Oracle Serves Up Another Quarter

Oracle issued its Q1 Fiscal Year 2008 earnings on September 20 after U.S. market close. Financial analyst consensus estimates were for ~$310m in application revenues. With a reported application revenue number of $376m, ORCL came in significantly higher than market expectations.

Oracle served up another great quarter. They blew their numbers out of the water so it's strange that they didn't set higher expectations with the analysts. Safra continues to maintain that there were no significantly large deals but I've heard otherwise. Oracle's deferred revenue stream is pretty big. Frankly, Oracle can cut its deals any way it wants and chunk up large deals across quarters. A lot of financial engineering to make it look however they want it to look. Adam Holt from JP Morgan even asked Safra about the deferred revenue and she replied:

Some of our customers are signing up for things that we just aren't booking right now because they don't meet our revenue recognition policies for booking now, so you'll see some of that.

That just means large deals are strewn from quarter to quarter. Of course, this is not to say that Oracle is not doing well. Everyone can see they are. But the majority of it is still consolidated revenue from acquisitions and that won't change.

I found it particularly interesting that Oracle is trying to position itself as having the broadest portfolio by referencing its competitors across apps, middleware, and databases. Larry keeps pointing to IBM and SAP in order to establish Oracle as a worthy contender. The marketing seems to work. What was hypocritical though, was that Larry kept saying on-demand and the SME market opportunity is a non-starter and that SAP is a fool to go down-market. Why is it then, that Oracle is investing heavily over the next year in Siebel on-demand?? Why is it that Larry has a stake in NetSuite?

Also, how is it that Larry is trying to box SAP into just an ERP or SME provider? Meanwhile, Oracle serves industries?? SAP has been serving industry specific solutions for years and years. I wouldn't call Oracle's strategy differentiated. More like copy-cat. What I will give Oracle is that they have turned a negative into a positive with its best-of-breed positioning - which in turn is its vertical industry pitch. They realized they couldn't deliver Fusion and decided to instead just sell the hell out of what they had. Only doesn't everyone remember when Larry said "best of breed is only for dog shows"?

In any case, Oracle is going to have good quarters going forward as pent-up demand from PSFT, JDE, etc. rebounds and it continues to cross-sell and make acquisitions. But I wouldn't count out Salesforce.com, Microsoft, BEA, IBM or SAP! Just because Larry says doesn't make it so!

A1S Debuts Tomorrow

SAP is finally unveiling its new SME software, A1S. This long awaited product launch is so secretive, they kicked us out of our NYC office today in preparation. A1S is an entirely new SOA-enabled platform entirely architected for small businesses. It's about time there's a real competitive ERP offering for this market. I think if SAP plays its cards right, it can freeze Oracle out of this opportunity. The real competition will come from the likes of Salesforce.com and Microsoft of course.

Having been with the company for even just two years, one can see that SAP does not shift in strategies lightly. I think SAP is betting on the right horse even if Wall Street is obsessed with Oracle's much sexier M&A moves. Long-term, SME market dominance will be critical, but that's not to say other important categories like middleware or industries isn't. I for one, would love to see some more SAP marketing around how we're kicking competitors butts in utilties and retail or how Netweaver is a natively integrated platform. But right now, the prize is SME and all eyes will be on it tomorrow when A1S makes its debut.