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The company on Tuesday reported good news and bad news: Database sales, which make up more than 80 percent of Oracle's business, are booming, up 18 percent versus one year ago. But Oracle executives said sales of their business applications software plummeted last quarter, down 36 percent compared with one year ago. With sales of only US$69 million, it was Oracle's weakest quarterly sales of applications in more than 5 years.
Oracle's chief financial officer, Harry You, dismissed concerns about weakness in Oracle's applications business overall. And during the company's quarterly conference call on Tuesday, Oracle executives deflected questions over whether the ongoing PeopleSoft takeover attempt has become a distraction. "I urge people not to get ... misled. It's not as if it is a serious negative situation in our view, because we expect growth for the year," You told analysts.
One reason cited by Oracle for the big percentage drop in application sales this quarter, as compared with the same period last year, is a $30 million deal the company inked last year in Russia. Excluding that deal, Oracle's applications sales declined by 11 percent. "Either way, we have work to do," You said.
Analysts were less optimistic. Oracle's application sales were "abysmal" and "well short of ... even the most pessimistic estimates," according to J.P. Morgan analyst Adam Holt. If anything, the shortfall continues a downward trend. In July, Oracle reported that its applications business declined by 6 percent during the past year, even though analysts had projected growth of 10 percent.
To bolster its applications business -- and drive greater database and maintenance revenue -- Oracle launched a hostile bid for rival PeopleSoft more than a year ago. The company earlier this month won a victory against the Justice Department, which opposed the deal in an antitrust trial in a US District Court in San Francisco.
But that victory -- just one step in a long and ongoing process -- has come at a price, said Josh Greenbaum, an analyst with Enterprise Applications Consulting. "The irony of this whole takeover attempt is that Oracle hasn't been minding its own applications business; they've let that slip. Fundamentally, they haven't put the effort into applications that they've put into databases and technology."
Oracle executives deny that the PeopleSoft deal has hurt business. But there's some evidence that the battle has hurt Oracle on the public-opinion front. A recent survey indicated that technology buyers' opinion of Oracle is at its lowest level in 12 years and is deteriorating.
Analysts maintain that the PeopleSoft takeover attempt has clearly hurt Oracle's sales. "They've made some excuses, but I think that they're hiding the fact that the publicity around the PeopleSoft takeover has hurt their business. Just like it has hurt PeopleSoft's business, it has hurt Oracle's business," said Paul Hamerman, an analyst with Forrester Research. PeopleSoft reported lower than expected revenue for its second quarter, ended June 30.
Rival SAP has been winning deals, Hamerman noted. "The competitive deals are going SAP's way. If you look at SAP, they have had substantial growth in the US market and meanwhile, Oracle's apps revenues are off in this quarter, and PeopleSoft's have been off for the last couple of quarters. I think that it is related to the trial."
There are other factors at work. Overall, the enterprise applications business is in a slump and even market leader SAP has admitted that times are tougher. AMR Research projects that new license sales will increase this year, but by just 3 percent for core enterprise resource applications, to $15.8 billion.
Moreover, it's unclear whether that prediction will hold, given diminished spending expectations for the technology market as a whole. Goldman Sachs, which regularly surveys chief information officers, said in July that tech spending would grow by 2.3 percent this year. But this week, the company revised its prediction to say spending will rise just 0.4 percent for the year.
Hard road ahead
None of this will come as news to most enterprise software makers, which have struggled to sign new deals in recent months. Their best customers -- big multinational companies -- are trying to do more with less by exploiting to the fullest the software they already have in house. When they do buy, it's usually add-ons to existing systems.
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