Oracle Hikes Prices to Fend off Flagging Dollar

SAN FRANCISCO -- Who has the audacity to raise prices in a soft market? Oracle(ORCL Quote - Cramer on ORCL - Stock Picks) does.

The business-software giant recently tacked 15% to 20% onto its fiscal 2009 prices. It's a bold move that gives the company more wiggle room in competitive sales negotiations. But it also addresses a fatal flaw in Oracle's worldwide pricing model.

This month, Oracle raised prices across the board, according to Jane Disbrow, research vice president at Gartner. The company had not raised per-server license prices in over six years, she said.

Increases of that magnitude "track with the industry," which had continued to nudge prices upward, says Stuart Williams, senior analyst at Technology Business Research.

Oracle's move follows a policy change at business-application competitor SAP(symbol Quote - Cramer on symbol - Stock Picks) within the past two months that effectively raised maintenance fees to match Oracle's.

Now, Oracle's new price hikes open the door for SAP to follow suit, Disbrow says.

Although it has so far not raised prices broadly, SAP has restructured some products in ways that push prices higher, Gartner analyst Daniel Sholler says.

Oracle is the leader in database software, but also has a broad portfolio of business applications and so-called middleware. SAP is the leader in business applications, but Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) is also strong in applications and database software. IBM(IBM Quote - Cramer on IBM - Stock Picks) is the middleware leader, also selling database and collaboration software. Big Blue said it has not raised across-the-board prices in the past year.

Oracle shares were off 2.7% to $22.08 in recent trading amid the market's broad selloff.

The effect of Oracle's increase, at least initially, will be to grow license revenue at a time when IT budgets are under pressure. IDC estimates worldwide corporate technology spending will slow to 4% growth for 2008, from a rate of 6% last year. But a Gartner survey of U.S. IT chiefs found that 25% reduced their budgets in the first quarter, while only 10% spent more.

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