Will Oracle hit its FY11 year end earnings expectations?

In recent years, we’ve been pretty successful in predicting how Oracle’s in-market activities will translate into earning statements. One of the key analysis tools which has made this possible is the 4 Ps assessment; here we share our...

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In recent years, we’ve been pretty successful in predicting how Oracle’s in-market activities will translate into earning statements. One of the key analysis tools which has made this possible is the 4 Ps assessment; here we share our observations of Oracle FY11 to date in advance of the Oracle May close.

1. Product. Is the Oracle product portfolio meeting market demand?

After 70 acquisitions including Peoplesoft, Siebel, Sun Microsystems and ATG, this is the first time we have seen the compound benefit of cumulative acquisitions being realised.

Historically, Oracle itself has stripped out cost from its acquired organisations, retained customer support contacts and eliminated competition. This year, despite its Fusion programmes running behind schedule, we have seen signs that it is leveraging discrete product dominance into broad industry dominance.

2. Position .

Oracle has never been a shrinking violet, but this year we’ve seen it start to truly realise the potential it has to totally dominate corporate IT agenda’s for the next generation.

Over just a few years, it has transformed itself from ambitious corporate database supremacy into a full IT stack player with potential to offer industry leaders a compelling vision of a one stop shop. Historic competitors such as SAP have recently struggled to meet analyst expectations whilst Oracle has exceeded forecasts.

3. Promotion. How is it pushing its solution?

Another breakthrough year for Oracle. It has historically shifted its strategy from feature/function/ price technology contests to a market-leading, defiant technology and compliance oriented sales machine, i.e. promote proliferation of unconstrained deployment then scoop up the cash.

Now it is rapidly shifting its focus from the IT function to the ‘C’ Level client audience. We have seen its aggressive salesforce pushing the ‘engineered as one for your industry’ story with big ticket results, particularly after Mark Hurd joined last year.

4. Pricing. What is Oracle’s strategy for pulling in revenue and is it working in FY11?

This is where the rubber hits the road and there are no skid marks on Oracle but plenty of clients with scars from the battle. When you are in a dominant and propriety position, accelerating your competitive strategies and supporting it with effective promotion, how you handle your pricing can be a telling indicator.

We’ve advised on many deals this year across all Oracle products and with leading players in every industry and across the globe. Our observations indicate:

  • Oracle is bundling hardware, technology server, applications software and hosting in ELA and ULA licensing agreements with average deal size more than doubling over the past 9 months.
  • Discounts are staying firm or in fact, declining. The use of contractually binding and virtually uncancellable commercial agreements is at an all time high.
  • The increased complexity of Oracle deals has seen many clients hugely disadvantaged in negotiations with resultant loss of leverage and very large commercial arrangements, compared to budget.

Conclusion

Safra Catz (President and now also Oracle CFO) has engineered a highly protected, profitable and predictable machine. We believe that the year-end earnings are already in the bag and that Oracle will comfortably hit expectations with an enviable surplus.

We have advised clients on Oracle licensing spend for almost a decade and observed their tactics daily. It’s fair to say that we have never seen them as assured of their game as now.

In my next blog, we’ll discuss client side views of their game plan. Stay tuned and if you have any questions or comments then do leave them below.

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