Oracle Flies High Above Wall Street's Carnage

With little exposure to the financial crisis, the software giant faces threats from SAP and the U.S. dollar. An economic slowdown could hurt.

Turmoil in American banking and recent gains by the U.S. dollar have left investors jittery over the potential impact on tech companies such as Oracle (ORCL). The world's second-largest software company allayed some of those concerns Sept. 18, when it reported fiscal first-quarter results in line with analysts' estimates and assured investors that its exposure to the problems of Wall Street financial firms is minimal.

Oracle said first-quarter profit rose 28% to $1.1 billion, or 21¢ a share, vs. 16¢ per share a year ago. Excluding expenses for stock options and acquisitions, profit in the period that ended Aug. 31 was 29¢ a share, beating analysts' expectation for 27¢. Revenue rose 18% to $5.3 billion. Including revenue from acquisitions not counted in its GAAP revenues, sales for the quarter were $5.4 billion, matching analysts' estimates. "Oracle is a great sales organization and very cost-conscious, and that's showing through," says Andy Miedler, a senior technology analyst at Edward Jones Trust, who rates Oracle a buy.

Evidence that Oracle is weathering the economic slowdown came as a relief to money managers, who regard its results as a barometer of the industry's health. "Investors are in a frenzy trying to gauge the exposure of Oracle and other technology companies to a slowdown in financial-services spending," says Mark Murphy, a research analyst at Piper Jaffray (PJC), who has a neutral rating on Oracle's stock. "There really is no firm consensus on that."

Little Dependence on Banks

Within the past week, Merrill Lynch (MER) has been acquired by Bank of America (BAC), Lehman Brothers (LEH) has begun liquidating its assets, and the Federal Reserve bailed out insurer American International Group (AIG). More consolidation among financial-services firms is likely. Those events, and the shocks they have sent through markets, have tech investors trying to calculate the effects on information technology spending. Piper Jaffray estimates financial-services firms account for about 20% of U.S. IT spending.

Oracle Co-President Safra Catz said the percentage of Oracle's sales to U.S. banks was in the "low single digits." Also reassuring to investors was news that sales of new software licenses, a yardstick of future revenue, increased 14%, to $1.2 billion, within the conservative range (BusinessWeek.com, 6/26/08) Oracle had told analysts to expect. Shares of Oracle rallied more than 6% in extended trading on Sept. 18 after having risen 65¢, or 3.6%, before the earnings report was released. Still, the stock is down 16% since reaching an at-least-52-week high in August.

Oracle has been on a tear for the past year, posting increases in sales of its database software and business applications, used by companies to manage payrolls, inventory levels, and billing. Today's news aside, some analysts question whether Oracle will remain immune to the economic slowdown and the forces roiling the financial-services sector. Dell (DELL) on Sept. 16 warned of weakening demand, just weeks after reporting a disappointing quarter. And Goldman Sachs (GS) on Sept. 8 cut its IT spending forecast for the year to 4% growth, from 6%.

Rising Dollar Cuts Revenues

Oracle's sales of new applications licenses fell 12%, to $331 million, during the quarter. Oracle is fighting a pitched battle for applications market share with German rival SAP (SAP), which held 22.4% of the $62.8 billion market in 2007, compared with 12.5% for Oracle, according to tech industry consultant AMR Research.

A stronger dollar is also taking a bite out of revenue. During a Sept. 18 conference call discussing the results, Catz said overall new license sales will rise just 5% to 15% during the second quarter, which ends in November, and that the dollar's appreciation since July will lop another 3% off those estimates. The company expects overall revenue to grow 9% to 12%, including currency effects. Excluding the effects of currency, Oracle's sales may be $6.03 billion, at the midpoint of the company's guidance, compared with analysts' expectation of $6.23 billion. Oracle expects to earn 35¢ or 36¢ a share, compared with analysts' estimates of 35¢.

After more than two years of declines, the dollar has rallied against the euro (BusinessWeek.com, 9/16/08), hitting an all-time low of $1.604 per euro on July 15. That means overseas sales by tech companies amount to less revenue when translated back into dollars. Conversely, SAP will likely benefit from the trend.
Maintenance Fees Add Up

So far, though, Oracle's acquisition machine and flagship database business have continued to fuel sales and profit growth. Oracle has purchased more than 40 software companies for more than $25 billion since the beginning of 2005. New license sales of databases and middleware, which connect other pieces of software, grew 27% during the first quarter, to $906 million, helped in part by Oracle's $8.5 billion acquisition of BEA Systems in January. At Oracle's annual customer conference that begins Sept. 21 in San Francisco, the company plans to announce a new database-related product, Co-President Charles Phillips Jr. said during the conference call.

And Oracle is expanding its profit margins by adding to its revenue stream more of the lucrative "maintenance" fees customers pay for software updates and technical support. The fees now account for nearly 56% of Oracle's sales and yield higher margins than other parts of Oracle's business. "That's a reshaping of our business—the highest-margin portion of our business is now the largest portion of our business," Oracle Chief Executive Larry Ellison said during the call.

Edward Jones analyst Miedler says Oracle has proved deft at integrating the companies it's bought. "They can acquire a company and plug it into the Oracle machinery with few hiccups," he says. "And they can squeeze more profit out of these targets." Amid the Wall Street meltdown, economic malaise, and currency drag, Oracle will need to keep that machine as well-oiled as ever.

Author: Aaron Ricadela @ www.businessweek.com

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Oracle and the X-Men

Oracle has just announced the Oracle Exadata Storage Server and the HP Oracle Database Machine as its answer to the likes of Netezza and other appliance vendors. The project went under the codename of Sage and, while Oracle didn’t tell me more than that, I am guessing that this actually relates to the Marvel character of the same name, pictured right, a member of the X-Men and X-treme X-Men. She is described on the official Marvel site as “a mutant who possesses a cyberpathic mind that functions like a computer with unlimited storage capacity. Sage is able to record and analyze vast amounts of data… and can also calculate complex statistics in mere seconds… like a computer, Sage is able to perform multiple tasks at once by allocating a partition of her brain to each task.”

Anyway, down to the serious stuff. Briefly, the Database Machine is the data warehouse offering and the Exadata Storage Server provides massively parallel capabilities that back-end onto your conventional Oracle database to enable the Database Machine. What happens is that when a query is processed, data is read from disk, unwanted rows and columns are filtered out by the Storage Server and the remaining data is passed to the database for processing. This will provide significantly better performance for queries where you retrieve a lot of extraneous data from disk but will have less impact where that is not the case.

Oracle is claiming up to 10x performance benefits and this seems reasonable. However, that doesn’t necessarily mean that Oracle will be able to compete effectively with other products. Take a query where you need a full table scan and suppose that that table has 1 million rows each consisting of 60 columns and suppose that you only need to retrieve data from 3 of those columns. Then a column-based database such as Sybase IQ or Vertica only reads those 3 columns so it has 20x less work to do than Oracle. And that doesn’t mean that Oracle will be only half as slow (assuming 10x performance enhancement) because the filtering process (unnecessary if using columns) is still required.

To take another example, Netezza doesn’t just filter the data close to the disk but processes it there too—it is only collation that is done centrally—so you would still expect appliance vendors to outperform the HP Oracle Database Machine.

The margin of performance benefit from appliance vendors will be reduced in some instances but you also have to consider the impact of the Oracle environment as a whole. The key to getting good performance out of Oracle is defined indexes, materialised views and so on. It is when you have unplanned queries or complex analytics where no such structures have been defined that you can run into a performance black hole when using Oracle and which appliance vendors are particularly good at. You may get some benefits from using the Database Machine in these environments but I expect them to pale in comparison to what the appliances offer.

It is noteworthy that no benchmarks have been presented by Oracle in terms of performance: I suspect that this is because, while it is much better than it was before, it still can’t compete across the board with all the new boys on the block. It could probably have put out good benchmarks against IBM and Microsoft but everybody would have spotted the absence of Greenplum, Netezza, ParAccel and the rest, so it wouldn’t have worked as a marketing tool.

Also worth bearing in mind is that while the database may have been pre-installed it will still require administration, and Oracle doesn’t have a reputation as the database requiring the most DBA attention for nothing. If you think that low/minimal administration is a feature of an appliance then this isn’t it.

Leaving that aside, this is certainly a significant step forward but it isn’t ground-breaking. It will encourage existing Oracle shops but I would recommend a proof of concept. In addition, I expect it to hurt IBM and Microsoft (because Oracle should now have clear performance advantages over these vendors in appropriate situations) more than it does the specialist data warehousing vendors. The latter may suffer where it is a close call between staying with Oracle or going elsewhere, but otherwise the appliance and column-based suppliers should still be able to beat Oracle hands down, at least where performance is a major issue.

Which only leaves one question: if the data warehouse is Sage who does that make Larry? Dr Xavier or Magneto?

Author: Philip Howard @ www.it-analysis.com

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Oracle Teams With HP On Database Hardware

Oracle in tandem with HP is bringing out its first hardware product, a database machine, which Oracle CEO Larry Ellison says is suitable for high end, high performance data warehouses.

Oracle (NSDQ: ORCL) in tandem with HP (NYSE: HPQ) is bringing out its first hardware product, a database machine, which Oracle CEO Larry Ellison says is suitable for high end, high performance data warehouses.

At the Oracle OpenWorld conference on Wednesday, Ellison said in a keynote address that the HP Oracle Database Machine will combine a grid of Oracle database servers with a grid of HP Exabyte storage servers. The two grids are combined in a standard 42-u rack.

In a departure from other high end designs, the storage server rather than the database server will contain the intelligence to break queries down into separate parts that are executed in parallel on multi-core processors.

In effect, query-handling intelligence has been shifted from the database server to the storage server, which is closer to the data itself. The move allows only results to be passed from storage over to the database system, instead of blocs of data from a voluminous table of a large, 100 Terabyte or 200 Terabyte database. Databases of that size are becoming increasingly common, and the database machine approach will commonly improve performance over software-only, Oracle data warehouses by a factor of up to 30, Ellison said.

"We pass the query from the database server to the query server, where it is parallelized," with a part of the query running on each core of two-way storage server. Up to 14 storage servers or 28, multi-core CPUs are included in the database machine. The now common quad-core CPU would yield a maximum of 112 cores available for parallel query processing, allowing a complex query to be broken down into 112 parts, if necessary, each with its own core.

Each database server and storage server are connected by two InfiniBand channels, each capable of moving a GB of data per second. The 12 disks in an Exabyte Storage Server are capable of delivering only one GB of data per second, conceded Ellison, but the surplus indicated headroom for data warehouse performance to improve in step with disk drive performance. With a storage server grid of 14 units, the amount of data that could be moved per second under current limitations is 14 GB per second, with pipes capable of carrying 28 GB per second.

Ellison said HP and Oracle have been engaged in joint work on the database machine for three years.

The data warehouse machine is expected to compete with Teradata (NYSE: TDC), the market leader in high end data warehousing based on parallel processing, and specialist Netezza (NYSE Arca: NZ), a supplier of data warehouse machines.

Ellison, never shy about making claims against the competition, said the HP Oracle Database Machine would also perform up to 30 times better than an IBM DB2 data warehouse. In press releases and other documentation, Oracle emphasizes performance improvements that are 10 times faster than predecessor Oracle and competitor data warehouses.

No pricing was announced, the database machine has been in use at several key Oracle customer sites for a year, Ellison said, and is available immediately. Oracle is responsible for sales and software system support. HP will assume hardware service.

Netezza President Jim Baum responded with a prepared statement to Oracle's move: "You just can't slap together existing solutions in clever packages The power of the data warehouse appliance lies in integration and design from the ground up. Engineers in the same company, the same building, working to integrate a shared vision--not patch it together with glue and spit."

Author: Charles Babcock @ InformationWeek.com

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