Five Lingering Questions Oracle's Conference Call May Answer

Includes: ORCL, SAP
by: Larry Dignan

Oracle (NYSE:ORCL) reports its fiscal first quarter results Thursday and the earnings and the ensuing conference call will answer a few lingering questions in enterprise software.

Question 1: Has a slowdown among financial services firms hit the software demand picture yet? Tibco, a company that depends on financial customers, recently indicated a slowdown in demand. Oracle counts on the financial vertical for 15 percent to 20 percent of revenue.

Question 2: Demand for enterprise software has been strong, but what have you done for me lately? SAP (NYSE:SAP) was upbeat about its future prospects and reported a solid quarter, but that was before an August credit crunch.

SAP CEO Henning Kagermann said Sept. 5 that he has seen no slowdown due to credit market turmoil. Kagermann said:

“The crisis in the sector is not a secret. It’s surprising since the global economy is strong, but we don’t see an impact. A few months from now it could have an impact,” said Kagermann.

But SAP isn’t nearly as tethered to the financial services sector. That’ s why Oracle’s outlook will be closely watched. The Bureau of Economic Analysis shows that U.S. software spending accelerated in the first half of the year growing 8.9 percent in the first quarter and 9.6 percent in the second quarter. Can that last with recession chatter running amok? Oracle’s outlook will be key. According to Thomson Financial, Oracle is expected to report earnings of 21 cents a share on revenue of $4.34 billion.

Question 3: What are the big deals in the pipeline? Morgan Stanley analyst Peter Kuper sums up the color folks are looking for:

Indications from the field indicate at least a solid quarter for Oracle, even in the seasonally weak August quarter. Our most positive checks relate to the middleware business, which is being driven by the “surround SAP” acquisition strategy. The applications business is also doing well, driven by Oracle’s leverage with its acquired applications (e.g., Siebel OnDemand) and existing database products. Oracle has also become very aggressive in targeting existing SAP customers in head-to-head deals, and we have heard of some large pending opportunities recently. Oracle’s broad reach in databases makes it difficult for us to gain a comprehensive view, but lacking negative data points, our checks are neutral to positive.

Question 4: What’s the uptake of 11g? Oracle’s latest database should be a revenue driver in the future. We’ll probably get at least an inkling of demand. It’s still early in the product cycle though.

Question 5: What company will be Oracle’s latest obsession? You can tell what company is on Oracle’s hit list given the number of mentions during a conference call. A few quarters ago it was BEA Systems (BEAS). Red Hat (NYSE:RHT) makes an appearance from time to time. And SAP is an ongoing focus. Given that SAP is launching A1S (see coverage), I’d be shocked if Oracle CEO Larry Ellison didn’t try to poke holes in SAP’s effort on a conference call.