure to lead to some kind of combination of the two some time in the future). Big projects in both database and packaged application terms are on hold. Middleware is hurting because the developers that use middleware have been laid off. It's time to hunker down and keep the customers satisfied.

 

That's what you say if you are a normal IT company.

 

And that's why journalists and analysts like Oracle.

 

Never content to take the normal boring public relations path, Oracle led its end-of-fiscal-year press release (after all the currency-conversion, GAAP/non-GAAP gobblydegook) with the claim that is beating SAP, even in Europe, and that Oracle's Exadata database is eating Teradata's lunch.

 

The problem with the SAP claim is that it compares SAP's historically worst quarter (the first of its fiscal year) with Oracle's historical best (the last of its fiscal year). The even bigger problem is that the comparison is for only one quarter, whereas annual or trailing-four-quarter comparisons are more meaningful. In fact, from a quick search, it appears that Oracle made the same claim vis a vis SAP at this time last year in its earnings release and then never mentioned SAP again in an earnings-announcement press release. But this sort of claim is the red meat that analysts and journalists can dig into.

 

In addition of course, SAP is quite a bit larger than Oracle in packaged applications revenues in Europe and on a worldwide basis. I do believe Oracle's claim that it is gaining share on SAP in the applications market, however, even as SAP gains share on Oracle in middleware. But that's not an apples-to-apples comparison, either. Most of Oracle's applications revenue relates to a disparate mix of pure-play applications such as Primavera, iFlex and Siebel and disparate ERP architectures such as Peoplesoft, JD Edwards software running on AS/400-iSeries, Retek and classic Oracle ERP software. Most of SAP's packaged applications revenue relates to the tightly integrated descendants of R/3.

 

As for the Teradata comparison, I'll let someone with more business-intelligence/database expertise than I parse that claim. Oracle is also claiming Exadata wins against IBM and Netezza.

 

Overall, Oracle says it maintains a solid sales pipeline. Notwithstanding the down trendline, Oracle had done such a good job of preparing the financial markets for bad news that all the financial analysts questions on the quarterly conference call were forward-looking positives.

 

On the conference call, Oracle founder Larry Ellison opened the kimono a little by explaining how Oracle's OnDemand strategy works as compared to the Salesforce.com (and conventional wisdom) view of OnDemand. Subject to checking the transcript when it is released, I think he said that OnDemand to Oracle invovles three options: the software delivered as a service is in your data center with Oracle running your data center (1) in person or (2) remotely or (3) the software is at an Oracle data center. Most people look at only option 3 as OnDemand and Ellison explained how Oracle's view is a strong advantage against Salesforce.com and others. (Look for a comment below, which I will add after I read the transcript.)

 

If you're an SAP, Teradata, IBM, Netezza or Oracle user with an opinion on how such quarterly earnings announcements and claims affect your IT planning, send me an e-mail or comment.

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