Tuesday, March 20, 2007

Did Oracle just drain its pipeline?

Oracle has just announced quarterly results that exceed Wall Street expectations: a 35% increase in profits, a 27% increase in revenue, and a new license sales jump of 57%, far above the 30% increase that analysts were expecting.

Oracle was under particular pressure to show better results than it did in the previous quarter, when its share price came under pressure as the result of results that, according to the Wall Street Journal, "reflected some sluggishness in North America."

Oracle may have also been eager to contrast its performance with SAP's, which missed its sales goals in the previous quarter.

So, how did Oracle pull off such outstanding results this quarter? I happen to know that Oracle was extremely aggressive in closing last-minute deals at the end of last month, making what appeared to be desperate offers to get prospects to sign before the quarter ended.

At the time, I took this as a sign that Oracle was either going to have a very bad quarter or a very good quarter. Now we know.

The problem, of course, is that this game cannot go on forever. Such a tactic merely pulls in deals from the next quarter, putting even more pressure on the vendor to meet expectations from a pipeline that has been drained of many prospects. Nearly every software vendor plays this game from time to time, but the intensity of the effort in this case surprised me.

So, my guess is that Oracle's results without these last-minute antics would have been more consistent with SAP's, indicating a slowdown in new deals for enterprise software. I just heard today from some concern from another vendor that the level of activity seems to be slowing recently. If so, expect to see disappointment at the end of this quarter.

Update, 4:30 p.m. PDT: Listening to the Oracle's analyst conference call, Oracle co-President Safra Catz sounded gleeful, almost giddy, in her recap of the firm's results. During the Q&A session, however, her tone became somewhat more subdued when asked about pipeline assumptions for Oracle's upcoming fourth quarter. She said,
Obviously, pipelines are very big. Bigger than last year in Q4. But we are assuming modestly lower close rates than we had last year. Just...we just are always trying to be cautious. Even though, the truth way, last year's close rates were not outrageously high or anything like that, or one or the other. The reality is the pipelines are very, very big. But pipelines don't tell the whole story. We are just going to have to close an enormous amount of business--in North America, a billion dollars of new license revenue. We are very upbeat. But we have used reasonably conservative close rates.
In fact, Oracle's guidance for the upcoming fourth quarter is rather conservative. Catz is predicting new license sales to increase only by 5-15%. She kept justifying this conservative forecast with the explanation that it will be difficult to show year-over-year growth compared to last year's fourth quarter, which was exceptionally strong. But I still think the problem is not with last year's fourth quarter, but with the quarter that just ended, where Oracle drained the pipeline of many deals that would have otherwise closed next quarter.

I could be wrong. Check back in three months to find out.

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Rumor mill: Oracle to acquire SAP
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1 comment:

Anonymous said...


The facts speak for themselves:
Growth—Oracle's applications license growth (excluding acquisitions): 47% 1; SAP's 8% 2
Only 6% of SAP's customers run up-to-date SAP applications.3
Oracle's average TCO was 48% lower than SAP's.4
57% of SAP customers have not achieved a positive ROI.5
2200 SAP R/3 customers have registered in the OFF SAP program or Oracle Fusion for SAP.
13% of SAP users were Web-enabled, compared to 71% for Oracle. SAP Customers are 20% less profitable and Oracle customers are 40% more profitable than their peers.6
Oracle ranks number 1 in business applications in North America and the United Kingdom.
Oracle ranks number 1 in Customer Relationship Management, Human Resource Management, and Supply Chain Management.
Oracle ranks number 1 in retail packaged applications.
Oracle ranks number 1 in banking applications.