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Oracle Tops SAP

By John Del Vecchio (TMF Fuz)
June 21, 2000

Summary: A strong surge in application software revenues helped Oracle overtake SAP's number-one position in the field during the fourth quarter. But Oracle's 61% growth in total applications sales wasn't enough to compensate for a slowdown in the firm's database business.

Oracle Corporation (Nasdaq: ORCL) , the world's second-largest software company, reported fourth-quarter earnings per share of $0.31, beating Street estimates by $0.06. Total revenue growth for the fiscal year was soft at 15%, including an acceleration in applications software sales and a slowdown in the database business. During the quarter, Oracle sold 12% of its stock in Oracle Japan, bumping the firm's cash and short-term investments to $7.76 billion.

The acceleration in application software revenues vaulted Oracle past SAP (NYSE: SAP) as the world's top-selling application software provider. Total applications growth in the fourth quarter rang in at 61%, fueled by customer relationship management sales, which grew 161%. Enterprise resource management applications, financials, and human resource applications grew 43%, 48%, and 55%, respectively.

In the future, the increasing contribution from the application service provider business will also have implications for the revenues of many software companies, as outlined in our Motley Fool Research report on Oracle.

The stock has sold off this morning, and Merrill Lynch downgraded the stock due to "valuation" concerns. Analysts were also concerned by the soft database sales. Management stated that the database growth was slowed due to a onetime transition related to changes in sales force practices. Chief Executive Larry Ellison remains confident that database sales will accelerate in the coming quarters and that the product pipeline is awesome.

The database market is more mature than e-business applications. The proliferation of the Internet will be a continued driver of Oracle's success as more and more businesses transfer their process to the Web. Oracle remains a key player in the infrastructure of the Internet.

The technology shakeout in the stock market is likely over. While many companies lost 75% of more of their value, Oracle's shares remained relatively strong, reflecting the company's leading position in several rapidly growing sectors. As the e-business sector continues to evolve, and Oracle's position at the center of the Internet ecosystem strengthens, it is quite possible that the company could surpass Microsoft (Nasdaq: MSFT) as the most dominant software company in the world.

Look for our updated report on Oracle from Motley Fool Research, where I will be writing an in-depth analysis of the fourth quarter and the outlook for the future.

Your Turn:
Fools share their thoughts about the quarter and the conference call over on the Oracle discussion board. ZachTuck remains upbeat with this post to lead off the thread.

Finally, voice your opinion by participating in a poll: What did you think of the fourth quarter?

1. Nothing spectacular
   
2. Pretty solid, but I am concerned about the slowdown in database sales
   
3. Larry Ellison is finally going to be richer than Bill Gates
   
4. Oracle will become the dominant player in the software industry

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