Both IBM and Oracle Claim Victory in Database Bout

Good things do happen during bad times. On Wall Street one positive outcome of a recession is that strong companies are supposed to emerge even stronger than they were before.

The Upshot: Only One Grandstander at Oracle

Market Buys Oracle CEO's Prediction, but Analysts Don't

Oracle's Ellison Predicts Growth Will Return Next Year

Which is why what's happening with Oracle right now might seem a little puzzling to some investors.

The database software giant, now holding its annual dog-and-pony show, a.k.a. OpenWorld, in San Francisco, has become one of the Street's favorite punching bags. On Monday, for instance, when Oracle was using dry ice and hot lights to get things rolling at the conference, Robertson Stephens analyst Eric Upin lowered numbers on the company for the seventh time in 12 months and recommended investors take profits in the stock. Not exactly a toast to kick off the party.

That came on the heels of several other notes from Wall Street's brokerages highlighting the increased competition Oracle seems to be facing from the likes of IBM and Microsoft(MSFT Quote), though the company and some proponents of the stock question those competitors' claims. And it followed Friday's news that sales honcho Jay Nussbaum would become the fourth high-level executive to leave the company in the last 18 months.

All the negativity on the stock comes as Oracle -- the world's second-largest pure-play software maker -- should be increasing its market share, while wiping out less significant players. The company says that's exactly what it is doing -- or at least positioning itself to do -- despite Wall Street's doubts. Where the company emerges from the current economic malaise will depend on whose version of the truth is closer to the actual truth, always an elusive target on Wall Street.

Despite speculation from several industry analysts that Oracle is losing market share in its core database market, Jeff Henley, the company's CFO, suggested to OpenWorld attendees that the firm is doing exactly the opposite.

"I think everyone knows we are the largest relational database company in the world," Henley said. "We continue to enjoy a sizable lead to all the different competitors in the industry, and we continue to gain share."

He cited the firm's commitment to research and development as proof of that, and said the firm will emerge from the current recession as an even more dominant player in the market than it was before.

"We have more developers today than at the beginning of the year, we know inevitably that the economy will come back and we think it's important to plow money back into the company," Henley said. "The company's very strong financially, and we're maintaining strength in a tough economy. That's allowed us to continue to invest in R&D and to get ready to take additional share as business picks up."

Oracle's claims would seem to be at odds with its actual reported results, though. Its database business declined by 8% in its August quarter, and CEO Larry Ellison warned investors last month that November-quarter results, due out Dec. 13, would be lower than expected. That comes at a time when analysts say the database market is still growing, and IBM claims that its database revenue for Unix and Windows NT operating systems grew 56%.

Not everyone swallows IBM's numbers so easily, though. While the company put those numbers out on its quarterly conference call, it doesn't actually break out its database results in financial filings, as Oracle does. "The thing with IBM is it's all smoke and mirrors," said Mark Verbeck, an analyst with ThinkEquity Partners who rates Oracle a buy. His firm hasn't done underwriting for the company.

"I'll maintain that there's a database battle going on. Unfortunately, it's for second place," quips Jeremy Burton, Oracle's senior vice president of marketing. He also contends that Oracle is stealing customers from IBM, especially those IBM gained in its $1 billion acquisition of Informix earlier this year. "IBM needs to translate their perception into reality," Burton says.

CEO Larry Ellison had a similar line: "IBM won't tell you what their numbers are," Ellison said during a press conference at OpenWorld. He said that IBM has broadened its definition of database sales to inflate its numbers. "We believe we are killing IBM in database market share, and that IBM has reclassified what database is. While it's not entirely made up, it is very creative accounting."

Feeling a Big Blue Heat?

Big Blue says Oracle's crying foul because the company is feeling heat in the marketplace from IBM.

"The fact is that IBM reported 56% growth on our conference call," says spokeswoman Lori Bosio. She adds: "At this point in time, we have seen no customers migrating to Oracle."

Aside from the tit-for-tat being offered by the two companies, though, investors should remember that these are two goliaths. The notion that big, established companies come out of weak economic periods with more strength than before can be applied to both, while separating them from also-ran start-ups who will not survive the current period.

"That generalization works when you're comparing very large companies to very small ones," says JP Morgan H&Q analyst Ian Morton, who rates Oracle a long-term buy. "I think you're seeing a real barbell approach in which people are gravitating toward very large, very established vendors." His firm hasn't done underwriting for Oracle.

After all, the competition Oracle faces from IBM and Microsoft is of a different ilk than the ultimately ineffectual efforts it faced years ago from Sybase and Informix.

So, depending on your point of view, Oracle might be feeling the heat at the very time it should be grabbing share from its competitors. On the other hand, the competition is throwing some very big weight around.