No takers for Oracle database machine

There has been considerable interest in Oracle's database machine, according to CEO Larry Ellison, but it has not led to any sales, he admitted.

The company launched the Oracle Database machine and the Exadata Storage Server (both jointly developed by HP) in September, aiming them at customers looking for high-end data warehousing products. Both machines combine Oracle's software and ProLiant servers from Oracle partner Hewlett-Packard.

Since then, the buzz has been big, Ellison said during a quarterly earnings conference call. "As measured by pipeline growth and pipeline size, this is the most successful introduction of a new product in Oracle's history," he said before admitting that "it's going to be a while" before Oracle can convert that buzz into solid sales of the product.

Still, the Exadata business "looks very, very promising and should help us drive growth over the next 18 months," Ellison said.

Ellison said a number of demonstration machines are in the hands of customers, but it was unclear whether any companies are now using the products in production.

"It doesn't surprise me that Oracle didn't name any specific customers on an earnings call, and that's because it was an earnings call, not a product announcement or customer-win or testimonial call," said Forrester Research analyst James Kobielus. "Don't interpret that as any slap against the new HP Oracle appliance, which is a strong product with considerable customer and market interest."

Oracle and HP also released the product in the middle of an economic recession, "so it may take some time to make those pipeline conversions," Kobielus said.

The new products are going up against the likes of Teradata, Netezza and Greenplum, the last of which announced NYSE Euronext as a customer this week.

During his keynote address at OpenWorld, Ellison had tart words for those competing products, but such boasting could be premature, suggested Curt Monash, founder of Monash Research.

"Until there are some major production Exadata success stories, it remains less proven than a number of smaller vendors' alternatives," Monash said via e-mail Friday. "Oracle will find Exadata pioneers anyway, of course, but not necessarily a huge stampede of them."

Greenplum's president, Scott Yara, echoed Monash.

"Oracle and HP are two great companies, but it's not a guarantee for success in the market," Yara said. "They're going to sell Exadata. Whether they're going to be the leader is another question. ... I think Oracle personally has a lot to prove."

Author: Chris Kanaracus @ www.computerworlduk.com

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Oracle's edge

The software giant will no doubt feel some pain as companies scale back staff. But its stable infrastructure business will help it weather the storm better than most. Say what you will about Larry Ellison's style, but the in-your-face founder of Oracle knows how to manage a company through a recession, at least so far.

In an economic climate where other companies are heading for the lifeboats, Ellison is skippering Oracle into a position of strength. And it comes down to selling software that relies on a growing stream of corporate data, rather than a growing number of employees.

During a recent conference call, Ellison and his management team were practically optimistic, projecting that overall revenue for Oracle's fiscal third quarter ending in February will be up from 8% to 11% adjusting for currency exchange.

In its most recent second quarter, revenue came in below guidance, with sales growth of 6% (9% was the Street's estimate), but with operating profit margins at almost 46%, above estimates, and pointing to Oracle's ability to maintain pricing power. (Earnings were down slightly for the quarter, a slip Oracle blamed on the strengthening dollar.)

Oracle (ORCL, Fortune 500) is feeling some pain, like every other company out there, but so far it is not as acute. And when you dig into the numbers, it gives you a sense of why Oracle may offer relative safety in these uncertain economic times.

Oracle sells both applications -- human-resources software and customer-relationship software, for example -- and so-called infrastructure software. The latter includes Oracle's core database products, as well as middleware, which acts as a sort of glue between all kinds of software and services.

Applications are generally sold on a per seat basis, so revenue is based on staff size at Oracle's customers. Infrastructure software is sold based on capacity, the number of processors (CPUs) in a server running the software, for example.

The scary issue for a lot of tech companies is of course is one of headcount. As companies cut numbers to weather the recession, they are also cutting the number of seats they need for any number of applications. But companies are less likely to scale back on the efficiencies an automated enterprise can offer them, so that business is not as vulnerable.

Because it is driven by "data, not heads, the (infrastructure) segment should be more stable than other software businesses through the recession," writes Morgan Stanley analyst Adam Holt, who has an "overweight" rating on Oracle, with a 12-month price target of $22.

In that context, data versus heads (or applications versus infrastructure), investors would be wise to look at other software companies SAP and Microsoft, for example, which will be subject to the same forces.

In the second fiscal quarter, Oracle posted database and middleware revenue of almost $3 billion, up 4% year over year. During the same quarter, the applications business was flat to slightly down.

"Oracle's negative year-over-year growth in applications do not bode well for SAP," says JMP Securities analyst Patrick Walravens, who has a "market perform" rating on Oracle. SAP has a very application-heavy product offering. "Our checks so far suggest SAP has already seen some of its larger deal prospects in North America push out."

At some point the economy will recover, and headcount will once again grow. At that point, Oracle will be able to push its applications business harder. In the meantime, unlike some of its competitors, Oracle has the leverage to wring additional revenue from its infrastructure business, and sail -- as it did after the tech bubble burst -- far ahead of the pack.

Author: Michael V. Copeland @ money.cnn.com

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Despite Tech Slump, Oracle Hits Its Mark

Oracle's bread-and-butter database business is faring better in the recession than its business applications, which companies use to manage finance, HR, sales, and other functions. Sales of new applications licenses fell 15 percent, to $469 million, during the quarter. Oracle's database and application-connecting middleware license sales grew.

During the tech industry's last big slump, software and hardware Relevant Products/Services vendors were slow to cut costs as falling demand pummeled profits.

This time around, Oracle isn't taking chances. Oracle, the world's No. 2 software company, hit Wall Street's earnings target when it reported fiscal second-quarter results on Dec. 18, by aggressively cutting research and development, travel, and other costs as its customers curtail spending.

Amid a global economic slowdown that's sapped business demand for computers and software, Oracle widened operating margins in the quarter ended Nov. 30 to 46 percent, compared with 41.3 percent a year earlier. While the software maker missed Wall Street's estimates for total sales and new software bookings, its earnings of 34 percent a share, excluding certain items, met analysts' projections. Better still, Oracle issued a third-quarter earnings outlook roughly in line with Wall Street estimates.

Shares of Oracle gained 4 percent in extended trading, after closing Dec. 18 down 13 percent, or 0.8 percent, at 16.61. The shares have lost 2.4 percent in the past month, compared with a 4.7 percent gain for the Nasdaq Composite Index.
Wide Range of Products Helps

Oracle displayed a knack for slicing costs while offering customers a wide range of products that it's assembled through a slew of acquisitions the past four years, analysts said. "This company can hold the bottom line better than anyone," says Brent Thill, Citigroup's software research director, who rates Oracle's stock a buy.

Analysts said Oracle has cut expenses in sales and marketing, and overseas R&D, and reduced sales and back-office expenses from its January acquisition of BEA Systems. A wide breadth of products lets Oracle salespeople zero in on where customers are still spending. "It all goes back to the all-you-can-eat buffet at Oracle," Thill says. "You can pick one thing or everything, and they have something they can talk to a client about."

The appetite for cost-cutting is catching across tech. Dell beat Wall Street's profit forecasts in its third quarter, reported Nov. 20, by taking an ax to expenses, despite ringing up sales that were more than $1 billion short of expectations. Troubled computer maker Sun Microsystems in November said it plans to cut up to 6,000 jobs, or 18 percent of its staff. Tech firms including Adobe Systems and Western Digital have announced plans to shed workers as well.

Net Income Falls amid Sales Slowdown

"Within technology we're seeing revenue weakness but good profitability," says Andy Miedler, a senior technology analyst at Edward Jones, who has a buy rating on Oracle. "Companies are more aggressive with cost-cutting during this downturn due to the lessons they learned with cutting costs too slowly during the tech wreck last time."

Cost-cutting aside, sales still take a hit when customers slash information technology budgets. Oracle's net income fell 0.5 percent, to $1.27 billion, in the second quarter, and sales were up 5.5 percent, to $5.6 billion, vs. analysts' consensus estimate of $5.84 billion. New software license revenue, an indicator of future sales, was down 3 percent to $1.6 billion. The closely watched metric fell far short of Oracle's forecast three months ago, when it said new license revenues would rise 2 percent to 12 percent. The bookings are a key measure of Oracle's performance, since they often produce additional tech support Relevant Products/Services revenue.

"Customers are signing up for fewer multiyear, $100 million projects," said Chief Executive Larry Ellison during a conference call with analysts. "Fortunately we have a very broad portfolio." A strong dollar is also hurting Oracle's results, as overseas sales translate into fewer dollars on the company's books.

Applications Vulnerable to Downturn

Oracle's bread-and-butter database Relevant Products/Services business is faring better in the recession than its business applications, which companies use to manage finance, HR, sales, and other functions. Sales of new applications licenses fell 15 percent, to $469 million, during the quarter. Oracle's database and application-connecting middleware license sales grew nearly 4 percent, to $1.16 billion.

"The applications business is in tough shape," says Citigroup analyst Thill. Applications revenues are more vulnerable in a weak economy, as companies protect database and middleware projects that can yield business information to help them compete, Thill wrote in a Dec. 2 research note. Oracle is locked in an applications market-share battle with SAP, which in October cut its profitability outlook for the year.

Oracle also issued a downbeat forecast for its third quarter, which ends in February. Assuming today's exchange rates, Oracle said it expects to earn 31 percent to 33 percent per share, vs. Wall Street's expectation of 34 percent per share. Oracle co-President Safra Catz told analysts that the company is expecting a record low in the pace of deal closings for that period of the year.

Lots of Acquisition Candidates

Oracle has been posting bang-up results for the past few years, largely by spending more than $25 billion to buy more than 40 software companies since 2005. In addition to having more products to sell, Oracle can also sign up customers added through acquisitions for lucrative tech-support contracts.

In recent months, Oracle has hinted it may hold to that strategy. There are at least 50 publicly traded software companies with $300 million to $6 billion in annual sales that Oracle could potentially acquire, said Mark Murphy, an analyst at Piper Jaffray who rates Oracle a buy, in a Dec. 12 research note. In September, Ellison said Oracle might take advantage of depressed stock prices to buy up more software companies on the cheap.

Now, Ellison said prices have dropped so low that some companies may resist being bought. "Some companies have much more attractive valuations right now, but I'm not sure they'd be wildly enthusiastic about selling for cash [value]," he said on Dec. 18.

When markets rebound and an M&A freeze thaws, Oracle could nevertheless be poised to spring. "As we come out of this cycle, Oracle is extremely well positioned," says Israel Hernandez, a director at Barclays Capital, who has an overweight rating on Oracle's stock. "They're going to come out a much stronger company after the recession." Until then, Oracle and other tech firms may have to keep looking for costs to chop.

Author: Aaron Ricadela @ www.newsfactor.com

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