December 18th 2007
Oracle (NASDAQ:ORCL, MGI-X 1885) will report November Q2 earnings on Wednesday, December 19th. In our discussions with various industry contacts, we see no reason not to expect Oracle to post another powerful quarter. The distinct impression one gets from evaluating the field data is that Oracle has not had to stretch very hard to make the numbers this quarter.
We believe that in spite of the growing concerns over the broader US economy and the impact of the subprime meltdown on the financial services sector, Oracle’s business continues to be very much on track. The breadth of the company business mix across numerous verticals is at this point working to Oracle’s advantage as it buffers the company, for now, against sector specific negative economic trends. While Oracle will feel the negative economic impact in financial services and retail, the company retains a strong market position in telecommunications, energy, and health care, among others.
On the cautionary side, Oracle August quarter MGI Index results, - although seasonally lower, were also below previous results with MGI-X at 1885 vs. MGI-X of 1976 for the May 2007 quarter and MGI-CV (MGI Change Vector) a negative reading of -44% vs. +49% for May 2007 period.
The broader scenario for Oracle remains largely favorable. Overcoming the initial investor and customer skepticism over its market consolidation strategy, Oracle has marched through its latest series of acquisitions while improving or at least maintaining its operating efficiency and keeping most of the customers. Maintenance renewal rates remain extremely high and while there are rumblings that Oracle’s pricing is expensive, users recognize that staying the course is considerably less expensive than ripping everything out and starting over.
We believe that Oracle continues to do an increasing number of large and very large transactions. In particular we heard of one deal with a major computer hardware company that approached nine figures. We have not had any inputs regarding international business, but the general weakness of the dollar and the company's broad exposure overseas is a plus for Oracle. More importantly, as already noted earlier, we did not get the sense that there was any notable pressure to close business at the end of the quarter.
The intense competition between Oracle and SAP in the applications software space will continue to resemble a trench war of attrition, and like in WWI, the battle lines will move in both directions as neither company has a clear market advantage yet.
As for the financial services vertical, while there has been a significant changing of the guard at the CEO level, and a growing number of headcount reductions in the main lines of business, to date there has yet to be a visible factual retrenchment with respect to IT investment. The real test is whether there are going to be meaningful cutbacks in IT spending initiatives post Q4 results.