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BREAKFAST WITH THE FOOL
Does Oracle Have the Database Blues?
By
Richard McCaffery (TMF Gibson)
June 20, 2000
Database and enterprise software company Oracle (Nasdaq: ORCL) reported that fiscal fourth quarter net income (minus onetime investment gains) grew 76% to $926 million, or $0.31 per share, up from $527 million, or $0.18 per share, a year ago. The company beat estimates by six cents, according to First Call/Thomson financial.
Revenues grew 15% to $3.4 billion, up from $2.9 billion, as sales of the company's business software applications took off.
By now it's well known that Oracle shares fell in overnight trading because sales growth on Oracle's flagship database software unit came in soft at 12%. Is this a big deal?
It certainly marks a slowdown from recent quarters, and since it's the company's largest revenue generator by far, investors pay close attention. Here's how it looks:
Database Sales Growth
Q4 12%
Q3 32%
Q2 17%
Q1 8%
Q4 '99 25%
You can see that database sales fluctuate quite a bit, a trend the company has been trying to mitigate. Beneath the numbers it looks like the company made some progress.
Jeff Henley, Oracle's chief financial officer, said database sales slowed because the company pushed fewer megadeals, which the company defines as contracts worth $5 million or more. He said this is by design, as the company is working to extend its customer base to small and medium businesses.
Indeed, in December Oracle slashed prices on its database products and it looks like the effort is bearing fruit. Chief Executive Larry Ellison said sales to small and medium customers grew 75% in the latest quarter. Megadeals accounted for 18% of total revenues, down from 24% a year ago.
Henley said he likes this trend since backloading big deals in Q4 and the heavy reliance on large contracts has led to uneven earnings. This has been a frequent criticism of Oracle, that it's earnings stream is lumpy. Now that the company is moving to make some adjustments, database sales slip and the shares fall. You can't win if you play the earnings game with Wall Street.
While the database numbers bear watching, the company has a plausible reason for the decline, one that should benefit the company in the long run. Henley said he expects database sales to increase to the 20% range and that he thinks that level is sustainable.
There's much more worth talking about, especially growth in Oracle's applications business and continued margin improvements. Also, check out research analyst John Del Vecchio's Oracle research report. You can download it for free at the Fool's Stock Research center.
News to Go
Systems integration company Computer Sciences (NYSE: CSC) said first-quarter sales will come in lower than expected because of a soft market for business software and currency issues.
Investment management firm Alliance Capital (NYSE: AC) has entered into agreement to buy privately held asset management company Sanford C. Bernstein for $3.5 billion in cash and stock. The union is an effort to offer clients Alliance's growth strategy with Sanford's value bend.
European Union officials are set to block the roughly $129 billion merger between WorldCom (Nasdaq: WCOM) and Sprint (NYSE: FON) on the grounds that the combined company would control too much of the Internet's backbone, The Washington Post reported. U.S. antitrust officials are also going over the pending deal with a fine-tooth comb.
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