Global economic turmoil and the threat of a worldwide double dip recession is certainly creating an interesting landscape for Oracle to report its Q1 earnings. Tech stocks have been battered over recent months and Oracle's ever-increasing rise in market capitalisation has been sharply reversed as the market has gone into decline.
What is notable is that Oracle’s share price has been hit somewhat harder than some of its rivals, notably IBM. The difference in market capitalisation between Oracle and IBM had been narrowing to less than a $30bn difference, but has now widened to almost $60bn. At the same time, HP has been hit particularly hard, especially after Leo Apotheker revealed his plans to ditch the PC and print businesses to focus on data centre and software units.
Also noteworthy over past months are the continued legal disputes that Oracle seems to stimulate, particularly with SAP, HP and Google. The case with Rimini Street, although a relative minnow in comparison, could have profound implications on Oracle’s future support streams.
No one could argue that Oracle is averse to fighting its corner, but perhaps the most important battle is for market share in its traditional businesses of database, middleware and applications. And now, after the acquisition of Sun and the appointment of Mark Hurd, shareholders have a laser-like focus on its server business - Exadata and Exalogic in particular.
We must also consider its progress on key strategic initiatives and client responses we have seen in the market. Firstly, on its application business; although the first signs of the arrival of Fusion are evident, it is still in the very early stages and running late. This is leaving many clients concerned that they will be stuck with the quandary of facing R11 de-support or moving to R12 - Fusion, although widely promised, is not creating high degrees of confidence. This uncertainly is not helpful at a time when CIO's are struggling for budget.
After Oracle’s 72 acquisitions, clients are coming to terms with the fact that their dependency on Oracle is increasing exponentially, almost without them noticing. Industry consolidation means there is less competitive choice available and vendor leverage has evaporated. We have seen this tension create procrastination and resistance for CIOs to invest, however we have also seen Oracle respond to client concerns with improved holistic account management and customer satisfaction strategies in its largest accounts.
So market trending in Oracle sales is interesting - it is our view that there are lower transaction volumes compared to previous years, however an increasing number of very large transactions have taken place. This dichotomy in performance makes it difficult to assess likely performance of its core revenue streams. However, our field research suggests that overall sales will hold up albeit with flat growth.
Exadata and server lines are also difficult to predict as although we have seen considerable sales and marketing focus, there has also been client resistance and supply chain issues that may well result in a failure to meet analyst expectations.
Generally speaking, we expect a fair performance but would be surprised to see anything startling. Looking forward, the key focus will be effective execution of a Fusion strategy, continued attention on Exadata sales performance and harmonisation of field sales to ensure simpler messaging in an ever widening product portfolio.
I would also expect continued and perhaps an opportunistic acquisition strategy that could certainly include predatory moves on the likes of HP but will certainly be evidence of a continued strengthening of Oracle's full solution stack.
I'd also predict (and perhaps Oracle are saving it for Open World later this year) a bolder move into full-blown cloud offerings. Think ‘O Cloud.’