Oracle's Home in the Range

Oracle's(ORCL Quote) swashbuckling CEO Larry Ellison gets gobs of media attention whether he's spending billions to snap up rivals or building world-class racing yachts, but it's worth remembering that his company is rooted in the decidedly unromantic world of the corporate database.

In its recent fiscal first quarter, database sales and services (including a relatively small middleware component) were $1.78 billion, or 64% of the company's total revenue of $2.77 billion. By contrast, Oracle's software applications business, which has been in the spotlight since the purchase of PeopleSoft and a bevy of other companies, contributed $1.11 billion, or 40% of overall revenue.

The disparity between the two legs of the business is even greater when measured by new license sales: on that basis, databases contributed $502 million in the quarter, applications just $127 million.

But Wall Street was disappointed in the database performance, because year-over-year license revenue growth was just 2%. The company's stock suffered accordingly, despite a sizzling 84% jump in applications license revenue.

Oracle's database business will be in the spotlight again Thursday when the company reports its second-quarter results after the bell. This time, however, the news may be better. What's changed? It's likely that customers held off on buying decisions and haggled harder over pricing decisions as they waited for the launch of Microsoft's(MSFT Quote) SQL Server 2005, and Oracle's 10g R2, says Sanford Bernstein analyst Charles Di Bona. Both products are now in the market, and sales should have picked up in the second quarter.

Historically, quarters in which Oracle's license revenue was below the guidance midpoint have been followed by a rebound. In fact, that's been true of all five disappointing quarters (judged by license growth) since the first quarter of fiscal 2003, notes Brent Thill of Prudential Securities. Even so, Thill's outlook is cautious, in part because the continued rise in the dollar may hurt Oracle's top line more than the company figured when it issued guidance in the fall.