Oracle capped off its OpenWorld conference with a powwow with analysts where management was described as extremely confident about the company's prospects.
Although I'm not sure you could ever describe Oracle management as timid---does Larry Ellison allow that?---analyst notes seem to portray executives as exceedingly confident. Judging from the recaps Oracle may be bordering on cocky.
Among the highlights:
Oracle executives said the company tends to more than double revenue over the next five years and grow earnings per share by 20 percent. According to Jeffries analyst Ross MacMillan, Oracle's new bogey is more than $50 billion sales compared to the $23 billion in annual revenue today. Cowen & Co. analyst Peter Goldmacher notes:
Management commented that it has never been more bullish about its strategy and ability to execute against it and vaguely recommitted to another five year 20% annual earnings growth plan.
How will Oracle get there? More acquisitions of course. And a hardware boost from Sun Microsystems. Oracle did indicate that it would wait 18 months before doing another hardware deal, according to MacMillan.
Systems are a key part of Oracle's growth plan. CEO Ellison has talked up plans to be like T.J. Watson's IBM and plans to offer integrated systems to the IT masses. MacMillan said he was convinced. "We thought Oracle made a much more compelling case for the Sun Microsystems acquisition compared to what we had previously heard," he writes in a research note. "Oracle sees a big opportunity selling hardware/ software system combinations to customers."
However, profit margins will be hurt by hardware, writes Goldmacher.
Oracle wants its products to be easier to consume. Oracle wants to make its products easier to buy for enterprise customers. Management spent a lot of time talking about CRM on-demand, innovation and providing integrated hardware and software systems to solve needs.
Again, these easier to consume vibe revolves around integrated hardware and software appliances. MacMillan writes that the appliance approach provides a bevy of advantages including:
- Make Oracle's products easier to consume;
- Provide best in class price/ performance;
- Disrupt competition, particularly IBM;
- And take spend away from lower margin system integration and swap it for higher margin pre-configured systems revenue.
The interesting play here for Oracle is melding its Fusion apps with appliances. J.P. Morgan analyst John DiFucci writes:
Oracle has rewritten PeopleSoft, Seibel, and Oracle's eBusiness Suite to all run on Oracle Middleware along the same lines that management announced when they first started talking about Fusion Applications. We believe the plan is to provide a fusion application suite with the best of everything Oracle has today, but in an architecture that can be migrated to over time.
But the elephant in the room is maintenance. Goldmacher recaps:
Management was up front and aggressive in its assertion that the maintenance business is very healthy because Oracle customers value the company's innovation and high quality support offerings. Oracle sees very little reason for anyone to get off maintenance and give up the opportunity to receive product upgrades. Oracle stated that they have not seen any customers transitioning to third party support. This sentiment is not shared by many of the customers we talked to in the course of the user conference.
There are a few nuances here, according to Goldmacher. Customers complained about Oracle's web-based support, the first line of help, but database customers were more receptive to maintenance due to upgrades and bug fixes. Apps customers question maintenance more and chafe over upgrades. Goldmacher says that the number of Oracle customers leaving maintenance for third party support players like Rimini Street is small, the growth rate of these defections are in the low triple digits.
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