Oracle CEO Larry Ellison may have boasted too loudly and too soon about Oracle's business being immune to the dot-com downturn.
On Friday--the eve of the Oracle AppsWorld show in Paris--the company's stock took a beating, the result of a number of reports from Wall Street analysts questioning the strength of Oracle's database business.
At the close of regular trading Friday, Oracle (orcl) shares were down $3.56, or 13 percent, to $23.56. The company's fiscal 2001 third quarter ends in March.
Late last year, with a variety of software makers--including Oracle archrival Microsoft--being forced to slash their earnings estimates, Ellison and other Oracle executives made some bold predictions. Unlike Microsoft (msft), they said, Oracle's fortunes were not tied to those of the PC industry. Instead, Oracle was in the Internet-infrastructure business, which would prove to be immune to the vagaries of the dot-com economy.
Oracle has gone on the record saying it expects its database business to grow 15 to 20 percent, year-over-year, and its applications revenue to grow 75 percent year-over-year.
But in a report issued Friday, Morgan Stanley Dean Witter software analyst Chuck Phillips questioned how long Oracle could sustain its database momentum, given the fact that at least 30 of Oracle's sizeable dot-com database customers have gone out of business. Phillips estimated that about 10 to 12 percent of Oracle's database license revenue came from dot-coms last year.
The result, according to Phillips: Oracle's database revenue should grow 10 to 13 percent this year, compared with 32 percent last year and 19 percent in its most recent quarter.
Oracle's next-generation 9i database won't contribute much to the company's bottom line until the first quarter of Oracle's fiscal 2002, Morgan Stanley estimates.
Nonetheless, Phillips said the resulting $40 million trim in licensing revenue expected by Morgan Stanley did not affect his earnings estimate of 12 cents per share. Phillips remained optimistic about the prospects for Oracle's 11i application suite.
A Wednesday report on Oracle issued by Banc of America Securities was wary about the near future. "We're optimistic long-term but a bit cautious short-term," said a note authored by several Banc of America analysts. "Though management seems confident in the progress Oracle has made thus far in the quarter, we remind investors that a good amount of the quarter's business remains to be done. The next three weeks will tell the tale."
Oracle executives did not respond to a request for comment.
Not all companies that sell databases are feeling the pinch, according to a recent Merrill Lynch report. In a survey of IT (information technology) spending plans for the coming year, Merrill found that companies are planning to spend considerably on database, data warehousing and data mining technologies.
A recent Dataquest report estimated the database market at $8 billion. The market will exceed $12 billion by 2003, the researcher estimated. Dataquest found that IBM and Oracle each hold 30 percent of the database-software market.