Oracle rating cut, Jefferies cites challenges

Analyst cites threat from SAP and software-as-a-service trend. Shares of Oracle Corp. fell Monday after a Jefferies&Co. analyst downgraded the business software company, pointing to the quickening shift to the so-called software-as-a-service trend as a looming competitive threat.

The stock moved back below the $30 mark after analyst Ross MacMillan cut his rating to hold from buy on Oracle ORCL +0.07% , which he said faces “increased challenges to growth.” Oracle lost 1.4% to close at $29.71.

MacMillan cited several areas of concern, including threats to Oracle’s core database business such as the one posed by rival SAP AG SAP +0.35% . The German company, he argued, “is starting to offer customers an alternative to the relational database for part of their footprint.” “It’s a first step and SAP has big ambitions for the technology which, if successful, creates tail risk for Oracle,” MacMillan added.

MacMillan also highlighted the ongoing shift to the emerging software-as-a-service model, in which companies access and pay for business applications as a Web-based service. This has allowed businesses to gain access to applications for such tasks as managing inventory and keeping track of payroll through the Web.

Customers typically pay a fee based on the number of users, allowing companies to save costs of running their own in-house networks. On the other hand, traditional software companies such as Oracle make money by licensing their products to businesses.

MacMillan said the momentum of such software-as-a-service companies as Salesforce.com CRM -0.18% and privately held Workday “creates risk for some of Oracle’s large application assets as well as database revenues.” Redwood City, Calif.-based Oracle will report results for the third quarter of fiscal 2012 March 20.

Source: Benjamin Pimentel, MarketWatch