Oracle Will NOT Play in SaaS - But It Will Continue Gobbling

Oracle (NASDAQ: ORCL) reported its earnings for Q1 2008 in September (see conference call transcript). Revenue was $4.5 billion, a y-o-y increase of 26%. Its EPS was $0.16, up 28% over Q1 2007. Net income was $840 million, an increase of 25%.

Software revenues increased 26% over last year to $3.5 billion with new software license revenues increasing 35% to $1.1 billion. Database and middleware new license revenues saw a y-o-y growth of 23% and applications new license revenues increased 65%. Services revenues increased 25% to $1.1 billion over the first quarter of fiscal 2007.

As I mentioned in an earlier post on Oracle, its on-demand offering is miniscule and it looks like it will remain that way. In the earnings call, Larry Ellison has said that SAAS involves a high cost of sales and cost of implementation. It would not be following SAP in luring the SME SAAS market as it would need to spend on new product development and sales teams. It would rather wait to see how SAP makes money out of it. Interesting conclusion coming from Larry, given that he is a seed investor in both Salesforce.com (Nasdaq: CRM) and NetSuite (about to go public).

Oracle’s current focus is selling industry-specific software to its existing customers who make up the larger end of the mid-market and large enterprises.

It also aims to be number one in all three of its businesses: database, middleware, and applications. And it is doing a pretty good job. It has long been the No.1 in database and is gaining share from the No.2 player, IBM. In applications where it saw a 65% growth, it is No.2 behind SAP. In middleware, it is No.3 behind Microsoft and IBM. It in trying to acquire BEA, which will expand its portfolio of Application and Middleware software businesses and help it in its goal of being the No.2 by next year. For the moment, though, Oracle has withdrawn the BEA acquisition offer at $17/share, against BEA’s asking price of $21/share. However, given BEA’s lack of options, this deal is likely to go through, as Shareholders force BEA’s hand.

Since its Hyperion acquisition, its major acquisition was Product Lifecycle Management leader Agile for $495 million. Both deals add to the application software market leadership. May be, next up in applications are Cognos and Informatica? There aren’t that many pure-play application software vendors left, really. [I had suggested Manhattan Associates a while back, but that deal did not happen.]

Oracle repurchased nearly 25 million shares for $500 million during the first quarter of fiscal 2008. In April, the Board of Directors had expanded its repurchase program by $4.0 billion. Its stock is currently trading around $21.6 after hitting a 52-week high of $23 on 11 Oct. Its market cap is around $110 billion.

When Larry first started on this path of growth by acquisition of major industry players, most observers gave the strategy very little chance of success. Well, he certainly has proved his point, and chances are, Oracle would be able to absorb BEA, Cognos, Informatica, Manhattan, and whatever else it chooses to gobble just fine! And for the moment, even without getting into SaaS, these acquisitions would give the company plenty of growth.

Comments

[CrossProfit]

Regarding COGN, see
seekingalpha.com/artic...

The way things are going; BEAS and COGN may end up bidding against each other as to who will accept a lower price from SAP! There are a lot of misguided malevolencies towards ORCL out there and SAP doesn't seem attuned to the opportunity.

CrossProfit