Don't Believe the Boosters: Oracle's Future Not So Bright

Oracle(ORCL - Cramer's Take - Stockpickr) has lately been one of the faves of the "things are getting better" crowd. A kind of Great White Hope for those who really, really realllllly want to find some good news in an otherwise dismal tech-stocks market, Oracle has, in fairness, performed pretty well lately.

It's up about 20% from the Sept. 11 disaster, even while many tech stocks have tanked even worse than before the attacks. From its Sept. 10 close at $11.46, Oracle has risen to $13.70 as of Tuesday. For a nondefense/nonsecurity-systems stock, that's darned impressive.

On the other hand, it's still not far off the bottom ($10.16) of its 52-week range, which reached the high $30s this time last year.

But I'm skeptical. I don't see Oracle crashing, but it's hard to see substantial gains from this point, and I'm not alone: Of 33 analysts covering Oracle, only four have outright buys on it, 19 are in that maddening buy-hold miasma and 10 are at flat-out hold.

Four reasons drive my skepticism:

Transition: Oracle has been king of the databases (though that's changing, keep reading), but is now shifting its biggest guns to building an enterprise-applications-suite business. That's a different kind of sell, in many cases to a different kind of customer. Oracle isn't ready for the change; it's done poorly during previous technology transitions. I think Oracle can eventually build an apps business, but not as big and not nearly as fast as the company proclaims.

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Unhappy Customers: Oracle has been irritating customers for some time with buggy releases. The new "9i" database product comes highly touted, and appears cleaner than the legendarily buggy 8i. But even 9i smells like wine released before its time.

Competition: Oracle no longer has the pixie dust falling from its name. Over the past five years, tough management and a superior product, DB2, have pushed competitor IBM(IBM - Cramer's Take - Stockpickr) from a distant fifth place in the overall database market (which Oracle used to own) to a close second, with a 33% market share, just one share point behind Oracle. Add IBM's buyout of Informix over the summer, and IBM moves ahead of Oracle. And, IBM is stealing Oracle developers. Count SAP, PeopleSoft and Siebel -- all companies that relied on sales of the Oracle versions of their products -- as converts to the DB2 religion. Sure, they still make Oracle versions ... but increasingly they're encouraging their customers to move to DB2. And why not? Oracle has jumped into the apps business and said it's coming right at them.

Arrogance: If there's one thing that characterizes Oracle, from top to bottom, it's the "A-word": arrogance. Or if you want to be polite: attitude.

A recent example: CEO Larry Ellison called Oracle 9i "the last database" -- because, he says, it's so good that there are no more big advances to be made in databases. C'mon, Larry, that doesn't help. Worse, arrogance toward your customers is distinctly out of sync with the prevailing trend in corporate IT buying, and Oracle's "Madame Helga with her whip" style of S&M marketing is turning off customers and prospects.

Overall, Oracle's in a pretty scary position right now, notwithstanding company executives' positive comments and those recent stock-price moves.

Buyer -- and holder -- beware.