Strategic CIO // Executive Insights & Innovation
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6/23/2009
02:48 PM
Bob Evans
Bob Evans
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Oracle Takes Share From SAP, But Is It Signing New Licenses?

Oracle's acquisition binge has allowed it to take customers and market share from SAP, analysts say, but their bigger focus is on whether Oracle can stem its recent declines in new-license revenue. We'll find out for sure later today when Oracle releases its quarterly numbers, but here's what some analysts are projecting.

Oracle's acquisition binge has allowed it to take customers and market share from SAP, analysts say, but their bigger focus is on whether Oracle can stem its recent declines in new-license revenue. We'll find out for sure later today when Oracle releases its quarterly numbers, but here's what some analysts are projecting.Three analysts said Oracle has been winning the battle for customers during these tough economic times, in part because its acquisitions are bringing more customers into the fold and in part because some CIOs are concerned about SAP's strategic direction, according to a Bloomberg report yesterday.

SAP is "clearly losing market share," said Adam Wood, a Paris-based analyst at Exane BNP Paribas who rates SAP "underperform." "Because of the acquisitions Oracle has made recently, it's left them with a bigger product range for their existing customers," Bloomberg reported.

"Oracle might be rising faster than SAP in terms of licenses," said Ulrich Trabert, an analyst at Bankhaus Metzler in Frankfurt. "Likely they're both winning market share from small companies," the article said.

And star enterprise-software industry analyst Ray Wang of Forrester Research said a recent survey he led shows Oracle making headway into hard-core SAP accounts:

"SAP customers used to be steadfast to SAP.... They aren't anymore. We talked to 900 SAP customers and about 816 of them said they are looking at alternatives to SAP for the first time. That means they are more open to looking at an Oracle component inside an SAP environment."

Saying that "SAP, the world's biggest maker of business-management software that tracks purchases and handles payroll, is losing market share to No. 2 Oracle," the Bloomberg article highlighted an anecdote from VP of IT at Star Trac, a maker of physical-fitness equipment with 4 million clients in 75 countries.

Star Trac's Jeff Kukenbaker said he picked Oracle over SAP because Oracle's products were better at giving his company the global consistency it needed across multiple languages and currencies, and also required less integration work, the Bloomberg article said.

Oracle will need many more such new customers, however, to allay concerns that it is failing to grow its core business and is depending too heavily on add-on fees and services, according to an article yesterday on Forbes.com:

That means that for the rest of the software industry, Oracle, which announces earnings a month earlier than most technology companies, could represent a grim bellwether. For the last several quarters, Oracle's sales of new licenses have been steadily falling as companies have pulled back on capital expenditures. Maintenance revenues from prior sales have filled out as much as 50% of its revenue.

Whether that falloff in new licenses begins to take a toll on Oracle's overall income depends on how long the slump lasts, says Forrester Research analyst Andrew Bartels. "A company can survive one or two or three quarters with down licensing revenues," he says. "It's when they fall year after year that maintenance revenues start to follow."

Meanwhile, as most analysts are expecting Oracle to report disappointing numbers this afternoon due to anticipated ongoing softness in new-license revenue, Bank of America/Merrill Lynch analyst Kash Rangan late last week repeated his "buy" rating on Oracle and raised his price target for Oracle shares to $24 from $20, according to Barron's TechTraderDaily.com:

"Rangan writes in a research note this morning that his checks indicate that close rates in both the applications and technology segments at Oracle in the U.S. were likely better than management's expectations heading into the recently ended May quarter. He adds that the weakened dollar could boost profits by about 3 cents a share in the quarter. (A point Morgan Stanley's Adam Holt made yesterday in raising his own target on the stock.)"

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