Good things do happen during bad times. On Wall Street one positiveoutcome of a recession is that strong companies are supposed to emerge evenstronger than they were before.
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Which is why what's happening with
right now might seem alittle 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 favoritepunching bags. On Monday, for instance, when Oracle was using dry ice andhot lights to get things rolling at the conference, Robertson Stephensanalyst Eric Upin lowered numbers on the company for the seventh time in12 months and recommended investors take profits in the stock. Notexactly a toast to kick off the party.
That came on the heels of several other notes from Wall Street'sbrokerages highlighting the increased competition Oracle seems to be facingfrom the likes of
, though the company and someproponents of the stock question those competitors' claims. And it followedFriday's news that sales honcho Jay Nussbaum would become the
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 itsmarket share, while wiping out less significant players. The company saysthat's exactly what it is doing -- or at least positioning itself to do --despite Wall Street's doubts. Where the company emerges from the currenteconomic malaise will depend on whose version of the truth is closer to theactual truth, always an elusive target on Wall Street.
Despite speculation from several industry analysts that Oracle islosing market share in its core database market, Jeff Henley, the company'sCFO, suggested to OpenWorld attendees that the firm is doing exactly theopposite.
"I think everyone knows we are the largest relational database companyin the world," Henley said. "We continue to enjoy a sizable lead to all thedifferent competitors in the industry, and we continue to gain share."
He cited the firm's commitment to research and development as proof ofthat, and said the firm will emerge from the current recession as an evenmore dominant player in the market than it was before.
"We have more developers today than at the beginning of the year, weknow inevitably that the economy will come back and we think it's importantto plow money back into the company," Henley said. "The company's verystrong 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 takeadditional share as business picks up."
Oracle's claims would seem to be at odds with its actual reportedresults, though. Its database business declined by 8% in its Augustquarter, and CEO Larry Ellison warned investors last month thatNovember-quarter results, due out Dec. 13, would be lower than expected.That comes at a time when analysts say the database market is stillgrowing, and IBM claims that its database revenue for Unix and Windows NToperating systems grew 56%.
Not everyone swallows IBM's numbers so easily, though. While thecompany put those numbers out on its quarterly conference call, it doesn'tactually break out its database results in financial filings, as Oracledoes. "The thing with IBM is it's all smoke and mirrors," said MarkVerbeck, an analyst with ThinkEquity Partners who rates Oracle a buy. Hisfirm 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 presidentof marketing. He also contends that Oracle is stealing customers from IBM,especially those IBM gained in its $1 billion acquisition of Informixearlier 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 theirnumbers are," Ellison said during a press conference at OpenWorld. He saidthat IBM has broadened its definition of database sales to inflate itsnumbers. "We believe we are killing IBM in database market share, and thatIBM has reclassified what database is. While it's not entirely made up, itis very creative accounting."
Feeling a Big Blue Heat?
Big Blue says Oracle's crying foul because the company is feeling heatin the marketplace from IBM.
"The fact is that IBM reported 56% growth on our conference call," saysspokeswoman Lori Bosio. She adds: "At this point in time, we have seen nocustomers 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 strengththan before can be applied to both, while separating them from also-ranstart-ups who will not survive the current period.
"That generalization works when you're comparing very large companiesto very small ones," says JP Morgan H&Q analyst Ian Morton, who ratesOracle a long-term buy. "I think you're seeing a real barbell approach inwhich 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 isof a different ilk than the ultimately ineffectual efforts it faced yearsago from
So, depending on your point of view, Oracle might be feeling the heatat the very time it should be grabbing share from its competitors. On theother hand, the competition is throwing some very big weight around.