In our last blog we looked at the observations of Oracle’s behaviour in the field, more specifically the 4P’s; Product, Position, Promotion and Pricing, to help predict their FY11 earnings.
We concluded that Safra Catz, Co-President and CFO, probably has Oracle Q4 ‘in the bag’. Our question is to what extent the earnings announcement will outperform analyst expectation?
To answer this, we’ve looked at Q4 behaviours observed in the market and client response to Oracle:
- SAP watch out - notably we have seen a significant increase in large transactions particularly in the $25-$75m range. These deals are classically ULA or ELA multi-year deals encompassing a complex product spend and spearheaded by industry dominant ERP applications, often based on Exadata.
- SQL Server in mid-tier. In the lower end of the market, we have seen a slowing of demand and increased competitive threat from Microsoft SQL. But even in this segment Oracle is managing to reduce churn on support fees by using ULA’s to offer attractive support discounts, sometimes at the expense of future contractual flexibility to cancel
- Hardware rallies. Recent IDC Global server sales statistics shows that Oracle is continuing to turn its Sun Server business around. Yes, it has been dropping low margin and loss leading lines to get Sun earnings accretive, but now it’s also increasing volume sales. We’ve seen serious issues in distribution but these are getting sorted. The greater issue we see is client fearing vendor trap-in, loss of leverage and increased dependency by committing so entirely to Oracle. Maybe it helps explain how IBM are increasing market share in high-end data-centre servers
- Q4 Oracle discounting. It’s fair to say that we have seen Oracle composed and calm compared to many Q4 trading periods. Discounting levels have remained at normal benchmark levels regardless of the size of the deal. Aside from a couple of anomalies there are no signs of desperation in the Oracle camp.
Overall, a combination of higher level, aggressive selling, dominance in product coverage, trapping customer support fees, increasing size of transactions and breaking profit goals for its hardware, will ensure that Oracle outperform expectations.
Although we see rising concern about loss of vendor leverage, clients are using their wallets.
We anticipate that despite recent disappointing results from HP and SAP, Oracle will outperform its own guidance and that of most analysts.